Despite restrictions on movement and disruption to trade, the cargo sector was now seeing improvements in the market, bringing a greater level of stability, improved loss ratios and increased capacity, according to insurance broker Gallagher.
From a Cargo perspective, during the initial phase of the global lockdown as a result of Covid-19, there was a direct impact on insured exposures due to accumulations at ports, in warehouses, bulk terminals and floating storage. A race for storage led to a number of companies being unable to manage their supply chains.
Supply chain complexity was felt at ports, mainly because of the additional checks that had to be carried out to help prevent Covid-19 being transmitted from port to port and from contaminating insured goods.
Loss ratios for cargo insurance have remained largely unaffected as a result of the pandemic, Gallagher said, because cargo insurance provides coverage for physical loss or damage, rather than coverage such as delay, loss of market, or inherent vice.
The Cargo market started to harden in late 2017, following a 15-year soft market. While most other classes of insurance at that time were either flat or soft in terms of their market cycle, this has now begun to change, with hard market conditions being experienced across a number of lines.
Cargo insurance carriers have now gone through their remediation process of reviewing their portfolios and recalibrating policy wordings, so that they are truer to the traditional stock throughput form rather than incorporating extended coverages – which arguably crossed over into other classes of insurance, said Gallagher.
The result of this more stringent, yet clearer risk appetite has led to a far more stable and sustainable Cargo market.
The Beirut Explosion
The Port of Beirut explosion last August killed more than 200 people, injured 7,500 more, made 300,000 homeless and cause $15bn worth of property damage.
Gallagher said that this tragedy highlighted a wider issue when it comes to the safe storage of hazardous materials. Beirut was the second time in six years where alleged negligent management of these materials had caused considerable losses of life and property.
Insurers have acted upon this by intricately reviewing all the safety procedures when handling and storing dangerous goods. “While events like this may occur again, an insurance review of this nature can certainly go some way towards mitigating the risk”, said Gallagher.
Most cargo losses sustained were predominantly insured in the Middle Eastern Markets. As a result, this has had little or no negative impact on rating for Cargo risks in the London Market.
Container stack collapses
On February 17th this year the 141,716 gt Maersk Eindhoven (IMO 9456771) experienced a 3 to 4 minute loss of engine propulsion while sailing 45nm off Northern Japan in heavy seas (IMN February 19th)
The consequent loss of manoeuvrability resulted in severe rolling, causing the vessel to lose 260 containers overboard and 65 containers to be damaged on deck.
The loss of containers from the Maersk Eindhoven brought the number of reported cases since November 30th 2020 to six in total, leading to more than 2,935 containers being lost within a two-month period. This was more than double the annual average as calculated by the World Shipping Council.
Gallagher said that these incidents were leading to large financial losses to cargo and container insurers. The possible contributory factors to these losses were numerous. They include improper stowage, overweight and structurally weak containers, and bigger and more powerful ships.
Given that in 2019, the international liner shipping industry transported about 226m, the loss of 2,935 containers might sound small in comparison, but Gallagher said that the impact of these lost containers could be widespread.
2010-built, Denmark-flagged, 141,716 gt Maersk Eindhoven is owned by Ocean Fei Shipping Ltd care of Maersk AS of Copenhagen, Denmark. It is entered with Britannia on behalf of Ocean Fei Shipping Ltd.
Cargo Market Results
Gallagher said that 2020 results for the Cargo market were varied, with no consistent theme across the board. Many syndicates and companies in the London Market showed improved performance, but losses from the Nashville Tornado meant that Lloyd’s reported a Q2 loss ratio of 179% for Cargo risks (risk code V).
In spite of the substantial losses during this period – quarters 1, 3 and 4 were much better, with a number of syndicates making up ground for the difficult trading incurred in the second quarter, Gallagher said.
Once reinsurance recoveries for 2020 were factored in, many companies would have made a modest profit for the first time in many years.
Expectations for the months ahead
New entrants Convex, Fidelis, Ki, Hamilton, IGI, Berkshire Hathaway, CV Starr and HCC were providing much-needed additional capacity required to complete challenging risks and placements with large vertical limits.
Gallagher said that it expected less price differential across the slip and that the follow market would fall in line with terms laid out by their leader, rather than being able to set terms for their share.
Insurers’ portfolios were now more in line with their underwriting appetites, said Gallagher. The broker therefore expected that this year Insurers were likely to want to retain line sizes on existing business.
Towards the end of last year, Insurers were predicting rate rises of between 15-20% for 2021. Given the class’ performance has shown improvements, and with the addition of new capacity, the expectation from Gallagher was that rate rises would actually be around 10% to 15% for general Cargo in H1. Depending on performance over the next six months, rates increases could continue to reduce.
Gallagher observed that some Insurers had voiced concerns that the global slowing of business in many sectors due to Covid-19 could mean that they would not reach their premium growth targets as turnovers were down and adjustments not met. “This may lead to some syndicates writing more new business in the second half of 2021, which will provide better options to Insureds”, Gallagher said.
The broker concluded that it was “important to note that Insurers still remain cautious and the turbulence of the last few years has not been forgotten. Our market is stable, but not soft and the ability to replace a large limit risk with entirely new markets is unfortunately still not a possibility”.