Fear over jobs may turn marine rates: Sompo
Lloyd’s profitability review could act as a catalyst to turn rates in the marine market—but larger insurers not part of the market could find it harder to achieve rate increases because of wider client relationships, Adrian Poxon, head of global specialty reinsurance, Sompo International, told Baden-Baden Today.
“I expect marine rates to continue gradually increasing over the next 12 months, with sub lines, specifically cargo business, increasing more than others,” Poxon said.
“While Lloyd’s has taken significant action with its underperformance review, insurance companies have remained quiet about rectifying their underperforming lines of business.
“Since most of the large insurance companies write marine as part of a larger corporate programme and not as individual lines, it is often very difficult to turn underperforming business around due to the holistic client relationship with the insurer, which can be to the detriment of individual lines.”
Poxon acknowledged that Lloyd’s has taken a very strong position with select lines of business and some syndicates that are underperforming. However, the capacity taken out of the market is not enough in its own right to change the direction of ratings, he said.
“The most important takeaway for underwriters should be the ‘fear factor’ that if they aren’t producing, then their and their colleagues’ jobs could be in jeopardy. This should have more of an impact on rating decisions than anything else.”
He added that it is worth noting that the Lloyd’s remedial process has encouraged senior leadership within these syndicates to implement more stringent underwriting discipline.
“We now see a number of underwriting facilities having more difficulty securing capacity which is creating a positive impact on underwriting costs, as excessive brokerage and other commissions are slowly being taken out of the market,” he said.
“Overall, the Lloyd’s review will have a positive impact, improving profitability in the marine segment, but slowly, taking a few years for the market to realise.”
For the reinsurance sector specifically, Poxon anticipates a stable January 1 renewal with most marine programmes renewing flat with some correction to layers that have been hit by the large losses that happened this year.
“I also expect proportional programmes to renew flat, while most reinsurers would acknowledge that, in general, commissions and profit commissions need to be adjusted in our favour. However, as there is so much capacity in the market this is unlikely to happen other than in the very challenged lines of business,” he said.
Poxon also commented on some of the advances occurring in the market that could change its dynamic. He singled out blockchain as being potentially very important to the marine market—changing it for the better.
“Blockchain is coming; some might say it has arrived with the announcement by AP Moller and various insurance operations of their working together,” he said, referring to the announcement in January that AP Moller-Maersk and IBM are setting up a joint venture to use blockchain technology to try to help make the companies’ supply chains more efficient.
“Blockchain will gradually take hold and has the potential to replace today’s processes. It is being touted as a potential huge cost savings for insurers and insureds, but it is being introduced at a time when profitability in many lines is extremely challenging.
“I would be remiss if I didn’t say that I am somewhat concerned that we might rush into this and make a bad situation worse by ultimately losing control over our own destiny,” he concluded.
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