The Marine Hull Insurance Market in 1998

The Cargo underwriters, who were spared the worst in 1996 and 1997 have, principally on large accounts, shown reductions of 50% or more in 1998. Multilines products (combination of marine and non-marine insurance coverage), have, to a large and dangerous extent, contributed to such premium reductions.

Most marine underwriters are reporting that they are unlikely to achieve underwriting profit in 1998. On the Hull side, certain markets are announcing an estimated loss ratio for 1998 of 135%.

Whilst it is notable that most shipping companies have improved their technical performance over the last three to four years, in part due to the introduction of the ISM Code on 1^st of July 1998 (for relevant vessels), the claims frequency has started to pick-up again. Underwriters expect that weak freight markets and increased pressure on maintenance costs might actually counteract the desired ISM Code effects in terms of reduction in claims. Thus the cumulative impact of an exceptionally low level of premium, slow erosion of deductibles and a general increase in the volume of claims may well presage a 160 to 180% loss ratio for 1999.

Owing to such severe underwriting losses which are being seen or forecast in all international marine markets combined with the uncertainty of the financial markets, underwriters may be forced to withdraw from the market or increase premiums in the very near future.

As predicted in our report last year, long term contracts for hull and machinery coverage have been, to a large extent, prolonged when possible but with a relatively small reduction in premium compared to what was obtainable on the spot market.

Shipowners who have not milked the market completely dry in as far as their insurance costs are concerned and have favoured a "partnership" relationship with their underwriters, should find themselves in a better position to negotiate a reasonable deal when the market turns again towards general premium increases. It is however to be noted that in order to redress this negative situation for underwriters, some shipowners would find themselves facing premium increases of between 50 and 100%.

In 1999, shipowners should very much focus on preserving the excellent terms they should now have obtained. They should then concentrate on insuring that they have very good underwriting security with insurance companies able to demonstrate that they are committed to the industry; i.e. not vulnerable either to become insolvent or to simply withdraw from the marine underwriting scene.

With, still, an overcapacity on the reinsurance markets, it is most likely that the marine hull market will remain soft during the first half of 1999. It seems however reasonable (if the marine underwriting community has any sense!) to predict some form of stabilisation and quickly thereafter a sharp increase in premium as from the end of 1999.