Marine Insurance Market

MARINE INSURANCE MARKET
CONTENTS
 Introduction.
 Marine insurance markets adapting to change
 Regional overview: Global insurance
 markets in flux
 Hull: Challenges ahead
 P&I: Signs of stability
 Cargo: Downturn hits volumes
 Liability: Rising prices
 Construction: Peak is passed
 Ports and terminals: Higher rates, reduced volumes
 Oilfield services: Stable for now

INTRODUCTION
MARINE INSURANCE MARKETS ADAPTED TO CHANGE
Unprecedented challenge by ship owner
The world economy ran out of steam in 2008 and the momentum has finally stopped carrying the
shipping industry forward. While 2008 was a record year for some as the economic boom
reached its peak in the first half of the year, the first quarter of 2009 looks set to be the worst in
many years. As a result, the shipping industry issues identified in Aon’s 2008 Marine Insurance
Market Review have been turned sharply on their head. The challenges of under-supply of
tonnage have violently switched
to severe cases of supply overhang.
The industry may therefore be somewhat relieved to know that, so far at least, the recession has
had
much less impact on the marine insurance market. While showing signs of firming or even
hardening
prices, insurers continue to offer attractive terms to well managed risks.
Firming insurance markets
Commercial marine insurance underwriting results have been acceptable or better in recent
years,
particularly in the dominant London market. While the markets may attempt to talk up pricing
simply
because it seems logical to do so in the present difficult economic circumstances, the evidence
suggests
there is no reason to overreact at this point.
Even so, commercial underwriters are in business to make profits and it would be misleading to
imply
that the marine insurance industry does not face challenges in these difficult times, which may
become
more entrenched as the economic situation develops.
Insurers are struggling to adapt to the prospect of falling revenues due to reduced activity and
decreasing investment income through lower asset values, equity and bond yields and interest
rates.
With a much slimmer stream of investment income, insurers are likely to be forced to focus more
on pure underwriting profit, which has been elusive in some classes. Protection and Indemnity
(P&I)
insurance is a good example: rates have been forced up sharply in recent years but most P&I
clubs still
lose money on their underwriting account.
These challenges to the top line combined with increasing costs, (including higher reinsurance
prices
as a result of catastrophe losses in 2008 – particularly Hurricanes Ike and Gustav), probably
sounded
the death knell for the soft phase of the commercial marine insurance markets. The market
perceptibly
turned a corner during the January 2009 renewal season. Although the commercial insurance
markets
may not have the same ability to force rate increases as their counterparts in the mutual P&I
industry,
there is an increased sense of determination on the part of underwriters to move rates back up
again.
This desire applies more or less to all areas. Protected by their competition dispensation, at the
20
February 2009 renewal the International Group P&I clubs probably achieved an average increase
in
rates approaching 15%. Hull and machinery rates are moving up in the range of 2.5% to 7.5% for
clean business. Liability is seeing similar rises. The only area that remains flat is cargo, though
not for
want of trying on the part of underwriters.
Moves to harden the marine insurance market come at a very challenging time for the shipping
industry, but in view of the pressures on insurers generally, the situation could be much worse.
3 Marine insurance || Market outlook || 2009/10
For the time being at least, abundant capacity in most classes of insurance is generally tending to
keep a lid on rate rises, and there are no obvious signs that capacity for marine insurance risks
will
significantly decline in the short term.
This knowledge will not comfort insurers, who still have to pay the claims despite possible falls
in
revenue. Underwriters will be hoping that the reduction in activity will bring about a
concomitant
reduction in claims. Whether this will be so is open to debate.
Claims
Six months or so into a recession is too early to see any change in the pattern of marine insurance
claims but the downturn could influence claims patterns in conflicting ways. On one hand,
claims costs
should fall because fewer ships are at sea and repairs are likely to cost less as lower prices for
steel and
spare parts start to work through.
On the other hand, there could be a short term surge in claims if vessels are laid up in large
numbers
and owners take the time to make the inspections that could lead to the discovery of unsuspected
damage. That said, less activity tends to reduce losses and, as the downturn comes to an end,
another
surge in claims is possible as activity once again increases.
Hijackings hit new high
Opinion is divided as to how serious a financial threat piracy poses to ship owners and insurers.
The
cost of kidnap and ransom (K&R) cover for the Gulf of Aden has certainly risen sharply in 2009,
