The year 2001 was hit with the biggest single
event in the history of insurance, now known as the “9/11”, provisionally some $ 32 to $ 50
billion. One of the consequences has been the substantial increase in premiums in 2001 covering
all sectors of the market. There was no way of foretelling an event of such dimensions and the
premiums, which would have allowed insurers to meet such an eventuality, were far from being
collected. Without specific premiums to cover claims, insurers have had to empty their
reserves. Substantial resources have been brought into play by insurers to try to handle all
claims being made. Very likely, insurers will fulfil their commitments and considerable
indemnities have already been paid out.
|At the beginning of the year, the relative
improvement in the market gave some hope to marine insurers. In fact, premiums were increased
by a considerable amount of around 15 % and for some owners, increases of over 100 % for
premiums and also an increase of deductibles.
Placing old fleets or small units (one or two ships) and/or presenting bad loss records to
insurers, has become extremely difficult without increasing rates considerably and reducing the
scope of cover tempting some players to work with insurers whose creditworthiness cannot always
be counted on.
Despite the broad scope of measures taken by insurers the year 2002 has proved to be a
catastrophic vintage for European insurers in general including marine insurance. The two main
reasons are as follows:
- Firstly, a bad series of accidents:
During the months of September and October 2002, some twenty
major and particularly dramatic incidents absorbed between them nearly a third of the volume of
annual premiums in marine insurance. The fire on the ‘Diamond Princess’, the attack on the
‘Limburg’, the running aground of the ‘Hual Europe’, ‘Ocean Lexington’ and ‘Treasure
Bay’… came to more than $900 million in the books of marine insurers and their re-insurers.
Very few insurers have escaped this series of disasters, particularly as the misfortunes
continued to carry on throughout the last two months of the year 2002 with notably:
- November 11th 2002: fire on board the containership ‘Hanjin
Pennsylvania’ – a cost that could reach close to $100 million,
- November 13th and 19th 2002: leak and shipwreck of the
tanker ‘Prestige’ off the Spanish coast – a cost of some $ 42 million
- December 1st 2002: fire on board the sail schooner ‘Wind
Song’ in Polynesia – costing $26 million (total loss),
- December 14th 2002: collision in the English Channel
between the containership ‘Kariba’ and the car-carrier ‘Tricolor’ - a cost
which could slightly exceed $100 million.
Even marine insurers, who might have been spared
from any of the above catastrophes, are however deeply affected by the increase in re-insurance
costs. The hike in re-insurance premiums is the result of disasters affecting the marine sector
but also other sectors such as natural disasters where the losses, according to Munich Re,
amount to $ 55 billion in 2002 of which $11.5 billion are insured.
Aviation insurance which has had a run of calamities (hull and liabilities) of more than
$6 billion in 2001, has turned around quickly in 2002 with total claims estimated at $1.06
The P&I market is also affected. The P&I Club members of the International Group (IG Group)
have not been spared by the losses over the last 3 years despite a relatively stable level of
For accounts ending February 20th 2002, it helps to distinguish
3 groups of clubs:
- those more or less close to a balanced position (North,
- the big losers (Swedish, London, UK, Britannia),
- the “enhanced profit” group, namely American Club /
Skuld and Steamship whose profits stem from the inclusion of results of the
significant “excess calls” they made.
Globally the results of the Clubs, members of
the IG Group are negative:
The average increase in P&I premiums in 2002 was around 22
%, excluding excess calls imposed by some Clubs. Market analysts predict losses situated
between $ 75 and $ 125 million for the underwriting year ending February 20th 2003.
For renewals as from February 20th 2003, the Clubs have announced general increases of 15 to 25
% before re-insurance costs. The cost of the main programme of re-insurance of the IG Group has
increased by about 40 %, this hike being differently apportioned according to the type of ship.
- Secondly, the drop in Stock Exchange performances and its repercussions on the marine
The period when the financial results subsidised the technical underwriting deficits has
definitely come to an end. The Dow Jones Stoxx Insurance index lost 51 % after having dropped
by 30.5 % in 2001. The first 10 European insurers (excluding ING) have lost 192.2 billion euros
in stock valuation within a year. One has to add together the top eight European stock exchange
capitalisation, to be able to match the number one in the world, the American AIG.
The drop in the stock exchange market has continued in 2002, primarily due to a lack of
confidence among investors following the shortcomings of big companies particularly in the
The direct consequence for insurers (including) marine is the absolute necessity to get
balanced technical results, without being able to count on hypothetical financial profits.
At the same time, insurers have a tendency to look for additional protection from their
reinsurers, whilst similarly, reinsurers have a tendency to reduce their risk exposure, thus
their cover capacity, as they are themselves having a hard time to obtain the cover they would
like from their retrocessionaires partners.
It is becoming more and more difficult for insurers to balance the need for a return on
investment and at the same time to satisfy their shareholders, while keeping sufficiently
strong capital reserves as demanded by their clients.
In such an unfavourable context and in an increasingly uncertain climate, especially with the
terrorist threats, insurers have come out with what could be called a “survival guide”:
- a more restrictive underwriting policy with as consequence
a lack of capacity,
- an increase in retention,
- coverages which are sometimes more restrictive with
notably the introduction of new exclusions:
- Institute Extended Radioactive Contamination Exclusion Clause 01/11/02 (Cl. 356
- Institute Chemical, Biological, Bio-Chemical, Electromagnetic Weapons and Cyber
Attack Exclusion Clause 01/11/02 (Cl. 365).
Despite a fairly depressing year 2002, the main
French companies involved in marine insurance have put up a good resistance in the face of
exceptional deteriorating conditions.
They have posted solvency ratios above European norms and the French market remains one of the
world top markets.
French insurance market is number 5
within world rankings, 2nd in Europe for life insurance, and 3rd in damage insurance.
French insurance remains 2nd in the
placement of “International hulls” in the world (excluding Japan which is mainly
French credit insurance is number 1 in
French companies in the market have a capacity
to adapt and have advantages linked to their size and geographical coverage. Nonetheless they
remain cautious as to the future development in their operational performance, given the
volatility and uncertainties in the financial markets.
Current difficulties are causing a new change in outlook and are upsetting the classical
approach to risk finance. The catastrophes of the last two years have forced insurers to
reorganise themselves, to reinforce their capital reserves and improve their management skills.
In the particularly dismal context of marine
insurance, where many players are fighting for their survival, actors in the shipping sector
are also being subjected to their own constraints within the market. Operating ships is
becoming more and more costly, as much with international standards, which are raising levels
of responsibility of owners as with the reinforced rules of security.
Insurers, who want to be attentive and selective in their commitments, do not directly control
either the security or the quality of shipping operations or the qualification of crews.
Due to this situation, insurers are tending to impose technical constraints and supplementary
charges to their clients by introducing loss prevention programmes.
Nonetheless an intelligent and practical collaboration between insurers and owners can also
make a considerable contribution towards market results. The role of an insurance broker in
establishing a better communication between parties and an appreciation of the constraints and
susceptibilities of both parties, should make for better competitiveness and an improved
quality of services offered