The Marine Insurance markets
in 2000

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 '962 million.

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.
 

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.
 

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 problems :

• 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 per year.
• 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 restrictive.
 

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 to underwriting.

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.