sometimes by as much as a factor of 10, and premiums in the region of US$30,000 for a limit of
US$3 million for a single voyage have been quoted. Those ship owners opting to purchase K&R
cover
presumably prefer the certainty offered by these products rather than diverting around the Cape
with
the increased running costs that this entails.
A broader range of products is now becoming available. For example, in 2008 Aon launched a
policy
covering loss of earnings from a ship detained by pirates. The policy is available to ship owners,
charterers,
cargo owners and all other parties with an insurable interest. The cover responds from the day
the vessel is
detained and is a standalone policy to complement existing hull, war, cargo and P&I cover.
Conflicting requirements
The relationship between the marine insurance markets and their customers is currently finely
balanced.
The squeeze will come when the understandable desire of the shipping industry to reduce costs
in
the face of a dramatic market about turn meets the requirement for insurers to continue to
generate
acceptable margins, without the benefit of investment income. There will be challenging
negotiations
ahead across the spectrum of marine insurance during 2009 and into 2010.
Marine insurance || Market outlook || 2009/10 4
Highlights
n L ower premium volumes
n I nvestment income sharply reduced
n P&I rates rise again
n O ther rates firming
n A bundant capacity
Regional Overview: Global
insurance markets in flux
Marine insurance has become increasingly regionalised as insurers look to position themselves
closer
to their customers. International centres like London and Norway still dominate, but, notably in
Asia,
overseas underwriters now sit alongside mature and emerging home grown capacity to create
markets
that can increasingly rival the traditional global hubs for domestic risks.
Asia: growing confidence
In Asia, local and regional insurers are growing in stature and confidence. The Lloyd’s insurers
and
companies that set up in Singapore several years ago are now well established and eager to
increase
market share.
Local cargo underwriters such as RSA, AXA, ACE, Liberty, AIG and CV Starr can provide
capacity
to write most risks in the region, and these markets have expanded their services to include risk
management and enhanced claims servicing. RSA , Groupama, Catlin and First Capital are
leaders on
Asian hull and construction, although larger risks still tend to be led out of London and Norway.
There
is potential for more local hull capacity from Lloyd’s and company markets in Europe.
In addition to these regional markets there is still significant domestic capacity in certain national
markets. For example, Chinese insurers such as PICC, CPI and Ping An have combined capacity
of at
least US $150 million for domestic hull risks.
Europe: regional strength, international capacity
The steady growth of several European marine insurers reflects a trend for regional marine
capacity and
expertise that is steadily growing around the world. This is a positive development for ship
owners,
shipyards and marine contractors and other industry sectors, as it provides more choice,
competition
and potential for innovation.
In the Netherlands for example, insurers such as Benelux market leader Fortis Corporate
Insurance and
Reaal continue to develop international ambitions and capabilities, increasing their presence in
the
international marine arena. This growing appetite means that the Dutch market is now able to
insure
sizeable risks locally, turning to London or other markets for support in large risks or excess
lines.
As well as local insurers expanding, other global players such as RSA, Starr Marine and XL have
recently
set up marine shops in the Netherlands and other European countries. There also seems to be a
willingness on the part of (other) Lloyd’s syndicates to move closer to these markets, as they
have done
in Singapore, in the search for new business.
Another example of more choice in the local market is Rotterdam based company Raets Marine.
Previously focused on fixed P&I and charterers’ liability, it is now also providing capacity for
hull
and cargo business in partnership with Swiss Re. Cargo risks are more than adequately catered
for in
Europe, with major marketplaces in France, Germany and the Netherlands in particular.
Scandinavia: down, but not out
The Norwegian marine insurance market has had a tough time recently as a result of hull losses,
and
this has taken its toll on Scandinavian capacity. Bluewater and Nemi have stopped underwriting
marine
altogether, while Gjensidige has retrenched to focus on domestic coastal business only. The
Swedish
Club and HDI Gerling are still firmly in the market, but Norwegian Hull Club and Gard have
often cut
back on the shares they are prepared to write.
Nonetheless the remaining Scandinavian insurers remain a potent force in the global marine
market.
There are several insurers focusing on only local Scandinavian business that maintains pressure
on rates
for this type of business.
There have been several attempts to establish new capacity writing marine insurance, but so far
these
have not been successful, mainly due to lack of capital. We also see an increasing number of
