When looking at the ocean marine insurance marketplace, it’s easy to start speaking like former Defense Secretary Donald Rumsfeld talking about known knowns, known unknowns and unknown unknowns—the things we don’t know we don’t know.
As a global business inextricably linked to the world economy and trading system, marine insurance has more than its share of unknowns. Speaking at the International Union of Marine Insurance (IUMI) Conference in Paris, Denis Kessler, CEO and chairman of SCOR, characterized them as “key uncertainties in a stochastic world.” These included uncertainty about the shape of recovery in the face of a global recession, monetary policies, low interest rates and unstable exchange rates, taxation and regulation, and the sovereign-debt crisis. It’s useful to consider some of these issues and several others from the unique perspective of marine underwriters.
What about 2011 and 2012? It depends on whom you ask and their perspective. Marsh’s Marine Market Monitor reported in September that in spite of major catastrophe losses, any anticipated market hardening has not been realized. In fact, said Marsh, “the opposite has been the case, and the first half of 2011 has seen continuing and wide-ranging softness across marine insurance markets.” In particular, the report said that soft-market conditions in the hull line have become more widespread during 2011 and that the influx of new-cargo underwriting capacity in recent years has resulted in a continuing downward trend in pricing and a general broadening of terms and conditions.
An October report from Conning on U.S. market conditions said unfavorable economic conditions and depressed investment income will continue to plague growth in the P&C industry through 2011 and early 2012. But the Conning report found at least one major bright spot: Ocean marine insurance premiums grew 16.9 percent between the second quarter of 2010 and the second quarter of 2011. This finding contrasts sharply with commercial-lines pricing in the U.S., which has been in negative territory since 2004.