By Thomas Plumbly, Client Executive What is a latent defect policy? Latent defect insurance, otherwise known as building warranty, provides building owners with long…
Marine Hull – Market Report May 2022
As we commenced preparation of our market update in early February, it was agreed internally that we would present separate reports for Marine Hull and Marine War moving forward. Little did we know how the subsequent appalling events in the Ukraine would make this decision even more appropriate as we have been faced with almost weekly changes from the Joint War Committee in their response to the ongoing conflict. We have been providing our clients with regular updates accordingly.
The Hull and Machinery market runs parallel with the Marine War market and, whilst the War market is poised for potentially significant losses (early reports suggest a possible USD800m of exposure currently stuck in Ukraine), the H&M market feels a little more optimistic than it did when we issued our last report.
Lloyd’s stamp capacity across all classes of business is up a little over 7% in 2022 as nearly half of the market was approved to grow. Lloyd’s will operate with a total market stamp capacity in the region of £39.6bn (USD52.5bn) in 2022.
Capacity has levelled out or reduced over recent years, following the well-publicised remedial work undertaken by Lloyd’s. The increase in capacity in 2022 is, in part, driven by new start-ups but also a product of Insurers trying to write more business in an improved rating environment whilst they can.
With more underwriters reporting a return to profitability it has inevitably led to changes of personnel within the class.
- As previously reported, HDI Global Specialty were preparing to enter the Marine Hull market in London and commenced business in November 2021 led by Michelle Boyd. Unfortunately, Michelle has tendered her resignation and we are not sure what that means for the London office going forward.
- Danny Bell moved from RSA to join Stuart Forsyth at MS Amlin.
- Matt Wells moved from Allianz to Axa XL as the latter attempt to strengthen their team after recent departures.
- Paul Russell has left Lancashire to join Fidelis.
- The welcome return of Ian Smith to the market, linking up with former colleague Chris Stafford-Hill at Sompo.
- Navium Marine has added ex-Atrium underwriter Gillian McCombes to its expanding team.
MARINE HULL RISKS
The recent loss of the “FELICITY ACE” has highlighted to the market once again the issues surrounding car carriers, particularly coming so shortly after the vast and unanticipated costs of the “GOLDEN RAY” salvage operation..
At the time of writing, we are awaiting the damage survey results following the month-long efforts to refloat another large container carrier, the EVER FORWARD aground in Chesapeake Bay, Virginia, USA. We understand that the Port Authority has already presented a claim for USD 100,000,000.
A reported decline in container ship punctuality will not ease the pressure on this sector as we see freight rates continue to increase and the need for more boxes to meet demand. A growing concern is that there will be an oversupply of containers once empty containers are repatriated and re-enter the supply chain.
Once again there is a fuel “crisis” occurring with Singapore this time being hit with contaminated fuel – there are reports of at least 200 vessels having bunkered it with 80 already reporting various issues with fuel pumps and engines. It is unknown how this will affect insurers at this early stage.
Having highlighted these negative exposures we do however have a distinct feeling that over the last few weeks the ‘hard’ market has been coming to an end as accounts with clean or favourable claims records are typically enjoying flat renewal terms. In some cases, underwriters are offering reductions in premium for our clients by virtue of discounts linked to continuity, claims record, or both.
Whether this pressure on rates is sustainable remains to be seen. For instance, we have seen cases where underwriters have tried to impose ‘inflationary’ premium increases at renewal in recognition of the increase in costs of materials for repairs. The market has sought to recover from a low premium base and managed to perform well over the last two years where there has arguably been a lower exposure. More shipping activity may lead to more claims and the insurance industry seems determined not to fall into the same cycle of rapidly reducing rates as claims increase.
The shipping industry is rightly embracing technology to move towards decarbonisation as part of their ESG commitments, and whilst this is backed by many underwriters signing up to the Poseidon Principles for Marine Insurance, there are concerns which arise for both Insurers and Shippers.
For underwriters, the concerns focus on untested technology which may lead to new and unanticipated exposures. For Shippers, cargoes such as coal will be shunned. Whilst in support of decarbonisation, our view is that the politicisation of insurance is not ideal and ignores the reliance on coal of many emerging economies to keep the lights on.
We are in a positive frame of mind that the market is once again trading as a market should; there are more options available and a renewed hunger to underwrite rather than hide behind actuaries. The counter argument to this is a concern that the administrative minefield of sanctions, especially relating to Russia, and a desire from “corporates” to pull back from fossil fuels could lead to markets losing traditional lines of business and cause issues of capacity for assureds.
We remain committed to finding solutions for our clients across the global Insurance and Reinsurance market. Ensuring our clients benefit, where possible, from this increased capacity, and are consistently helped to navigate through the challenges of owning, operating and insuring vessels in 2022 continues to be our focus.