agencies
representing different Lloyd’s syndicates and other carriers being established in the region that
support
different lines of business such as cargo and fish farming.
After recent sizeable rate increases on hull and construction, Norwegian underwriters may well
be
obliged either to cut rates or at least peg them at current levels. Failure to do so could result in
business defecting to more competitive insurers elsewhere.
The Norwegian market’s fortune may be at a low point but most expect it to bounce back. It
remains a
centre of considerable expertise and the key players retain a strong appetite for good marine
business.
In an interesting development Gard is intending to consolidate its hull and P&I underwriting into
a
single team, organised into six geographical regions.
The United States: rising prices
US underwriters in the main are starting to press for rate increases due to a combination of
falling
investment income and, in some cases, loss experience. In particular, unfavourable results in blue
water hull and catastrophe losses impacting brown water risks mean underwriters are becoming
more
disciplined in their approach to pricing in these classes.
Brown water liability business is a challenging area, particularly as a result of a large potential
liability
loss from the collision of a chemical tanker and fuel barge in the Mississippi in July 2008, as
well
as losses following last season’s hurricanes. Insurers are now asking for rate increases and higher
minimum premiums.
Some primary liability insurers have reduced marine capacity, while in the commercial towing
market,
one underwriter has withdrawn and excess insurers are scrutinising their commitment.
In contrast to hull and liability, cargo capacity is increasing thanks to market recognition of
improved
risk management and the short-tail nature of claims. This additional capacity means that cargo
rates
remain soft, although decreases are levelling off. While some insurers believe cargo pricing is
now
too low, there is a strong counter argument that prices more accurately reflect the improved loss
experience in this class than they did two years ago.
Some new capacity has entered the ports and terminals market too. Consequently rates are
generally
stable, although some are edging higher due to loss experience. The one major concern for
underwriters in this class is catastrophe risk such as hurricane, so coverage restrictions continue
to
apply for exposed ports and terminals.
In other marine classes, capacity in the US remains adequate and largely stable. That said,
primary
liability insurers as a whole have become less flexible about policy wording, often demanding
premium
increases. In the logistics market we see a growing interest in trade disruption and other
consequential
loss insurance.
London Market: travelling well
London remains the home for the majority of the P&I clubs, and despite the growth of existing
and
new markets, it continues to dominate marine insurance and remains the main source of capacity
for
larger and more complex risks. Price rises in the US and Scandinavia’s short-term troubles have
led to
London winning commercial marine business from both markets.
Capacity and pricing in London remains generally stable for most maritime risks. It continues to
be
at the centre of insurance innovation and the main source of specialist cover such as war and
kidnap
and ransom.
London cannot afford to be complacent in the face of growing international competition. Insurers
need to maintain their willingness to modernise, for example by further embracing electronic
trading.
Highlights
n Markets move closer to customers
n A sia gains confidence
n E urope flexes muscles
n S candinavia takes stock
n US sees price rises
n L ondon remains at the centre of innovation
Hull: Challenges ahead
Firmer rates
Hull and machinery is often thought of as low margin business. The sheer volume of hull
capacity
available to ship owners suggests that, however low that margin may be in recent times, at least
hull
underwriting has consistently delivered an adequate return on the capital invested in it. Lloyd’s,
for
example, reports an average net loss ratio for hull, war, shipbuilding and associated lines for the
period
1999 to 2008 of below 65% before accounting for expenses.
However, the economic downturn and the consequent loss of investment income means that hull
and
machinery underwriters are fearful for the future and are hot on the heels of their P&I colleagues
in
pressing for rate increases, if perhaps not to the same extent. This trend is in contrast to the
recent
boom years when ship owners enjoyed the happy combination of strong business revenues and
falling
hull insurance rates.
That situation changed in 2008 when rate reductions from the London market were no longer
readily
available even for clean renewals. As 2008 became 2009, prices began to creep up, if only by
around
5% for clean accounts, with larger increases for ship owners with less attractive loss statistics.
Asian and
US markets have been seeking premium increases on many accounts at renewal too.
In Norway underwriters began asking for much bigger rate increases (up to 20%) well before the
