Global economy continues to recover; marine insurance results remain under pressure

Astrid Seltmann, Vice Chair of the IUMI Facts and Figures Committee and analyst/actuary of The Nordic Association of Marine Insurers (Cefor) reported in the December edition of IUMI Eye that growth of the global economy continued to accelerate, reaching its fastest pace since 2010 in 2018. Commodity prices were only expected to rise gradually, if at all. Nevertheless, the outlook was more positive than it had been for a while, said Seltmann.

Uncertainty remained as to how changes in national trading policies, Brexit, financial uncertainties and ongoing conflicts in various parts of the world would influence the future macroeconomic development.

World fleet growth was easing, and average fleet ages were increasing. Ship earnings were improving.

An oil price rally in 2017 led to activity in the offshore sector starting once again to gain traction.

An upswing in global trade triggered a 6% increase in overall cargo premium, but cargo insurance results in recent years had been impacted heavily by large event losses (Tianjin, satellite, hurricanes/nat-cat, Mærsk Honam).

Increasing risk accumulation on single sites was a challenge which needed better monitoring. Increasing expenses and coverage extensions were a concern.

Overall hull premium was down 2.3% in 2017. Comparing the hull premium and average vessel values to the world fleet development revealed an increasing mismatch between fleet growth and hull income. This development was reflected in global hull insurance results, which had continued to deteriorate substantially over the last three years, despite a benign claims environment with few major losses and moderate claims frequency and cost.

The only extraordinary claims impact on the 2017 results came from hurricane losses on yachts.

After two years of a more than a 20% drop in offshore premiums the decrease flattened out in 2017 after the oil price started to rally. With the reduced activity followed a modest major claims impact, but with substantially reduced income levels, attritional losses took an increasing share of the premium.

Through renewed activity in the sector the outlook was currently more positive, the claims potential arising from the reactivation of complex offshore units was a concern.

Seltmann concluded that, in general, the market environment was improving in all segments. However, she added that sustainability of results could only be achieved by a robust risk evaluation taking into account all risk aspects, such as scope of coverage, characteristics of the covered risks, accumulation scenarios, climate change, new technology and the combined effect on expected claims costs.