IUMI Committee notes bounce in activity since lowpoints

In his report on World Merchant Fleet and World Trade yesterday, Philip Graham, chairman of the Facts & Figures Committee at the International Union of Marine Insurance (IUMI) observed that there had been a bounceback in activity since the dark days of earlier in the year.

After reporting that Jun Lin of Gard had taken over the position of vice-chair, Graham welcomed Sanjiv Singh of the General Insurance Council (India) as a new member of the committee.

Graham observed that last year in Toronto, IUMI had reported that 31 underwriters had pulled out of underwriting lines since 2017. “Since then the markets have reacted with reports of increased pricing in cargo and hull”, he said.

A senior executive at one major reinsurer had observed that this was a case of a hardening P&C market driving price increases in reinsurance, rather than the other way round.

Referring to the current Covid-19 pandemic, Graham said that he was heartened by Rolf Thore Roppestad’s statement the day before about how much we owe to the seafarers who are continuing to work, sometimes well past their contract expiry date. He recounted the statement of one seafarer who had unloaded cargo four times, each time ready to go home, and each time being told to return to the ship and to make another delivery. “All we want in return is to be able to come home and rest”, he said.

Graham said that, if this had been a real conference, he would have asked the audience to stand for a minute and to applaud the noble work of seafarers worldwide.

In his look at the current economic situation, Graham said that there had already been the beginnings of a fall away in confidence in 2018 and 2019, dropping from 100+ to 99.5 (where 100 equals parity) by last year. However, by March and April that had fallen dramatically, to less than 94. But it had since recovered to 97.

The Purchasing Managers Index (PMI) showed even better news in the US and China where there had been a return to “normality” in the past month. However, PMI remained negative in the euro area, UK and Japan.

The Commodity Price Index had showed a varied picture. While energy had dropped significantly, metals, minerals and agriculture held up.

By the end of July this year the global average weekly mileage in container markets was down 8.4%, up from a 16.3% decline at its lowest. In Europe the mileage had returned to near-normal levels.

Even the cruise industry was not a matter of unremitting bad news. Graham said that, even though many vessels were in lay-up, they were in hot lay-up. The belief remained that the return to cruising would come sooner rather than later. There had also been the beginning of scrapping. A larger number had been scrapped already this year than in any year in the past two decades. The order book is also at an all-time low, and the cruise/ferry part of the order book is likely to be put on hold for a year or two, said Graham.

Marine underwriting premiums for 2019 were estimated to be $28.7bn, down 0.9% on 2018. Global income was split geographically:

Europe 46.3%
Asia/Pacific 31.8%
Latin America 10.3%
North America 5.3%
Other 6.3%.

For global marine premium by line of business, cargo continued to represent the largest share in 2019:

Cargo 57.5%
Offshore energy 11.7%
Marine liability (excluding than IGP&I) 6.8%.

Graham noted that the numbers being reported covered the 2019 underwriting year. Usually one could analyse trends to get an understanding of potential future outcomes but Covid-19 had been such a significant global event that it would inevitably impact on all statistics, including IUMI’s, he said.

The loss ratio figures as of 2019 suggested the start of a modest recovery in the hull and cargo segments and a continued fragile balance in the energy segment, but it was still early days. It remained to be seen how far Covid-19 would impact these trends going forward.

Graham said that one consequence of Covid-19 was that people were travelling less and buying less. This had translated into a lower utilization of containerships, cruise ships and yachts. A direct result was the abnormally low level of claims incidents recorded in recent months. Graham observed that, while this was good for underwriters in the short-term, “we should be wary of a return to normality as utilization begins to increase”.

He said that “in my view, the coronavirus pandemic has, in a few short months, digitally moved many industries, particularly the insurance industry forward by at least a generation”. Graham said that in many ways this was extremely positive. “However, we must also be mindful of how the pandemic has financially impacted many of our clients and the potential impact that could have on risk management.”

Offshore energy

The offshore energy market saw a modest 1.4% reduction in total premiums in 2019 when compared with 2018. Premiums dropped sharply from 2014 to 2016. but more recent years have seen a flattening out. Premiums in this market were strongly influenced by the oil price, with a general 18-month time lag between a rise in the oil price and activity levels catching up. Oil prices had begun to recover from 2016, although with some variation, which led to a reactivation of offshore facilities and a corresponding stabilizing of the global premium base. However, Covid-19 had reduced the demand for oil, forcing prices downward again leading to more uncertainty in this sector. The cycle of laying-up and then reactivating offshore assets brought more unpredictability to this market, Graham said.