end of 2008, after mounting losses on their hull and machinery accounts. That pressure has
levelled
off as rates from Norway have caught up with the market and those underwriters have now
reduced
their appetite for hull risks. It has not been unusual for the leading Norwegian underwriters to cut
their participation on hull risks to 10% or 15%, down from the 30% to 50% they had written in
the past. This (probably) temporary reduction in appetite on the part of Norwegian insurers
creates
opportunities for other markets, particularly, although not exclusively, London.
Hull underwriters are not immune from the impact of losses in other classes of insurance, such as
the 2008 catastrophe claims from hurricanes Gustav and Ike in the Gulf of Mexico, creating
upwards
pressure on reinsurance costs.
Additional potential problems stemming from the economic crisis will only add to these burdens.
If, as
some think, ships are laid up in much larger numbers than have been reported to underwriters at
the
time of going to print, income to the hull markets could fall very significantly. A reduction in
losses as a
result would only be a partial relief: there are still bills to pay.
Further, the downward trend in hull and machinery values is almost as unsettling to underwriters
as it
is to ship owners; not only do underwriters lose income, they lose it from the top tier, usually
loss free,
proportion of the risk.
Despite the various pressures on insurers, the scale of rate rises is likely to be restrained by the
very
significant imbalance between the supply and demand for hull capacity. Capacity expanded
rapidly
during the period leading up to the financial downturn, as much as anything else to keep pace
with the
rapidly rising ship values, and it is still buoyant. The international market can provide well over
US$1
billion of hull capacity, whereas the average hull risk is probably around US$40 million to
US$50 million.
Perhaps an additional consolation for ship owners is that the hull market could well become
more
discriminating than it has been in the past. Put another way, desire for profitability is likely to
mean
that insurers will take more care to match rates to individual risks so that ship owners with good
records and a well-presented risk should see this reflected in the terms they are offered.
Highlights
n A decade of underwriting returns
n Downturn hits investment income
n Hull values falling
n I ncreasing reinsurance costs
n U nderwriters press for rate rises
n Premium volumes fall
n Plentiful capacity
P&I: Signs of stability
Clubs take decisive action
The downturn in the global economy during 2008 struck the mutual P&I clubs at a time when
they
were already facing tough financial challenges. However, while the clubs cannot predict or
control
the economy, they can and are taking steps to manage their underwriting operations and
investment
strategies more effectively. As a result, while most increased rates by 15% at the February 2009
renewals, ship owners can expect a more stable P&I environment in the future.
One reason for optimism is the dramatic fall in large value claims (those over US $7 million,
known as
pool claims because they are paid collectively in excess of that amount by the International
Group of
P&I clubs). Initial estimates for 2008 at US$130 million are substantially lower than the high
plateau
reached in 2006 and 2007 when total pool claims exceeded US $800 million. More encouraging
still,
the total number of pool claims notified so far for 2008 is just seven, compared with 38 in 2006
and 24 in 2007. In addition, the 2008 pool claims total is well down on levels recorded in 2005
and
previous years, when the average was of the order of US $400 million.
If this trend continues, in two or three years’ time the clubs could be very well funded. A return
to more
stable claims patterns will make it far easier for clubs and their members to set their annual
budgets.
Big claims drivers
The decline in large value claims in 2008 is probably largely due to a single factor: serendipity.
The surge
in large claims in 2006 and 2007 was part random and part a product of buoyant global trade.
But the
world economy and demand for ships continued to be very strong throughout most of 2008, yet
the
volume and frequency of large claims fell back sharply. In other words, the spike over 2006 and
2007
probably did not represent the start of a new sharply increased trend in pool claims as some had
feared.
Certainly, there is no evidence of a pattern relating to any particular type of ship, cargo, location
or other
common denominator. After two years of the most appalling bad luck, the P&I club system
enjoyed a year
of very good luck in 2008.
It is hard to predict whether the effects of global recession, which had only just started to
permeate
through to shipping activity in the last quarter of 2008, will allow the clubs to enjoy similar good
fortune
in 2009, although logic suggests that less activity equals fewer claims for the industry as a whole.
Time lag
Unfortunately, even if the effect of the global recession is to reduce the cost of P&I claims, P&I
accounts
