Home Associations Mega-trends that give hull underwriters headaches

Mega-trends that give hull underwriters headaches

by admin
Mark Edmondson.

Mark Edmondson.

Mega-trends that give hull underwriters headaches

By James Brewer

How do hull and machinery underwriters feel about their challenging speciality? “Approach with caution, migraine in progress,” advises Mark Edmondson, chairman of the ocean hull committee of the International Union of Marine Insurance.

A shrinking premium base has come at a time of changing risk profile, Mr Edmondson reported in his chairman’s address to the IUMI 2016 annual conference, this year in Genoa.

Mr Edmondson, who is head of Lloyd’s marine syndicate 2488/1882, Chubb Global Markets, said that overall in the market, pricing was under pressure. Increased volatility in the risk environment is “a given,” he underlined.

“I would suggest that underwriting discipline is cracking as many carriers seek to maintain top line [volume of business],” he said.

Price differentiation was in decline. Verticalisation [brokers looking for lower rates for a slip than those offered by the leader] and re-marketing were increasingly commonplace, as the soft market continued.

A skill and experience gap was accentuating soft market conditions – underwriting and broking standards have declined, Mr Edmondson contended.

Marine hull experts at IUMI.

Marine hull experts at IUMI.

Global gross written premium was down by 8.5% from 2014 to 2015 Some underwriters were modifying their appetite, and there were attempts to introduce more spread, diversification and specialism; but size, scale and complexity of exposures were outrunning rating levels. In the area of malicious cyber coverage, there was so far limited momentum to write coverage back.

As far as capacity was concerned, there was a limited number of withdrawals, and notable start-up activity, specifically at Lloyd’s; some carriers were seeking wider distribution by “giving their pen away” in effect a covert increase in capacity.

Streamlining of business – particularly through facilities operated by large broking houses – was adding to pressure, significant company merger and acquisition had taken place, and there was increased appetite for international business from traditionally indigenous carriers

The centre of market gravity continued to move eastwards, with significant latent capacity in the Far East. There was record capacity for international business estimated by many people $2.25bn.

In claims, 2015 experienced an uptick in loss frequency and another spike in total loss and major casualties. Some markets were reporting a reduction in both frequency and average claim cost during 2016 to date. Heavy weather and grounding had become of much higher frequency since 2011.

Mr Edmondson quoted ratings agency Moody’s from its March 2016 report: “Moody‘s has changed its outlook on the global shipping sector to negative as it expects growth to outpace demand growth in 2016.”

Vessel size was increasing, particularly in the container, cruise and dry bulker sectors.

He instanced the casualty when the ultra-large CSCL Indian Ocean of around 19,000 teu grounded in the River Elbe in February 2016 on a voyage from Felixstowe to Hamburg. After several failed attempts, the China Shipping Line boxship was refloated on a high spring tide by 13 tugs, aided by dredging around the ship.

There was rising interest in Arctic transit. The cruiseship Crystal Serenity of 68,870 gt, with 1,070 passengers and 655 crew members made a 32-day transit of the Northwest Passage starting in August 2016. The 2003-built ship was accompanied by the RRS Ernest Shackleton, an ICE 05 classed icebreaker. This was by far the largest ship to sail the route. [Crystal Cruises has announced that the luxury ship will repeat the cruise  in 2017].

Mr Edmondson referred to the lack of salvage assets immediately available when the3,351 teu Rena went aground in 2011 on a reef in the Bay of Plenty off New Zealand.

Meanwhile, there were increasingly difficult market conditions in the container sector. The rate for an 8,500 teu containership had fallen in 10 months from $35,000 a day to $10,000.

The sharply lower oil price had a crippling impact on exploration and production support services.

Mr Edmondson cited a recent BIMCO statement:  “The shipyards become the next victim of the deteriorating conditions in the dry bulk, container and offshore markets as 2016 looks to set the record for the lowest newbuilding contracts in more than 20 years.”

Underwriters needed to monitor technological and operational developments in propulsion where novel systems would be required; the development of advanced materials; increased use of robotics, sensor technology and autonomous system design; smart ship technology; and the extended navigating range of ships.

You may also like

Leave a Comment