IUMI highlights another fall in global marine premium income amid continuing uncertainty

Global marine underwriting premiums fell by 9% in 2016 to $27.5bn, following a similar fall the previous year, according to the latest annual statistical report on the marine insurance market by the International Union of Marine Insurance (IUMI). The hull sector saw a 10% fall in premium income to $7bn, while the cargo sector fell by 6% to $15bn. The offshore energy sector saw the biggest fall, as premium income dropped by 21% to $3.6bn, on top of the 20% drop in the previous year. “The 2016 number follows a continuing downward trend in marine underwriting premiums. In 2015, the adjusted figure of $30bn was in itself a 9.9% reduction from 2014,” commented Astrid Seltmann, vice-chairman of IUMI’s facts and figures committee. “We attribute part of the reduction to the strong US dollar when compared with other currencies, but also to general weak market conditions in terms of the global economy, general commodity prices and the poor state of the shipping and offshore sectors. This worrying downward trend leads to an increasing mismatch between income levels and the marine insurer’s obligation to cover major losses, particularly in light of the trend for larger vessels and greater accumulation of risks in port.” Europe accounted for just over half (50.2%) of premium income in 2016 for the marine sector, with Asia-Pacific accounting for 27.9%, and Latin America 9.5%. Transport/cargo made up over half of the income in 2016 (54%), with global hull accounting for a quarter of the market, followed by offshore/energy (13%) and marine liability (7%). For the cargo sector, premium income was strongly impacted by exchange rate fluctuations. IUMI says the recent strong dollar has ‘reduced’ premium income from most other countries, making it challenging to identify any real market development. It notes that the 2015 Tianjin disaster significantly eroded the performance of the 2014 and 2015 underwriting years, and the final position of 2016 is still unclear due to the impact of the loss of the Amos 6 satellite and the current issues surrounding Hurricanes Harvey and Irma. “The trend towards higher value cargoes and increasing accumulation of values in ports is likely to continue and this will impact further on loss ratios. It is also impacting on premiums, which are increasingly reflecting stock exposure rather than transit exposure. Added to this, increases and changes in trade patterns as well as the general economic and political environment is causing additional uncertainty in this sector,” states the IUMI report. The fall in premium income in the hull sector was partly attributable to exchange rates, but this has much less impact than in the cargo sector due to the global nature of the hull portfolio, according to the report. “Whilst the world fleet continues to grow, it also continues to age. A certain reduction in vessel values will follow with the ageing of these vessels, but the two-digit drop in values from 2015, and particularly for bulk and supply/offshore vessels, must be seen in the context of the challenging market environment. Hull premiums have deteriorated in line with falling average vessel values, and there is now a mismatch between fleet growth and income levels,” notes IUMI. It points out that claims frequency continues its stable/downward trend and total losses are also continuing a positive trajectory, but adds that falling vessel values increase the probability of constructive total losses. “The occurrence (or not) of major losses in single years increasingly drives the volatility of hull results, but current income levels do not cater for the occurrence of such events,” adds the report. The main reason for the big fall in offshore energy in the past couple of years is the continuing depressed oil price, which has seen a downturn in activity and the postponement and cancellation of offshore projects. IUMI notes that with peak exposures remaining at broadly the same level, volatility in this sector has increased significantly. The report concludes that the outlook for the marine sector in 2017 is challenging and uncertain. “Global premium income continues to fall and this puts pressure on our sector,” commented Donald Harrell, chairman of IUMI’s facts and figures committee. “Although, fortunately, we are seeing only moderate major losses currently, that situation can reverse at any time. Hurricanes Harvey and Irma are examples of this and their true impact is yet to be seen. Exposure to risk will only increase as vessels grow larger and values accumulate in port. A drop in premium income makes it challenging for underwriters to continue to cover their obligations, particularly in relation to major losses.” He continued: “Uncertainty exists throughout our market. Although the global economy appears to be improving, significant concerns or situations could lead to a stall and that will directly impact marine insurance. Global trade might be affected by Brexit as well as the current threat of a more competitive US trading policy created by punitive import taxes and lighter regulation on manufacturing. These changes to global trade flows and trade agreements will affect our sector as they evolve. Continuing uncertainty is the only certainty for marine underwriters for the remainder of this year and beyond.”

IUMI highlights another fall in global marine premium income amid continuing uncertainty

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