are underwritten on the basis of five, seven or even 10 year loss records, and consequently it
could be
some time before these lower claims costs feed through to lower premiums for ship owners. The
clubs
nearly all need, or would like, to replenish their reserves. At the same time most continue to
underwrite
at a technical loss, without any significant subsidy from investment income or any real idea when
they
might expect investment markets to produce returns.
This means the clubs will probably continue to seek increased rates to cover underwriting losses
and so
compensate for the absence of investment income. Indeed many clubs have decided or have
already
been forced to seek fresh capital through the highly unpopular mechanism of additional, un-
budgeted
supplementary calls. This at a time when ship owners can ill afford to pay and before the benefits
of falling
claims come through.
Asset re-allocation
Investment portfolios are critically important for all insurers and P&I clubs are obviously no
exception.
Their investments represent multiples of their annual premiums and have traditionally subsidised
underwriting losses. However, all the P&I clubs have suffered the effects of the global economic
downturn on their investment portfolios. Tumbling equity and bond prices caught many out.
Under
pressure from rating agencies, many clubs substantially reduced equity exposures in 2008
(typically a
third of a club’s investment portfolio would hitherto have been equity based) with some almost
exiting
equity investments altogether.
This downsizing of clubs’ equity portfolios has reduced the potential for volatility on the
investment
side and increased the chances of a return to a more stable long-term performance. The downside
is that inevitably the clubs will benefit less than in the past in the event of a sustained stock
market
recovery such as the one seen in the spring of 2009.
Regulation
In November 2008 the Bunker Convention came into force and had been ratified by 39 states by
April 2009. The convention fills the last significant gap in the international regime for
compensating
victims of oil spills from ships. It requires all vessels, not just tankers, to carry proof that they are
insured
against bunker spills before entering port. The convention is likely to lead to an increase in
claims
because it removes some of the rights of ship owners to limit liability and contains a no fault
provision.
In this respect, the convention mirrors a trend across the maritime world in favour of no fault
legislation. Assuming ultimate ratification, the Athens Convention, the Removal of Wreck
Convention
and the International Convention on Liability and Compensation for Damage in connection with
the
Carriage of Hazardous and Noxious Substances by Sea 1996 (HNS Convention) will all follow
the same
tenet. Although the no fault principle will increase claims, it should also reduce disputes and
clubs will
eventually be able to adjust premiums accordingly.
Despite the difficult operating environment caused by the economic downturn, P&I clubs are
taking
action to manage the challenges over which they and their members have some control. Finances
are
being strengthened and exposure to potentially volatile investments reduced.
Highlights
n L arge claims plummet in 2008
n R ate rises bolster club finances
n C lubs de-risk investment portfolios
n N o fault conventions proliferate
Cargo: Downturn hits volumes
Harsh conditions
Volatile commodity prices and plunging trade volumes mean the outlook for the cargo sector has
gone
sharply into reverse since early 2008. Instead of a booming world economy with just a few
clouds on
the horizon, cargo owners are experiencing probably the steepest downturn in living memory.
Container traffic has fallen dramatically with big declines, for example, in sales of electronic
goods.
Car sales have slumped even further. The price of nickel has ricocheted from a 2008 high of
around
US$56,000 a tonne to just US$13,000 in the first quarter of 2009. Oil has fluctuated wildly too,
hitting
an all time high of US$147 a barrel in July 2008 before sinking below US$35 in December.
This dramatic shift in trade flows means stockpiles have mushroomed at ports and terminals
around
the world. Where ‘just in time’ delivery schedules used to prevail, now talk is of rising
inventories of
both commodities and manufactured goods. The downturn has hit Asia, home to several of the
world’s
biggest container ports and 40% of world tonnage, particularly hard.
To some extent, the decline in premium revenue from cargo in transit is being offset by the need
to
insure more goods in storage. Cars, for example, are being stockpiled in their thousands due to
the
slump in sales. In a separate development, some oil traders are buying up stocks in the
expectation
that prices will recover in the long term, again creating a need for insurance cover.
Although the immediate economic outlook is hardly encouraging, supply and demand could
return to
balance just as quickly as they fell out of kilter. In the meantime, however, falling sales mean
that the
industry remains under pressure and is looking to make savings wherever possible including on
their
insurance costs.
Insurers still keen

