The Marine insurance market continues to face choppy seas in the wake of the global economic crisis, with a sharp decline in international trade crippling certain sectors of the shipping community, piracy spreading to new regions, and stalled capital markets and lower investment returns battering underwriters, according to the latest Marine Market Review from Willis Group Holdings, the global insurance broker.
Against a backdrop of falling values of insured assets, rate increases have been minimal in most Marine classes for clients with good loss records. Willis’ annual review, titled “Riding the Waves,” found that, 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 says that as long as surplus capacity remains in the market, rates are unlikely to rise dramatically. The exception had been the P&I market, where the mutual clubs at the February renewals announced an average increase of 16.5 percent, the report said.
Commenting on the review, Alistair Rivers, Chief Executive Officer of Willis Marine and Willis Global Energy, said, “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. 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. However, 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 experts also comment on the rise of new piracy hotspots outside of the Gulf of Aden, including off the coasts of Brazil, Nigeria, Thailand and Vietnam. The report notes that 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. The Willis report notes that there have been 75 attacks off the East Somali coast and in the wider Indian Ocean region in 2009 – a 625% increase from the 12 reported attacks in 2008. There have also been incidents in the Red Sea, the Straits of Bab El Mandeb and off Oman. The report looks at the nature of these incidents, the coverage conundrum relating to who pays the ransom, and the solutions – both insurance and physical protection measures – that shipowners can implement to guard against attacks.
Other key findings of the Willis Marine Market Review include:
New builds – At the beginning of 2009, 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 shipowners and shipyards are faced with the costs of cancellations.
Hull and Machinery market – In early 2009, modest increases of 2.5 to five percent were universally applied to good performing accounts, with far greater increases of up to 80 percent being given to poorer performers.
Protection and Indemnity – Willis 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 five percent in premium and some higher deductibles. But with claims falling, Willis says that 2010 may well represent the turning point from a hard to a softer market.
Marine Liabilities market for shore-based risks – Insurers attempted to increase premiums in the first half of 2009, particularly for high-level capacity and catastrophe-prone property coverage. However the surplus capacity in the market meant that the prices have now stabilized.
Cargo market – The increases in global Cargo underwriting capacity and the perceived profitability of the sector has created a competitive buyer’s market, with insurers offering wider coverage, deductible buy-downs and long-term deals.
Singapore Marine market – 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 US $80 million of hull and US $400 million of cargo risk, with Singapore leading the way.
