Union of Marine Insurance in its annual statistical report on the marine
insurance market at Tokyo on 18th Sept has reported that global
marine underwriting premiums for 2016 fell to USD 27.5 billion, a 9% reduction
on the figure reported for 2015.
of IUMI’s Facts & Figures Committee, Astrid Seltmann explained: “The 2016
number follows a continuing downward trend in marine underwriting premiums.
In 2015 the adjusted figures of USD 30.5 billion was in itself a 9.9% reduction
from 2014. We attribute part of the reduction to the strong US dollar when
compared with other currencies, but also to general weak market conditions in
terms of the global economy, general commodity prices and the poor state of the
shipping and offshore sectors. This worrying downward trend leads to an
increasing mismatch between income levels and the marine insurer’s obligation
to cover major losses, particularly in light of the trend for larger vessels
and greater accumulation of risks in port”.
total comprised income from the following regions:
insurance business lines:
income in the cargo sector was reported as USD 15 billion for 2016 – a
6% reduction on the 2015 figure. Exchange rate
fluctuations impact most strongly on cargo premiums and the recent strong
dollar has “reduced” premium income from most other countries, this has made it
challenging to identify any real market development.
Tianjin disaster significantly eroded the performance of the 2014 and 2015
underwriting years. The final position of 2016 is still unclear due to the
impact of the loss of the Amos 6 satellite and the current issues surrounding
Hurricanes Harvey and Irma.
towards higher value cargoes and increasing accumulation of values in ports is
likely to continue and this will impact further on loss ratios. It is also
impacting on premiums which are increasingly reflecting stock exposure rather
than transit exposure. Added to this, increases and changes in trade patterns
as well as the general economic and political environment is causing additional
uncertainty in this sector.
downward trend in cargo premium
chair of the International Union of Marine Insurance (IUMI) expressed concern
over the continuing downward trend in cargo premiums which had resulted in the
sector making a technical loss for the fifth consecutive year. Exchange rate
fluctuations were partly responsible for the poor performance as were the
prevailing weak economic trading conditions.
reported that the UK accounted for the largest percentage of cargo premium
income with 13.9 per cent of the market share (9.5 per cent Lloyd’s and 4.4 per
cent IUA). Japan was the second largest market at 8.9 per cent, and China third
with 8.4 per cent.
such as the Tianjin port explosion have had a significant impact on the 2014
and 2015 results. It is currently uncertain how 2016 will develop as the effect
of incidents such as the Amos 6 satellite failure (2014 underwriting year) and
hurricanes Harvey and Irma are not yet clear – but they are unlikely to result
in large transit cargo losses but will impact the stock element of a throughput
policy (STP) particularly if Retail Store Cover is given”.
difficult market conditions continue in the cargo market and show no immediate
signs of abating. With commodity values (such as for metal and copper) and
commodity volumes increasing alongside a simultaneous decrease in cargo
premiums it is safe to say we are not in a good place. On top of that, our
sector is also suffering continuing over capacity and a decline in underwriting
some of the 2016 major losses that will impact the cargo market in the 2016
underwriting year included a fire at a pharmaceutical healthcare facility in
Hungary (USD 10,000,000 est), a case of misappropriation with soya beans in
Brazil (USD 70,000,000 est), a claim on damages to new automobiles following
hurricane Matthew in the USA (USD 50,000,000 est) and a fire on board the
14,000 TEU MSC vessel “Daniela” off the port of Colombo (USD 40,000,000 –
Harvey and Irma have already caused major damage in Texas and much of the
Caribbean and Florida. Inga Beale, CEO at Lloyd’s has suggested the total
economic loss of these natural catastrophes might reach USD 200 billion.
Although only a portion will be attributed to the cargo markets, Derrick believes
their impact could be a “game changer” for the London and US market.
workshop panel discussion on misappropriation emphasised the huge limits given
by some cargo markets in this difficult area of business. It was highlighted
that the new JCC misappropriation clauses will go some way to mitigate or
exclude this type of loss.
sector achieved a premium income of USD 7 billion which was a 10%
reduction on the previous year. Although exchange rates may have been
partly attributable for the decline, this has much less impact than in the
cargo sector due to the global nature of the hull portfolio. Whilst the world
fleet continues to grow, it also continues to age. A certain reduction in
vessel values will follow with the aging of these vessels, but the two-digit
drop in values from 2015, and particularly for bulk and supply/offshore
vessels, must be seen in the context of the challenging market environment.
Hull premiums have deteriorated in line with falling average vessel values, and
there is now a mismatch between fleet growth and income levels.
frequency continues its stable/downward trend and total losses are also
continuing a positive trajectory albeit with a recent fluctuation of around
0.1%. However, falling vessel values increase the probability of constructive
total losses, as these incur when the cost of repair exceeds a certain
percentage of the vessel’s value. In addition, the inflow of high-value vessels
into the global fleet increases single-risk exposure and thus the possibility
of even more costly single casualties. The occurrence (or not) of major losses
in single years increasingly drives the volatility of hull results, but current
income levels do not cater for the occurrence of such events.
income in the offshore energy sector dropped by 21% to USD 3.6 billion –
this is on top of the 20% drop in the previous year. As the majority of
business in this sector is transacted in US dollars, poor exchange rates cannot
be blamed for the drop in performance. The continuing depressed oil price – now
hovering at around $50 a barrel – is the key reason for the downturn in
activity and the postponement and cancellation of offshore projects.
exposures remaining at broadly the same level, volatility in this sector has
increased significantly. More positively, lack of activity in combination with
moderate weather impact has resulted in historically low levels of attrition,
reflected by moderate loss ratios in recent years. This is however expected to
reverse with the reactivation and start-up of new projects coupled with a
general lack of seasoned market experience.
weather has had little impact on this sector from 2009, but the effects of
Hurricanes Harvey and Irma have the potential to reverse those good fortunes
and impact underwriting years 2016 and 2017 severely.
for 2017 is challenging and uncertain.
Harrell, Chairman of IUMI’s Facts & Figures Committee, explains: “Global
premium income continues to fall and this puts pressure on our sector.
Although, fortunately, we are seeing only moderate major losses currently, that
situation can reverse at any time. Hurricanes Harvey and Irma are examples of
this and their true impact is yet to be seen. Exposure to risk will only
increase as vessels grow larger and values accumulate in port. A drop in
premium income makes it challenging for underwriters to continue to cover their
obligations, particularly in relation to major losses.”
exists throughout our market. Although the global economy appears to be
improving, significant concerns or situations could lead to a stall and that
will directly impact marine insurance. Global trade might be affected by Brexit
as well as the current threat of a more competitive US trading policy created
by punitive import taxes and lighter regulation on manufacturing. These changes
to global trade flows and trade agreements will affect our sector as they
the tough shipping market is continuing to adversely affect our premium income,
despite the relentless growth in global seaborne trade. A sluggish oil price
driven by the activities of OPEC and the rise in shale gas availability has
dogged the offshore sector also. And, of course, natural catastrophes continue
to pose a very real risk. Continuing uncertainty is the only certainty for
marine underwriters for the remainder of this year and beyond.