While the shipping industry is showing tentative signs of recovery, the surplus capacity in the marine insurance market defies logic as more insurers queue up to enter an already crowded line of business where rates are continuing to fall. This is according to the annual Marine Market Review from global insurance broker Willis Group Holdings.
The Willis Marine Market Review, which can be read here, comments that 2010 has seen an improvement in the state of the market, with a reduction in the number of laid up vessels, the majority of freight rates slowly increasing and ship values ceasing to plummet. Despite this gradual upswing in shipowners’ fortunes, the report found that the marine insurance market is still feeling the pinch due to fierce competition, and questions why new insurers continue to enter the fray when there is little profit to be made.
With its relatively low exposure to natural catastrophes, the marine market is often seen as a safe bet for large composite insurers seeking to diversify their portfolios. The review found that up to 11 new insurers will have entered the Hull & Machinery market by the end of this year, despite its lack of profitability, and suggests that this could be because the marine business is such a small part of big insurers’ overall revenue that they don’t feel the pain.
The report noted that while there is still some profit to be made in ancillary insurances like war risks, it seems illogical that new capacity continues to be added to an already saturated marketplace for the main lines of business.
Commenting on the overall findings of the report, Alistair Rivers, CEO, Willis Global Marine, said, “From a client perspective, the outlook is good: pricing is competitive, capacity for all but the largest risks is freely available and choice is greater than ever before. In the insurance market where profit margins continue to be squeezed, we foresee increased divergence between those underwriters who are looking to build or expand their accounts and those who may become increasingly defensive or selective.”
Other key findings in the report include:
• Piracy continues to be a huge concern for shipowners and is spreading from the Gulf of Aden into the Indian Ocean. Claims arising from piracy haveexceeded $300 million and the report says that it is hard to see any solution in the short term.
• The Protection & Indemnity (P&I) industry reported very positive results for the 2009/10 financial year. Across the market as a whole, underwriters almost broke even, with an overall underwriting deficit of only 1 percent. Over the same reporting period investment revenue approached $680 million -a huge bounce back from 2008/09 when investment losses cost the market $840 million. Against this positive market picture there remains a material variance in results between individual Clubs. On a financial year basis the largest individual club underwriting surplus was 7 percent and the worst deficit was reported at 23 percent.'
• Cargo shipments are starting to increase. There is some optimism in the market but the recovery looks to be tentative.
• The increase in sanctions against countries such as Iran has brought new challenges to shipowners in 2010, said Willis. Underwriters and brokers are constantly working to ensure they remain compliant within the various different sanction regimes.