Published on: 12-Sep- 2011 | Comments: 0
The latest issue of Marsh's Marine Market Monitor newsletter provides an analysis of current risk issues affecting the Marine industry. In this edition we discuss several factors which are currently influencing the Marine market.
Market softness fed by abundant capacity and light claims experience
The cost of marine insurance was driven by a variety of factors in 2010, the most influential of which was the availability of plentiful capacity to underwrite even the largest risks. This has lead to an environment where insurers are tempted to trade underwriting profit for market share.
The prevailing economic conditions also fed through some less direct effects. During the ship building boom many shipyards had diverted all available capacity to construction. This led to a shortage of berths for repair work which drove up the cost of damage repairs. As the froth left the newbuilding market, repair yard capacity returned. This, combined with a fall in the price of steel, also contributed to lower claims costs.
Hull and Machinery
An abundance of capacity chasing a world fleet no longer growing as quickly as it did before the economic downturn created a buyer’s market in 2010 for all but the least attractive hull and machinery risks. This has impacted on the thinking of hull underwriters when considering both renewals and new opportunities. With supply exceeding demand we anticipate continued market softness throughout 2011.
War Risk, etc.
War risks and increased value insurances have been subject to the same market forces as apply to hull and machinery. The greater profit margins available from both has meant that they are sought after by hull underwriters. As a result underwriters may be willing to discount hull premium in return for a significant share of either war risk or increased value where it is placed as part of a package. The Marsh War and Strikes Clauses (8/9/10) are the result of a two-year project involving some of our clients, key war risks underwriters and insurance lawyers. These new clauses incorporate the essential aspects of various existing conditions but have been brought up–to-date, providing both clarity of coverage and breadth of protection.
The decline in newbuilding contracts has meant the builders risk market has been quiet. The first signs of new orders being placed with shipyards, particularly in the Far East, will translate into new business but not until late 2011.
A series of high profile and very costly shipyard losses in the middle years of the last decade led to builders risk insurers rethinking how to underwrite these complex risks. As a result today there is an increasing emphasis on risk management procedures and loss records and underwriters will need to fully understand the risk profile before committing themselves.
Protection and Indemnity (P&I)
Compared with the turbulence of the three preceding years to February 2009, today’s P&I environment is benign. Claims experience of unprecedented severity in 2006 and 2007 and the collapse of financial markets in September 2008 contributed to general increases averaging over 15% in both 2008 and 2009. In addition to these increases, six clubs made a cash call at a time when most shipowners were suffering from the shipping downturn.
Today we are looking at a 2011 renewal season characterised by general increases averaging below 5% for the second year running, applied by clubs that have rebuilt free reserves, in some cases, to new highs. Although the outlook looks positive, how solid are the foundations? To establish that, it is necessary to look beyond the headlines.
Following yet another benign year for insured catastrophe losses in the worldwide marine cargo market, we have seen another somewhat predictable downward trend in rating, coupled with a general broadening of terms and conditions. This has proved to be of great benefit to our clients, many of whom have continued to make a slower than expected recovery from the global economic downturn, with their accompanying need to achieve targeted profit margins by decreasing their costs.
As we look forward into 2011 global marine liability markets could be best described as benign. The number of major new losses impacting upon underwriting results in 2010 was not significant, although we saw a deterioration of some larger claims from previous years of account during the year.
Piracy of ships, cargoes, and crews continued throughout 2010, with Somali pirates widening their reach deep into the Indian Ocean. With the greatest concentration of naval ships operating in or close to the Gulf of Aden, the pirates have shifted their focus further east, meaning commercial shipping is now statistically more vulnerable in Indian waters than it is in Yemeni waters. This development led to the London market’s Joint War Committee extending the listed area of perceived enhanced risk eastwards to within 12 nautical miles of India’s west coast and southwards to Latitude 12º S on 16 December 2010.
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