Marine insurers face a stormy market, battered by declines in trade, expansion of piracy, stalled capital markets and lower investment returns, an insurance brokerage reports.
Rate increases for clients with good loss records have been minimal in most marine classes as values for insured assets have fallen, according to the annual analysis by London-based Willis Group Holdings on the marine market, titled "Riding the Waves."
Despite a hardening of marine reinsurance rates at the start of 2009, with no contraction in direct marine underwriting capacity, the initial increase in direct rates has largely evaporated, Willis reported.
The brokerage predicted that as long as surplus capacity remains in the market, rates are unlikely to rise dramatically. It noted that the exception had been the protection and indemnity insurance market, where the mutual clubs at the February renewals announced an average increase of 16.5 percent.
"Since the five-year shipping boom came to a shuddering halt at the end of last year, we've seen a huge fall in demand for the shipment of goods that has led to the laying up of vessels to an extent not seen since the 1970s," said Alistair Rivers, chief executive officer of Willis Marine and Willis Global Energy.
"Laid-up vessels mean less premium for insurers and sadly, once again, we find marine underwriters hoping to raise prices just as their customers need to cut costs," Mr. Rivers added.
However, he advised, "there is still a lot of capacity in the market and far fewer claims due to the reduction in shipping activity, so we are challenging rate increases for clients with good risk management and claims history."
Willis noted the rise of new piracy hotspots outside of the Gulf of Aden, including off the coasts of Brazil, Nigeria, Thailand and Vietnam.
The report said since the Internationally Recommended Transit Corridor (IRTC) has been implemented in the Gulf of Aden, pirates have attacked vessels further out at sea–more than 800 nautical miles off the coast of Somalia and East Africa.
There have been 75 attacks off the East Somali coast and in the wider Indian Ocean region in 2009–a 625 percent increase from the 12 reported attacks in 2008, Willis noted.
Willis also mentioned incidents in the Red Sea, the Straits of Bab El Mandeb and off Oman. Its report examines the nature of these incidents, the coverage conundrum relating to who pays the ransom, as well as the solutions–both insurance and physical protection measures–that ship owners can implement to guard against attacks.
In announcing the report Willis said other key findings include:
o Ship building. At the beginning of this year, as a result of the shipping boom, there was a record number of ships on order–equivalent to 50 percent of the existing world fleet–but, with the demand now reduced, both ship owners and shipyards are faced with the costs of building cancellations.
o Hull and Machinery Market. In early 2009, modest increases of 2.5-to-5 percent were universally applied to well-performing accounts, with far greater increases of up to 80 percent being given to poorer performers.
o Protection and Indemnity. Willis said it expects general increases announced at the 2010 renewal to be substantially lower than those in the last two years, with most clubs publishing general increases of up to 5 percent in premium and some higher deductibles. But with claims falling, Willis estimated that 2010 may well represent the turning point from a hard to a softer market.
o Marine Liabilities Market. For shore-based risks, Willis said insurers attempted to increase premiums in the first half of the year, particularly for high-level capacity and catastrophe-prone property coverage. However, the surplus capacity in the market meant that the prices have now stabilized.
o Cargo Market. The increases in global cargo underwriting capacity and the perceived profitability of the sector has created a competitive buyers' market, with insurers offering wider coverage, deductible buy-downs and long-term deals.
o Singapore Marine Market. Willis found that Singapore has established itself as the marine insurance hub of Asia, with several new underwriters setting up offices there. In the Asian market, there is now enough capacity to place $80 million of hull and $400 million of cargo risk, with Singapore leading the way, the report noted.
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.