The International Union of Marine Insurance (IUMI)’s spring report, released last week in Hamburg, Germany, indicated that the frequency of hull casualty was stabilizing, while cargo insurance was firming-up and offshore energy prospects were improving.
Over the past three years the frequency of total hull losses within the global fleet had stabilized at 0.13% by number (0.05% by tonnage), largely a result of an improved safety climate, improvements in naval architecture and marine engineering; and more effective regulation. Total losses involving vessels younger than 15 years were significantly less during the 2013-17 period than the years 2008-2012. The frequency of serious casualties had increased since 2014 but appeared to be stable in 2016-17.
However, concerns within the hull insurance market remained. Mark Edmondson, Chair of IUMI’s Ocean Hull Committee, said that “all hull markets acknowledge the severe volatility inherent in a typical international hull portfolio. The global premium base has been eroding year-on-year as a result of reduced asset values, reduced activity in some sectors, and reduced premium rates. Although the financial impact of major casualties was modest recently, increasing values of single risks bear the potential risk of new record losses, and attritional losses are a growing concern.”
Alongside risks inherent in operating ever larger vessels, IUMI said that it was also concerned about advances in the digital applications involved with naval architecture and the operation of vessels – particularly crew training and their ability to manage cutting edge technology and large amounts of data. IUMI said that it was seeing evidence that the frequency of collisions was increasing, possibly resulting from the introduction of modern technology.
The marine cargo insurance market was said to be improving and stabilizing but remained highly competitive “with an abundance of capacity”.
Risks were becoming larger and more complex, with natural catastrophes, vessel and port accumulations and larger outlier losses impacting the bottom line. IUMI said that the sector was facing a commoditization of speciality lines, an increase in broker facilities with high commissions and rising expense ratios. At the same time underwriters were having to ensure that they complied with sanctions and requirements for globally compliant programmes, including locally admitted policies where required.
Sean Dalton, Chair of IUMI’s Cargo Committee, said that “the modern cargo policy has been significantly enhanced to include storage extensions, broad policy valuations and coverage provisions such as Control of Damaged Goods that provide for ‘fear of loss’ and ‘brand protection’. As underwriters we are being challenged to improve our approach and utilise tools such as third-party data, sensor technology and predictive analytics.”
Dalton noted with concern that “most policies remain silent on cyber issues, but the recent Maersk NotPetya attack highlights potential exposures and consequences. Policies that raise the greatest potential risks include Freight Forward Liability cover such as NVOCC Legal Liability, Indirect Air Carrier Liability and Errors and Omissions.”
A 25% increase in the oil price had encouraged an upturn in offshore exploration activity which is starting to impact positively on the offshore energy insurance sector, said IUMI. This in turn had increased the value of “loss of production” insurance purchased.
James McDonald Chair of IUMI’s Offshore Energy Committee warned against over-optimism He noted that capex growth was mainly confined to the US shale market where insured values were considerably less than those achieved offshore. “That said, we expect to see an increase in premiums associated with mobile offshore drilling rigs as they come out of lay-up. But day rates for floaters and jack-ups remain well below their earlier peaks due to continued over-supply”, he said.
Loss activity remained low in offshore last year. Hurricane Harvey bypassed the heavily populated Gulf of Mexico and large losses, in general, were minimal. However, IUMI said that a worrying trend for construction sector losses involving buoyancy devices seemed to be developing. Attritional losses continued to track at a low rate due to reduced activity and improved health and safety practices. But IUMI said that this might reverse as rigs were reactivated.