Capacity Keeps Lid On Marine Insurance Rates, Aon Finds

NU Online News Service, June 4, 12:48 p.m. EDT

Marine insurers are seeking rate increases on all classes of business, but ample capacity is keeping the marketplace competitive, Aon brokerage reported.

The Chicago-based insurance broker's London office issued its findings on the marine marketplace in a report titled "2009 Marine Insurance Outlook."

Aon said following an average rise in protection and indemnity (P&I) rates of up to 15 percent at the February renewals, there has been an increased sense of determination on the part of other marine underwriters to move rates back up.

But insurers, Aon said, must adapt to the prospect of falling revenues due to reduced marine activity and thus lower premium volumes, coupled with decreasing investment income.

Hull and liability underwriters are seeking to impose rate increases in the range of 2.5 to 7.5 percent for attractive business, the brokerage reported.

The abundant capacity in most classes of insurance, however, is keeping a lid on rate rises and there are no obvious signs that capacity for marine insurance risks will decline significantly in the short term, the report advised. Aon said a squeeze will come as ship owners seek to reduce operating costs in the face of a dramatic reduction in trade.

In a statement, Steve Beslity, global chief executive officer of Aon Marine, said, "So far at least, the recession appears to have had much less impact on the marine insurance market than the shipping industry itself. While the market is generally looking for rate increases, insurers continue to offer attractive terms for well managed risks. Although the markets may attempt to talk up pricing simply because it seems logical to do so in the present difficult economic circumstances, the evidence suggests there is no reason to overreact at this point.

"The relationship between the marine insurance markets and their customers is finely balanced at present," he continued. "There is a likelihood of a clash between the understandable desire of the shipping industry to reduce costs versus insurers' requirements to generate acceptable margins. There will be challenging negotiations ahead across the spectrum of marine insurance during 2009 and into 2010."

The report noted that with the economic downturn, there has been a drop in claims. However, because ships are idled, owners may perform more inspections that could increase claims as damage is found. Also, improved economic activity could produce a surge in claims as shipping activity increases.

There is disagreement over whether the increased number of hijackings of shipping in the Gulf of Aden is posing a threat to owners and insurers. But the risk has produced increases in kidnap and ransom insurance with premiums in the range of $30,000 for a limit of $3 million on a policy for a single voyage.

"Those ship owners opting to purchase K&R cover presumably prefer the certainty offered by these products rather than diverting around the Cape with the increased running costs that that entails," the report said.

A copy of the report is available by contacting Mr. Beslity by e-mal at steve.beslity@aon.co.uk.