Consequently life has become much tougher for cargo insurers. Less cargo and lower commodity
values
mean fewer premiums. For instance clients no longer need to buy limits in excess of US$200
million on
large oil cargoes or US$300 million on bulk commodity shipments as some did when prices hit
their
highs in early 2008.
As well as falling premium income, cargo underwriters are having to adapt to a slump in
investment
income compared with previous years. And some are being squeezed by rising reinsurance costs
too.
Those hit by the 2008 hurricane season may be paying up to 20% more for their reinsurance
protection.
The cargo insurance market was expected to have shown some signs of premium increase due to
general loss patterns in the cargo, general marine and global reinsurance markets. However,
cargo
remains a generally profitable account for many insurers and there is still plenty of capacity
available
globally. Indeed Asia is seeing an increase in capacity, so the anticipated across the board
premium
increases are not materialising except for very unprofitable accounts.
Furthermore, one would expect that with the withdrawal of capital from insurance markets due to
the global economic downturn and insurers having to focus on underwriting profit cargo
premium
would start to increase. The economic contraction, however, has had a significant downward
effect on
limits required and the turnover of companies (often used as a base to apply adjustable rates in
cargo
programmes). This has meant that the cargo premium volume has reduced at a time when
insurers
would have been looking for premium increases to cover their general account and pay
reinsurance
costs. In the longer term we would expect insurers to try to push for rate increases on the
reducing
turnovers in order to attain as before premium levels, but this is likely to be resisted by buyers
and their
brokers because plentiful capacity is available.
Highlights
n R einsurance costs rise
n R ates mostly stable despite upwards pressure
n S ubstantial capacity still available
n O pportunities to insure stockpiled goods
L iability: Rising prices
Capacity stretched
Marine liability insurers provide cover for all sectors of the shipping industry such as ports and
terminals,
shipyards, freight operators, stevedores and shipping lines. They see at first hand how all these
areas are
being affected by the current economic conditions, and thus impacting them. The slump in
investment
income and the consequent increased reliance on underwriting profits that is a current feature of
all
insurance markets has already prompted certain US insurers to pull out of the market.
The consequences for clients are the first signs of capacity shortages and higher rates. To date
the
restrictions on capacity owe more to selective and disciplined underwriting than to large numbers
of
insurers withdrawing from the class. Despite large amounts of capacity remaining, liability
insurance is
nevertheless becoming more expensive, particularly on higher-level excess layers. Clients are
therefore
reviewing the need for such capacity as the cost increases.
Atlantic drift
In the US there are signs of reduced capacity. Certain domestic insurers have withdrawn from
first
excess umbrella market following disappointing results during the soft market.
As a result the London market is seeing an increase in North American enquiries particularly for
excess
umbrella placements. London underwriters’ appetite for such business remains somewhat
limited,
however. This is due in part to the attachment point but mainly the result of the low original
rating
levels in the US domestic market.
There is a risk that liability rates will begin to rise even more rapidly if US carriers continue to
reject this
class of business, leaving policyholders little choice but to accept London rates. At present there
is no
sign of any new US capacity emerging with an interest in writing the class. This trend would fit
with
the historical pattern of small-scale US liability accounts coming to London when the domestic
market
hardens and then returning to domestic carriers when rates soften. Doubtless, though, the London
market regards this development as an opportunity.
On larger US accounts, London continues to offer the higher levels of protection it has always
provided, typically on an excess basis. With competition limited at this stage the London market
is
likely to continue to increase the cost of this capacity. In contrast, there is considerably more
interest
for primary non-US business where the competition is greater and rates more aggressive.
Mixed messages
Rising reinsurance costs are also driving rates higher in the London market, in particular an
increase
in the number of large claims feeding through to the International Group’s reinsurance
programme.
Due to adverse losses in the 2006 and 2007 policy years, claims have broken through the US $50
million ceiling under which P&I clubs mutually pool their claims and this has in turn impacted
London
underwriters’ results.
Customers of the marine liability markets can expect rates to continue firming by 5% to 10% for
the
foreseeable future with rises at the higher end for risks demanding capacity stretches.
Highlights
n T ightening of capacity
n R ates firming especially for capacity risks
n R educed demand for higher layers
n More US business coming to London
Construction: Peak is passed
Order books full, for now
After years of booming ship construction, many shipyards began to feel the first ripples of the
economic downturn in late 2008.
Although the peak in the construction cycle has clearly passed, the full effects of the economic
slow
down will not be felt immediately. Given the time taken between placing an order and
completing a
vessel, many yards have order books that will take them through until 2012.
In the medium term, it seems likely that some of the smaller, newer yards will be the first to start
to feel
the pinch as new orders dry up. On the other hand, pent-up demand for repairs should provide
many
yards with a temporary financial cushion. In a positive development for ship owners, wider
availability of
repair facilities could reduce costs, and both waiting times and travelling distances should fall.
Insurers
should benefit too as lower spare parts and repair costs translate into lower claims costs.
That said the extra demand might mean that there will be more ships in dock as a result of the
economic downturn, and as a result the cost of spare parts and repair berths holds up despite the
potential new capacity.
Safety
Improvements in shipyard safety since around 2005, including storage and warehouse facilities,
are
having a very positive impact with no large claims reported in recent years. This welcome
development
is partly due to the JH143 Shipyard Risk Assessment Warranty demanded by almost all
underwriters. In
particular, the JH143 has helped to reduce fire risk, previously the main source of construction
claims.
All but the smallest yards placed in the international markets now have at least the minimum C
rating
JH143 required by underwriters, with many yards having obtained a B rating and above. The
JH143
is being further developed and underwriters are beginning to ask for project specific ratings or
for
an update on surveys performed two or three years earlier. The fact that many insurers now
employ
surveyors in-house underlines just how important the JH143 has become.
Eager insurers
Underwriters currently have a strong appetite for construction risks of all sizes. Many see
construction
as a source of growth as well as being more profitable than hull and machinery business thanks
to the
improvements in shipyard safety. In the longer term however, the reduction in demand and ship
values
will inevitably dilute the premium pot available to insurers.
For now, though, ship owners should have little difficulty in finding capacity for vessels up to
US $200 million in value. Beyond that, capacity of well above US $1 billion is available on
global
markets. London remains dominant in construction but well-established markets exist in
Norway,
the Netherlands, France and elsewhere in Europe and increasingly in Singapore, Hong Kong and
the Middle East. However, price is more likely to be an issue when placing a large risk globally
with
multiple markets.
Rates remain competitive, although they can vary widely between insurance markets, partly
because
of different demands and underwriters’ individual preferences. For example, Korean yards tend
to buy
coverage in the international markets only for launch through to delivery, preferring to insure the
initial
construction phases in local property markets. That approach suits many underwriters even
though
rates are of course lower when insuring two to six months of construction work as opposed to 12
or so.
Highlights
n I nsurers keen to write construction
n A mple capacity
n Growing markets
n R ates competitive and stable

