Marine market premiums and profitability grew in 2021 but tougher times ahead, says IUMI

Global marine insurance premiums increased by 6.4% in 2021, with strong growth in Europe and Asia, but tougher times are predicted for 2022 as war, inflation, energy costs and natural disasters impact the sector, according to the International Union of Marine Insurance (IUMI). A combination of increased global trade volumes, a stronger US dollar, increased offshore activity and higher vessel values saw global marine insurance premiums rise to $33bn in 2021, says IUMI in its latest Global Marine Insurance Report. “Building on the gains made in 2020, 2021 was another positive year for marine insurers,” commented vice-chair of IUMI’s facts and figures committee, Astrid Seltmann. “It was the year when global trade saw a tentative recovery, absolute premiums rose, claims impact was benign and, as a result, loss ratios improved.” She added: “However, this position is tempered by the economic uncertainties the world is facing today. We are reporting this data at a time when several shocks have hit a world economy already weakened by the pandemic. There is no end in sight for the war in Ukraine, soaring global energy costs and inflation, a gloomy outlook for trade and the possibility of further climate- and pandemic-related disruptions. Marine underwriters are navigating some extremely complex issues.” Global marine insurance premiums were split between Europe (47.2%), Asia-Pacific (29.3%), Latin America (10.3%), North America (7.7%), and other (5.5%). By line of business, cargo continued to represent the largest share with 57.4% in 2021, hull 23.5%, offshore energy 11.8% and marine liability (excluding International Group P&I) 7.3%. Cargo market Global premiums for the cargo market for 2021 reached $18.9bn, up 9.9% on the back of a stronger dollar and increased global trade volumes. IUMI notes that cargo premium is a reflection of the value of goods transported and global trade volumes, and warns that in July 2022 the International Monetary Fund released a pessimistic forecast predicting global economic growth to slow from 6.1% last year to 3.2% in 2022. Recent benign claims impact and increased premium volume saw loss ratios in most markets continue to improve, says IUMI. The report notes that for Europe, the gross loss ratio for underwriting year 2021 is estimated to end at 50%, while the US reported 41% (incurred claims), Asia 45% (paid claims only) and Latin America 43% (paid claims). “Cargo insurers continue to face persistent challenges, including rising cases of onboard fires, misdeclared cargoes, worsening severe weather conditions including stronger winds and waves, floods and wildfires. With the increased value accumulation on ever larger vessels and single-port sites, the risk of large-event losses continues to grow,” states the report. Ocean hull sector Global premiums relating to the ocean hull sector increased in 2021 by 4.1% to $7.8bn with continued strong growth in the Nordic region as well as China. However, the report highlights much weaker growth in the UK (Lloyd’s) market, where the decline of recent years continued. IUMI says in the report that the overall value of insured vessels rose significantly in 2021, driven primarily by the large increase in containership prices which were up more than 35%, with dry bulk and general cargo vessel values also seeing increases in 2021. On the claims side, 2021 saw an increase in hull and machinery claims compared with 2020 when shipping activity, particularly in the high-value cruise sector decreased, but claims remain at historically low levels. Total losses stood at 0.06% and partial claims at 0.14% of the total global fleet. However, IUMI warns that rising steel prices and labour costs are expected to impact future hull claims. And it adds that the frequency of onboard fires in both the engine room and cargo areas continues to cause concerns, particularly for car carriers and container vessels. Fires occurred on more than 1% of the containership fleet in 2021, with 0.4% of the fleet experiencing fires incurring more than $500,000 in claims. The low level of claims in 2021 meant that underwriting results showed continued improvement. The 2021 underwriting year gross loss ratios for Europe is estimated to end at 65%, with the US 70.5% (incurred claims), Asia 67% (paid claims) and Latin America 54% (paid claims). “However, a return to full shipping activity, value increases, inflation of various costs impacting repair costs, new vessel designs, propulsion and fuel types are likely to impact claims trends going forward,” the report states. Offshore energy sector Global premiums from the offshore energy sector continued to rise in 2021, reaching $3.9bn, a 6.9% increase on 2020, the second straight year of rises, following a six-year period of declines (2014-2019). IUMI notes: “Demand for offshore energy insurance typically tracks oil prices as projects become viable. Historically, there is an 18-month time lag between improved oil prices and authorised offshore expenditure and unit reactivation. Oil prices remain high but volatile.” In 2021, claims were lower than premiums collected but IUMI says: “However, a shadow still hangs over the offshore energy market in the form of potentially significant unquantified losses still to arise from 2019.” For offshore energy, Lloyd’s (33.2%) and the International Underwriting Association (32.1%) continued to have the biggest share of the market in 2021.

Marine market premiums and profitability grew in 2021 but tougher times ahead, says IUMI

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