NU Online News Service, Oct. 27, 1:57 p.m. EDT
A report on the recession-challenged ocean marine insurance industry says that specialists in the business far outperform generalist property and casualty insurance firms.
The analysis by Conning & Co. found that expertise is the key to profitability for a U.S. ocean marine sector that has been battered by economic conditions.
It found specialists had a combined ratio of 90 and five-year average return on surplus of 26 percent, versus a combined ratio of 98 and ROS trend of 11 percent for generalist property and casualty writers.
Also, the study said the 2004-08 marine loss ratio of the specialists was 64 percent, versus 66.9 percent for the top 20 property and casualty insurers writing marine.
Conning said the sector has been hard hit by the economic crisis at a time when its structure, traditions and culture are facing challenges, with new technical pricing and exposure analysis techniques being introduced.
Also, marine underwriters are increasingly working inside larger property and casualty organizations managed by generalist executives, according to the study.
The report noted that at a time when there was a soft market of declining insurance prices amid a boom in shipping activity, the boom "suddenly turned to bust in September 2008."
"The inevitable occurred, and rates were pushed down yet further. To make matters worse, there were troublesome claims trends emerging, as loss severities were increasing, uncharacteristically large marine pollution claims were about to be settled, and recession-stoked claims fraud was on the horizon."
Jerry Theodorou, an analyst at Conning Research & Consulting, said in a statement: "The ocean marine industry has deep foundations of tradition and specialization that give it unique status relative to other insurance segments. Over the past five years, the experienced specialist ocean marine writers have clearly outperformed the rest of the market. But some larger companies have also outperformed by combining a specialist orientation with the resources of a larger carrier."
Conning said the question of whether marine is more profitable than other p&c lines is "yes and no." No, as it is pulled down by adverse performance in offshore energy, ship protection and indemnity, and "to a lesser degree hull and some liability sublines."
Yes, it is more profitable "if one restricts one's portfolio to particular segment. The guidance is that ocean marine insurance, apparently more so than other lines, is not for the uninitiated," said the report titled "Ocean Marine Insurance: Entering New Waters."
"The dramatic downturn in global trade in 2009 has jolted the ocean marine market at a time when it was struggling to sort out a number of challenges," said Stephan Christiansen, director of research at Conning.
"Structural changes in available capacity, market consolidation and changes in capital flows may require new approaches to sustain the business in today?s marketplace. Our analysis points to the need to combine experience and specialization with greater scale and modern technical capabilities to navigate this new marketplace," added Mr. Christiansen.
The study costs $1,750 and can be purchased by calling 888 707-1177 or by visiting the Conning Research Web site at www.conningresearch.com.
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