Ports and Terminals:
Higher rates, reduced volumes
Volumes slashed
Ports and terminals could hardly be expected to be immune from the global economic
challenges.
Whatever the actual decline in container throughput, for example, terminals are certainly storing
more
empty containers. Aside from what this may say about trade volumes, there is an increased risk
of wind
related losses.
Another consequence of the downturn is that gantry cranes and other expensive dockside
handling
equipment, are lying idle. Although not generating income, the equipment still has to be insured.
In
this fast changing economic climate, just as with vessels, some operators are considering
revaluing their
equipment schedules downwards.
The prospects for a recovery in volumes during 2009 are uncertain at the time of going to print,
but
when the anticipated recovery starts, the ports and terminals sector has the capacity and
infrastructure
not only to handle previous levels of throughput, but also to continue expanding.
Rates harden
Rates for ports and terminals are firming in general by 2.5% to 5% for liability cover, although
good
risks may avoid increases while others could see prices rise by 10%. Property cover for ports and
terminals has risen by around 5% to 10%. Most port operators now take out separate terrorism
cover
as standard because of the comparatively low cost.
Port property rates in the Gulf of Mexico are going up dramatically following the losses during
the 2008 hurricane season. This reflects the fact that in this part of the US ports and terminals are
aggregated together with offshore energy in underwriters’ portfolios when rating wind risk. A
benign
2009 hurricane season would quickly prompt a reversal in this rating trend.
Although some markets are less keen to write port property than they were, the panel of
providers is
one of the most comprehensive we have seen for many years and continues to grow. For all but
the
hardest to place risks, good quality capacity is available for liability, business interruption and
terrorism
as well as property. Quality, in other words the security of their insurers, is something ports are
increasingly looking for in view of the continuing turmoil in global financial markets.
Highlights
n R ates firming
n S trong panel of insurers

