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.

Anticipated Market Hardening Has Not Been Realized; Soft Market Conditions Prevail

The Japanese earthquake and tsunami in March 2011 fed expectations that the long awaited hardening of insurance markets would shortly follow. In fact the opposite has been the case and the first half of 2011 has seen continuing and wide-ranging softness across marine insurance markets.

Despite the series of severe natural catastrophes in 2011 there has been a relative absence of major claims across all marine classes. However, the impact will still result in an increase in the cost of reinsurance but it is likely program restructures and reduced levels of protection will be offered in order to minimize premium increases.

Hull and Machinery

The soft market conditions experienced in 2010 have become even more widespread during 2011. For some time hull underwriters have been making the case publicly that there is no room for rates to fall further, but have simultaneously been conceding ground when required to provide terms for individual fleets.

Market conditions are an inevitable response to the balance between underwriting capacity and the demand for this capacity. The world’s fleet continues to grow, but available underwriting capacity is growing more quickly. Excess capacity has fueled a hunger for income that has encouraged underwriters to compete aggressively for market share.

Shipbuilding and the Insurance Market

The first half of 2011, has seen the major global shipyards, particularly in Asia, successfully aligning themselves and leveraging their market position for new orders in the offshore and container sectors. The aftermath of the Japanese earthquake and tsunami has heralded a re-emergence in LNG construction in response to a growing intolerance towards nuclear power, which in turn has benefited shipyards who are securing speculative orders.

Protection and Indemnity (P&I)

With most clubs having published their annual report and accounts, we have to conclude that the health and welfare of the community of International Group Clubs has probably never been stronger. This demonstrates the clubs’ ability to rebound from the setbacks of late 2008/9 and this, in turn, supports a growing confidence in the clubs’ financial resilience. Various factors have coincided to aid the recovery and shorten the recuperation:

• a marked reduction in claims activity – various clubs noting a reduction in the size of the average claim
• reduced incidence of claims that are met by the pool, and the absence of any deterioration to the Pool in the 2009/10 policy year in the second 12 months of its life
• better than expected financial returns on the investment of club funds
• continuing growth in tonnage

Cargo

Prior to Q4 2010, the market had seen minimal catastrophe activity and with the influx of new underwriting capacity over the past couple of years, it has resulted in a continuing downward trend in pricing and a general broadening of terms and conditions. With an ever present pressure on cost reduction, this has been welcome news for clients who are generally reporting a slower than expected recovery and continue to trade in a very difficult financial environment.

Marine Liability

During the first half of 2011, the U.S. marine liability market experienced very little overall change in terms of cost trends, underwriting philosophy and market capacity. Rates are flat over all lines of business but a measured approach has continued to be taken with respect to the offering of capacity on certain risks.

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