The Marine Insurance markets
|Turning the corner
The year 2000 has been a turning point for marine
insurance, coming between a period of significant low rates which began
in 1995, and a steady increase in rates which were first felt in the
first half of this year.
The published results of insurers for 1999 and the
updating of their 1998 figures were catastrophic and created a shockwave
throughout the market. By year end 2000 the IUMI (International Union of
Marine Insurers) reported that premiums for 1998 totalled some US$ 12.7
billion whereas in 1999 the figure was only US$ 10.7 billion. In the
French market the 1999 underwriting results for 'foreign hulls' give
a claims versus premiums ratio of 165.7%, for the French Hull market
109.%, and 87.3% for cargo insurance.
Lloyds, who normally only publish their results three
years after closing their accounts, predict a loss of '830 million for
1999, and have upped their loss forecast for 1998 from '725 million to
In Scandinavia the new company IF''', which
combines the activities of the Swedish group Scandia and the Norwegian
Stonebrand, have announced a loss of 212 million Swedish Krona for 1999,
whereas the Swedish Club predict a loss of US$ 4.0 million.
These results are not exactly comparable in that they
do not all represent the same coverage; business and maritime risks in
some cases, and purely maritime in others. The tendency is nonetheless
clearly visible and points to very significant losses. It is not
surprising to learn therefore that during the course of 2000 a number of
substantial players in the insurance sector have disappeared, notably
Jonathan Jones, CGNU, and Reliance.
|Hull and machinery
The Y2K bug was
quickly forgotten. During the renewing of contracts concerning the 'commercial
fleets' in the first half of 2000, owners were able to lower rates
with reductions of some 10 %. Long term contracts and their extensions
continued to enjoy a large success.
After a period of uncertainty between June and
September 2000, the market began to show signs of firming up as
exemplified by an increasing difficulty in prolonging term contracts and
by the substantial increases obtained on fleet losses.
As in the previous cyclical reversals, the English
market reacted more quickly, if not always as consistently as their
French and Scandinavian counterparts. Despite the adjustments needed to
take account of this reversal, the "commercial fleets" has
always managed to find 100% coverage for its needs.
By end 2000 the insurance market for "commercial
hulls" remains relatively oversupplied, but the less attractive
ships or fleets, either due to their inherent conditions and/or their
results, are beginning to face a real problem in obtaining cover.
|Energy and related risks
of deep offshore markets in West and Central Africa and notably Angola
have absorbed a significant share in the available insurance capacity,
particularly in the North American market. The development of deepsea
pipeline projects up to 2000 metres, with the introduction of
"J" platforms, have led some underwriters to hold back in
light of the new technological risks. Capacity is becoming tight in this
sector of the market, even though the statistical results are relatively
balanced at least within the French context.
In line with the "marine hull", the fishing
insurance sector has followed the down cycle over the past six years,
but somewhat attenuated for two reasons.
- the risks inherent in operating fishing vessels have proved
greater than for traditional hulls,
- the specialised insurers in this sector are fewer, so the
competition is not as intense.
The firmness in the market was noticeably felt as
from September 2000. At the same time owners encountered other serious
- a hike in the price of gasoil from US$ 120/ton to US$ 370/ton in
less than a year.
- imposed biological layups in certain zones from two to four months
- a drop in fish prices (cf. the tuna crisis, in article "The
Fishing Vessel market")
This situation did not allow for increases in the
insurance premiums and the market moved towards tailored-made
arrangements where the product had to adapt to charterers' specific
needs and what they could pay, generally making terms of insurance more
The trend within
the "cargo insurance" market in 2000 was multifaceted. In line
with the 'foreign hull' market, cargo insurance risks in the trading
sector experienced a reversal in the market, with the same causes
(excess competition) producing the same results (substantial technical
losses). Likewise in the heavy-lifts transport sector, recent
catastrophic disasters have resulted in sharp losses due principally to
a reduced capacity within the English market.
|The other sectors within cargo
insurance proved to be tentative, caused no doubt by the insufficient
returns during 1999. The healthy and constant progress within the
container fleet and the significant increase in traffic which has
ensued, seems to have had a positive impact on the loss claims, which
has helped compensate in part the lower rates being achieved.
|Protection and Indemnity (P&I)
The trend of the "one stop shop" linked to
the regrouping under one entity of both hull insurance and risk
responsibility, is being accentuated. After Axa Corporate Solutions, the
Swedish Club, DEX for the UK Club, and IF''' for Gard Services,
AGF-MAT and Britannia have announced their imminent agreement, which
would give AGF-MAT a predominant share in the management company of
Britannia (Tindall Riley).
Changes both in restructuring and product innovation
are certainly planned in anticipation of a development or possible
disappearance of the "International Group Agreement".
The 'Erika' and 'Ievoli Sun' disasters made
owners aware of their risks, and claims under charterer's liabilty
were in strong demand.
The technical results of P&I Clubs also saw a
marked deterioration, and with effect from October 2000 tariff increases
for 2001 were announced.
The consolidation within the main players of the
market seems to have slowed down, and "pools" are now
emerging, which specialise in regrouping several middle-sized
underwriters within specific areas. New technologies have so far had
little impact on the business, but it is anticipated that a shake-up
will take place in this sector shortly. Lloyds and IUA are working
towards reorganising the London market to give a better service to
clients, linked to the technical advantages of the internet.
The market is continuing to be restructured and with
the change in cycles, is orientating towards a more technical approach
Apart from a few specialised sectors, the market is
clearly headed higher. It is more than likely, however, that
underwriters will take a more selective approach than happened on the
last cyclical swing. In a relatively oversupplied market, a policy of
sudden hikes in rates could have disastrous consequences.
In the long run the counter performance of the
financial markets should strengthen this upward trend. The technical
losses on policies which inevitably occurred in the early months of the
accounts for 2000 cannot offset what the financial products achieved for
insurers elsewhere. Marine insurers must wait until 2002 before being
able to show any positive results.
Shipping and Shipbuilding Markets in 2000
I N D E X