oilfield services:
Stable for now
Strong demand
Reduced oil prices and economic turmoil do not appear to be preventing energy companies from
continuing to develop more marginal fields, leading to sustained demand for oilfield services. In
the
sub-sea exploration area, for example, Norwegian and Dutch companies in particular have
developed
specialist vessels, sometimes converted oil rig supply ships, which can often be worth more than
US$200
million due to the amount of sophisticated equipment on board.
Because of limited supply, survey vessels command high daily hire rates and tend to be chartered
well
in advance on long contracts. Much of the surveying equipment stays on board while the vessels
are
working. However, they also use over-the-side equipment such as streamers and remotely
operated
vehicles (ROV) in the search for offshore oil and gas deposits.
Demand for floating production, storage and offloading (FPSO) vessels, frequently used to
exploit those
more marginal fields, appears to be weakening only slightly, often where very large capital
expenditure
is called for.
Competitive underwriting expertise
Some of the larger FPSO and semi-submersible rig projects challenge the levels of capacity
available
to them from the marine and energy insurance markets. At the other end of the spectrum, many
operators of sub-sea equipment choose to self-insure over-the-side equipment, since the value of
each item is often measured in hundreds of thousands rather than millions of US dollars,
although
sometimes owners are required by contract to insure remotely operated vehicles (ROV) and
streamers.
Ample capacity is available for ROVs, mainly in London and Norway, even though one
Norwegian
insurer (Nemi) has withdrawn from the market.
Streamers can extend for several kilometres behind a survey vessel and usually have higher
values than
ROVs. With only a few highly specialist markets in London and Norway willing to insure
streamers,
rates tend to be less competitive than those for ROVs, especially when losses have occurred.
The economic downturn could eventually depress demand across all parts of the oilfield services
sector,
from the seismic exploration industry to the supply of operating crew. As yet there is no
evidence that
this is happening however, and the insurance market shows every sign of remaining competitive
in
view of the availability of capacity.
Highlights
n S trong capacity and stable prices
n S mall but competitive insurance markets
for ROV
n S treamers harder to insure
notes
Whilst care has been taken in the production of this report and the information contained within,
Aon does not make
any representation as to the accuracy of the report and accepts no liability for any loss incurred
by any person who
may rely on it. In any case, the recipient shall be entirely responsible for their use of this report.
For further information, contact:
Steve Beslity
CEO Global Marine
020 7086 4486
steve.beslity@aon.co.uk
Media and press enquiries
Alexandra Lewis tel: 020 7882 0541 fax: 020 7216 3491 email: alexandra.lewis@aon.co.uk
Aon Limited
8 Devonshire Square
London EC2M 4PL
United Kingdom
tel: +44 (0)20 7623 5500
fax: +44 (0)20 7621 1511
www.aon.co.uk
Published by Aon Limited.
Registered office 8 Devonshire Square, London EC2M 4PL.
© Copyright Aon Limited 2009. All rights reserved.
No part of this publication may be reproduced, stored in a retrieval
system, or transmitted in any way or by any means, including
photocopying or recording, without the written permission of the
copyright holder, application for which should be addressed to the
copyright holder.
Aon Limited is authorised and regulated by the Financial Services
Authority in respect of insurance mediation activities only.
BC2063–05.09
This document has been produced
using a minimum of 50% recycled
material from a sustainable forest.

Marine Insurance Market

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Marine Insurance Market

Uploaded by

Copyright:

Available Formats

MARINE INSURANCE MARKET

 Marine insurance markets adapting to change

 Regional overview: Global insurance

 Hull: Challenges ahead

 P&I: Signs of stability

 Cargo: Downturn hits volumes

 Liability: Rising prices

 Construction: Peak is passed

 Ports and terminals: Higher rates, reduced volumes

 Oilfield services: Stable for now

MARINE INSURANCE MARKETS ADAPTED TO CHANGE

Unprecedented challenge by ship owner

Insurers still keen

Marine insurance || Market outlook || 2009/10 18

19 Marine insurance || Market outlook || 2009/10

You might also like