Liz Booth reports on key market developments raised at the International Union of Marine Insurance’s annual conference
In general, the International Union of Marine Insurance (IUMI) has reported positive market developments in most insurance lines and most geographic regions, stemming from an increased premium base, an extraordinary low claims frequency and a better-than-expected economic bounceback from the initial effects of the pandemic.
Protection and indemnity insurance was the one exception to the positive trend, said IUMI.
According to its figures, marine underwriting premiums for 2020 were estimated to be $30bn (£22bn), which represents a 6.1% increase from 2019. Global income was split by region: Europe 47.7%, Asia-Pacific 29.3%, Latin America 9.3%, North America 7.7%, other 6.0%.
By line of business, cargo continued to represent the largest share with 57.2% in 2020, hull 23.8%, offshore energy 12.1% and marine liability (excluding IGP&I) 6.8%.
Astrid Seltmann, vice-chair of IUMI’s facts and figures committee, explained: “We are reporting an increase in absolute premiums for 2020 in both the hull and cargo markets. These are derived as a combination of volume – trade, values, global fleet size – and rates per insured unit. It appears that the European market bottomed out in 2019 and is now strengthening again; and the Asian market continues to enjoy a year-on-year increase that began in 2016.”
She continued: “In general, cargo and hull underwriting results have improved in 2019/2020 across all regions, largely due to the strengthened premium base coupled with a very low claims impact. This is a positive trend but as this recovery started from a very low base, it is not yet clear if the current improvement will be sustained in future years to give more predictability for shipowners, cargo owners and insurers.
As new fuels and innovative propulsion methods are introduced, more and varied claims are likely to arise – and underwriters will need to fully understand these new risks and cover them accordingly
The global premium base for the cargo market for 2020 was reported to be $17.2bn (£12.6bn)– a 5.9% increase from 2019, according to IUMI. Growth in the Chinese market continues to be strong, with moderate growth in other regions. Exchange rate fluctuations impact most heavily on this sector, so comparisons with earlier years cannot be exact.
The fortunes of the cargo market, said IUMI, tend to follow trends in world trade and predictions from the International Monetary Fund are optimistic. Global trade appears to have returned more strongly than expected after the outbreak of Covid-19, which lends a positive outlook for business opportunities within the cargo market going forward.
Loss ratios have improved in 2019/2020, said the group, returning the cargo sector to technical breakeven for the first time in many years. The past decade was characterised by a number of large claims caused by weather and navigational events, impacting negatively on loss ratios. Although
the claims impact was relatively low in 2019/2020 (which helped return the sector to a technical breakeven), there is still a potential for a higher claims environment to return in 2021 and beyond.
In particular, accumulation of risk continues to cause concern, warned IUMI. The trend of storing large amounts of cargo at single sites or on single vessels exposes high values to natural catastrophes or man-made events that could easily result in costly claims.
Global premiums relating to the ocean hull sector increased in 2020 by 6% to $7.1bn (£5.2bn). Growth was particularly strong in the Nordic region but much weaker in the UK (Lloyd’s) market where the decline in recent years continued, reported IUMI.
The gap between average vessel size and insured value that began opening in 2014 now appears to be closing slightly, it said. Similarly, the gap between global fleet size and global premiums that had been increasing since 2012 still exists, but it now appears to have reduced slightly. If sustained, this is good news for the hull market, IUMI suggested.
“More good news stems from the continued low level of claims frequency and total losses. Although there has been a slight uptick in 2021, claims impact remains extraordinarily low. There is concern, however, that low levels are the result of reduced shipping activity in connection with Covid-19, particularly in the cruise sector, and that the current recovery might see claims return to more normal levels in the near future,” it reported.
In general, loss ratios for 2019/2020 have improved across all regions, returning the ocean hull market to a technical breakeven position after experiencing many years of unsustainable results, said IUMI. Shipping’s return to full activity might negatively impact that position, however.
Of particular concern is that the frequency of onboard fires does not decline contrary to the overall claims frequency. This is particularly true for large container vessels. Statistically, these vessels are more prone to fire due to the large quantities and variation of cargo being carried, as well as the challenges inherent in fighting a fire on such a large vessel at sea. Containership fires affect seafarers, the environment and cargo, so hull and liability insurance must be urgently addressed,IUMI warned.
Shipping’s move to decarbonisation – while laudable and fully supported by IUMI – will also impact the hull market. “As new fuels and innovative propulsion methods are introduced, more and varied claims are likely to arise – and underwriters will need to fully understand these new risks and cover them accordingly,” it concluded.
Liz Booth is contributing editor of The Journal