No growth for Ocean Hull premiums, but hints of a modest recovery

Global hull premiums were recorded at $7bn in 2018, equal to 24.4% of the total marine underwriting premium base, reported Rama Chandran, chair of IUMI’s Ocean Hull Committee on the second day of the International Union of Marine Insurance conference In Toronto, Canada.

The number was at the same level as the previous year.

The regional split was reported to be:

  • Europe         45.5%
  • Asia/Pacific   41.3%
  • Latin America          5.8%
  • North America         4.2%
  • Middle East   2.5%
  • Africa  0.9%

Although there was concern at the growing divergence between hull premiums and the growth of the world fleet, there were indications that a modest recovery in global premiums could be underway, Chandran said.

“We are seeing indications that the global premium base is beginning to grow and we are cautiously optimistic of being in a position to make a more positive report next year. But we must recognize that any recovery is starting from an exceptionally low base and so will take time to make a significant impact”, said Chandran.

“The challenging conditions have resulted in a reduction in overall capacity and, although unfortunate, that is positive for a market recovery”.

Total hull losses were reported to have stabilized at a low level. But Chandran warned that “we are now seeing an increase in the frequency and severity of major losses and that will impact on claims costs”. He added: “all things being equal, I believe most international markets have begun to turn a corner and we can expect to see some modest positivity in the hull sector over the coming year.”

IUMI statistics showed that the hull sector was continuing to generate a technical loss, with the 2018 underwriting year forecast to record a gross loss ratio of around 90%, 20pp into technical loss territory. The hull sector had only made a technical profit in three years since 2005.

Chandran reported that vessel earnings and purchase prices were rising and he said that this would assist the underwriting sector. The global order-book was reducing, which he said should help close the gap between tonnage and premiums.

However, Chandran warned of emerging risks which had the potential to impact on the sector in the future:

“2018 saw a rise in the frequency and cost of machinery claims and we expect to see more, similar claims as the impact of the 2020 sulphur cap demands the wider use of low sulphur fuels. The issue of cat fines hasn’t gone away and this will continue to impact machinery claims in the future. The unusually high frequency of containership fires is likely to persist at the current escalated level, and it is particularly concerning to hear that shipping companies believe around 30% of containers are either mis-declared or under-declared. This is a high-risk area for all marine underwriters and one that IUMI is addressing alongside other industry bodies.”

Chandran concluded that “we must also be mindful of new risks such as those generated from autonomous shipping and cyber activities. As an industry, we need to build more awareness of these issues and develop products that mitigate the risk and protect shipowners and others.”