Cargo and hull markets have ‘bottomed out’ but 2018 premium rise not enough: IUMI

The marine cargo and hull insurance markets appear to have “bottomed out” and are now showing “modest uplift”, according to the International Union of Marine Insurance (IUMI). But it warned that the 1% rise in global marine premium last year will not be enough to address the sector’s underlying problems. At its annual conference in Toronto, Canada this week, IUMI said global marine underwriting premiums rose by 1% in 2018 to $28.9bn. But it said this “modest increase” will not bring an upturn in sector’s fortunes, as it faces an uncertain future. Philip Graham, chair of IUMI’s facts and figures committee, said the bottoming out of the cargo and hull markets comes from a low base. And he added that growth in last year’s global marine underwriting premiums “does not demonstrate any significant uplift to the current market and is more likely to have been driven by economic factors”. But it appears that further changes to market conditions are taking place. Mr Graham said that since IUMI’s 2018 conference, about 20 entities have stopped or severely restricted their marine hull or cargo underwriting activities. Meanwhile, Sean Dalton, chair of IUMI’s cargo committee, explained that the marine cargo market is in a state of “accelerating change” as underwriters take action to address unprofitable results and improve performance. “On a global basis, the cargo line is unprofitable and has been for a number of years. Premiums have not been technically adequate to cover losses and expenses and, as such, have not delivered an acceptable return for capital providers. A significant reason for this ongoing situation is the commoditisation of this speciality line of business, which has lowered entry barriers and attracted new entrants, some of whom are now exiting,” said Mr Dalton. “As result, underwriters are addressing their portfolios with urgency and reviewing technical rate adequacy, expenses, terms and conditions, deductible levels, and capacity/limit deployment. A greater focus has been placed on commitment to business, stability and capabilities, to ensure underwriters deliver a stable offering that can be robustly delivered,” he added. Cargo continued to represent the largest share of global marine premium (57.4%) in 2018, with hull next on 24.4%, offshore energy 11.4% and marine liability 6.7%. Marine cargo premiums rose 2.5% to $16.6bn last year, according to IUMI. It said this “modest” increase is largely attributable to world trade growth and exchange rate fluctuations that affect cargo premiums more strongly than other sectors. It added that the risk of large cargo losses is “substantially” increasing on both single sites and single assets. IUMI also explained that the cargo market’s technical loss ratios are relatively stable at about 70% in Europe. Asia is still a developing account and loss ratios, now approaching 60%, are beginning to rise in that region. IUMI explained that there have already been nine major cargo vessel fires this year, resulting in loss of life, injury and environmental damage. It said misdeclaration of cargo appears to be the main culprit and is driving some shipping companies to take the unprecedented step of announcing significant fines for those responsible. IUMI has also called for greater law enforcement and business action to mitigate the growing risk of cargo theft, which it warns has reached “alarming proportions”. Hull insurers saw global premiums unchanged in 2018 at $7bn. IUMI said this is a “concern when set against a continually increasing global fleet and higher single risk exposure (and the related risk of unprecedented major claims) resulting from the trend for ever-larger vessels”. Rama Chandran, chair of IUMI's ocean hull committee, said challenging market conditions have seen a reduction in overall hull capacity. This is likely to aid a “market recovery” for insurers, he added. Mr Chandran said IUMI sees indications that the global hull premium base is beginning to grow and is “cautiously optimistic” of being able to deliver a more positive report on the hull insurance market next year. Although IUMI predicts that hull premiums will increase in 2019, it stressed once again that this is from a very low base. It added that rising premiums should “marginally” alleviate the pressure on profitability but the return of major losses could offset any improvement for insurers. IUMI added that with marine hull results under pressure, the trend towards using more advanced methods of technical underwriting and better risk estimation continues. Its statistics show the hull sector currently continues to generate a technical loss, with the 2018 underwriting year forecast to record a gross loss ratio of about 90%. The hull sector has only made a technical profit in three years since 2005. IUMI added that claims frequency and cost per vessel remains stable and moderate for hull insurers, with the long-term trend for total losses stabilising. However, IUMI said incidence of major hull losses appears to have returned in 2019 after unusually low numbers during the period 2016 to 2018. This is likely to impact the 2018 and 2019 underwriting years, it warned. The union said that although the hull sector suffered few major losses in the period 2016 to 2018, the share of attritional losses rose and income did not cover such claims or leave any buffer to cover major losses. Mr Chandran also warned of growing and emerging hull risks. "2018 saw a rise in the frequency and cost of machinery claims and we expect to see more, similar claims as the impact of the 2020 sulphur cap demands the wider use of low sulphur fuels. The issue of cat fines hasn't gone away and this will continue to impact machinery claims in the future. The unusually high frequency of containership fires is likely to persist at the current escalated level and it is particularly concerning to hear that shipping companies believe around 30% of containers are either misdeclared or underdeclared. This is a high-risk area for all marine underwriters and one that IUMI is addressing alongside other industry bodies,” he said. Adding: "We must also be mindful of new risks such as those generated from autonomous shipping and cyber activities. As an industry, we need to build more awareness of these issues and develop products that mitigate the risk and protect shipowners and others." Meanwhile, global offshore premiums reduced 3% to $3.4bn in 2018, according to IUMI’s figures. This follows a reduction of 5% in 2017 and 21% in 2016. The fall in premium income has followed the slide in oil, which now appears to be flattening out, noted IUMI. Astrid Seltmann, vice-chair of IUMI’s facts and figures committee, said: “High levels of technical losses continue to blight all [marine] sectors, particularly hull and cargo.” He stressed that a “normalisation” of major losses after several relatively benign years is likely to offset any rise in premiums achieved this year. “Premiums had already plummeted to truly unsustainable levels in 2017, so any increase begins from a very low base. Only when the 2019 statistics become available will we understand to what degree marine underwriting might have returned to profitability,” said Mr Seltmann. He also warned that the growing frequency of fires on containerships, particular those starting in cargo areas, are a particular concern for IUMI and the maritime industry. “This trend has been observed for some years and the newest statistics show a clear further increase in 2019. These fires pose a threat to the crew and cause severe damage to both vessel and cargo. IUMI is working with a range of industry bodies to improve the prevention of such events as well as fire-fighting capabilities onboard,” said Mr Seltmann.

Cargo and hull markets have ‘bottomed out’ but 2018 premium rise not enough: IUMI

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