An emerging trend at this year’s International Union of Marine Insurance (IUMI) has been something of an echo of the Rendez-vous in Monte Carlo the year before. When the market is hard and profits are high, speakers will be keen to emphasize that one year does not make a trend. Rather than pointing out the high gains, the emphasis is on the headwinds, either real or potential.
Isabelle Therrien, Chair of IUMI’s Cargo Committee identified a number of issues that could impact cargo underwriters going forward.
IUMI reported a global cargo premium base of $20.5bn for 2022, representing an 8.3% increase on the previous year.
There had been “positive market development over a number of consecutive years”, the IUMI release stated.
All regions bar Asia experienced growth. That was attributed to two causes – economic conditions in a number of that region’s countries, plus a weakening of certain Asian currencies against the US dollar (in which most companies denominate their returns).
Therrien went on to say, however, that, despite this positivity, “the cargo insurance market in 2022 found itself at the intersection of economic, geopolitical and sector-specific headwinds. There are a number of key developments that made their presence known last year and which will continue to exert an influence in 2023 and beyond”.
She said that, generally speaking, the cargo insurance market followed the fortunes of global trade, but with a time lag. The brakes put on trade by Covid were followed by a very sharp rebound as the world decided that the helicopter money it had received form many governments had to be spent on something, and, with service spending massively restricted, the money went on goods. That in turn made container rates soar, passenger miles increase, and profits for cargo underwriters move significantly into the black.
However, Therrien said that currently there was much uncertainty about future economic growth and she warned that this would impact on the performance of the sector.
At a macro-economic level, she warned that the future of cargo insurance would be impacted by a general deceleration of global economic growth and the activity of central banks aggressively battling inflation. This was likely to lead to a reduction in trade volumes world-wide.
In addition, a deepening geopolitical fragmentation was further complicating world trade dynamics. This would, inevitably, present new challenges for underwriters. Supply chains seemed to have recovered, and freight costs had eased, but some trade routes were beginning and take on a different shape in the post-Covid world.
Cargo underwriters also faced a number of specific issues that could impact future profitability:
Inflation had a direct impact on the value of goods transported and, consequently, the value of associated claims.
- Accumulation of risk in single shore-side facilities or on-board ever-larger vessels continued to generate problems, although specific data on the extent to which the average loss-per-vessel claim had increased over the past five years was not immediately available.
- The war in Ukraine and other geopolitical tensions had injected unpredictability to global supply chains, together with the potential for disruption.
- An increase in natural catastrophes could also cause disruption as well as result in major claims; some significant loss events in recent years were continuing to ripple through the insurance value chain.
Therrien concluded that “whilst there are definite signs of recovery and resilience within the cargo insurance sector, underwriters must be aware of, and navigate, a range of global and sector-specific challenges. As we move forward, it is likely that we’ll see some tension between maintaining underwriting discipline and pursuing growth, which reflects the balancing act that cargo underwriters must perform”.