Marine premium income not meeting claim costs

Maritime insurers should be grateful there have been no major claims in the past year, as they continue to offer premiums that fail to meet the cost of claims and expenses. Insurers at the International Union of Marine Insurance (IUMI) annual conference in Cape Town this week admitted they are hoping some firms will quit the market as they said that will be the only way to bring a change in pricing. Against the positive backdrop of a benign claims environment in some sectors, IUMI's statistics show an increasing mismatch between premium income, covered risk and claims costs. On a global average basis, buffers to cover extraordinary single or accumulation losses are non-existent. Vice-chair of IUMI's Facts & Figures Committee, Astrid Seltmann, said that, while global marine premiums were up by 2%, there is an increasing mismatch between income levels and covered risk. "Overall premium income reached $28.5bn in 2017, which represents a 2% increase compared with 2016. This upswing is largely attributable to growth in trade plus the strengthening of European and other currencies against the US dollar. But it masks the dramatic situation which is unfolding when current premium levels are viewed in relation to covered risks and the impact of claims.” In the hull market, falling vessel values have, among other market conditions, contributed to an erosion of income to a degree where income is now not sufficient to allow for normal repair costs in a given year. This downward trend is particularly worrying given the relative absence of major hull losses in recent years, said Ms Seltmann. The last ten years' statistics clearly show an increasing volatility in the impact of claims on underwriting results caused by the random occurrence of claims with unprecedented cost. As vessel sizes continue to increase, this trend will not reverse, and the heightened risk must be taken into account. The shipping and insurance industries will have to embrace this level of volatility and uncertainty which may impact future profitability. Hull insurers admitted that competition continues to drive the market and while they are “being asked more questions”, there is little sign of change. One insurer said the current Lloyd’s review of the sector could make a difference as it may force some syndicates out of the sector. He said all marine hull syndicates have had to present their plans for 2019 to Lloyd’s and they are still waiting to hear whether they will have permission to operate in 2019 through Lloyd’s. He added that there is a feeling that “quite a few” are about to be forced out. For those that survive the cull, he said, there could be a real opportunity to see prices rise to more sustainable levels. Donald Harrell, chair of IUMI's Facts & Figures Committee, agreed: “The modest increase in absolute global premium income does not reflect any actual market development. When taking all factors into account which influence both income and cost, we see a contrary picture. The hull sector remains a serious concern for our business and underlines the need for robust risk evaluation. Static or reduced global premium income in all our sectors coupled with a growing overall risk profile is a concern for marine underwriters worldwide. “On a positive note, we are experiencing accelerating trade growth and a general improvement in several frame conditions for the marine insurance business. The oil price is, equally, on the rise again and there is encouraging renewed activity in the offshore energy sector. But against this, the potential impact of changing economic and political frameworks does, undoubtedly, create uncertainty." Meanwhile, Ms Seltmann said the cargo market was recently affected by unprecedented nat cat and outlier event losses and this has negatively impacted underwriting results. It also signals the increasing, and often unknown, accumulation of values both onshore and at sea. The offshore energy market has also seen a substantial erosion of premium income caused by the low oil price and the consequent low activity in the offshore sector. Insurance capacity has remained abundant, however. More positively, the 2017 hurricane season had little effect, and major claims impact remained low. It remains to be seen when and to what degree the rising oil price will support an upswing in this sector. The distribution of the $28.5bn global income between geographic regions remained stable, with only a 1% increase in the share of Asia and Latin America as compared with Europe. In 2017, Europe represented 49% of the global income, Asia-Pacific 29%, Latin America 10%, North America 6%, the Middle East 4% and Africa 2.4%. For global marine premium by line of business, cargo continued to represent the largest share with 57% in 2017, with hull representing 24%, offshore energy 12% and marine liability (other than P&I) 7%.

Marine premium income not meeting claim costs

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