Shipowners are likely to continue to benefit from low premium rates for hull and machinery insurance amid high liquidity in the capital markets and abundant supply of risk capital for marine insurance.
Speaking at the opening of the annual conference of the International Union of Marine Insurance (IUMI) today in Berlin, IUMI president Dieter Berg, marine expert with German reinsurer Munich Re, said, “Already since 2002/03 premium levels have been steadily declining. Is this the end of the market cycle?”
The persistent softness in rates puts insurers in a double dilemma, he said, because in addition to poor underwriting results they continue to be faced with the added burden of insufficient investment returns due to low interest rates.
Mark Edmondson, chairman of the IUMI ocean hull committee and a marine class underwriter with Lloyd’s syndicate Chubb 1882, cautioned that overcapacity of risk capital “seems to be the new normal, without a question.”
Underwriters find themselves in a market environment “none of us had been in before”, he said. Major incidents like the Costa Concordia merely had a short-term impact through a “one-digit” improvement in hull and machinery market premiums, he said. The “unelastic” market leaves underwriters no other option than to get tough on risk and new business selection, Edmondson said.
Last year turned out to be profitable for the segment of hull and machinery insurance after many years of deficits, driven by a drop in large claims, according to IUMI statistics. However, pressure is mounting again this year as total and major losses in shipping went up in the first half of 2015, as Tor E Svensen, group executive vice president of DNV GL, pointed out.
It was worrying to see that the proportion of navigational errors – as opposed to non-navigational such as mechanical failure – as the cause of all claims had kept rising gently to just over 50%. “Despite ECDIS [electronic chart display and information system], despite all the modern equipment on board the ships, they are hitting the rocks more than before,” Svensen said.