|The international marine insurance markets have remained, for the 4th
consecutive year, extremely soft in 1998 and numerous Hull underwriters are reporting up
to 30% reduction in turnover (with an average technical reduction of about 20% plus
business lost or non-renewed).
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 1st 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
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.