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17 September 2019 Insurance

Marine insurance market 'chaotic' as future remains uncertain, says IUMI

The ongoing global uncertainties, including the current trade tensions, will continue to impact all marine lines of business, specifically cargo and offshore energy, predicts the International Union of Marine Insurance (IUMI), which represents 43 marine market insurance and reinsurance associations globally.

According to IUMI, marine underwriting premiums increased by 1 percent in 2018 to $28.9 billion, and cargo premiums rose 2.5 percent to $16.6 billion from a year earlier. Global underwriting premiums for the hull sector in 2018 were $7 billion, unchanged from 2017. The association noted that the modest increase in cargo premiums is not significant enough to herald an upturn in the fortunes of the sector, which is currently being characterised as "chaotic" and "uncertain".

"Premiums had already plummeted to truly unsustainable levels in 2017 and so any increase begins from a very low base," said Philip Graham, chair of IUMI's Facts and Figures Committee. "Since the 2018 IUMI conference, we've seen around 20 entities cease or severely restrict their hull or cargo underwriting activities.

"In short, the marine underwriting sector is characterised by uncertainty. At a macro-level this is created by political, economic and environmental factors; and at an industry level it is due to accumulations, a worrying and increasing incidence of major losses; and through a reactivation of the offshore sector."

Sean Dalton, chair of IUMI's Cargo Committee, pointed out that the marine cargo market is in a state of "accelerating change" driven by underwriters taking action to address unprofitable results and to improve performance.

"On a global basis, the cargo line is unprofitable and has been for a number of years," he said. "Premiums have not been technically adequate to cover losses and expenses and, as such, have not delivered an acceptable return for capital providers. A significant reason for this ongoing situation is the commoditisation of this speciality line of business which has lowered entry barriers and attracted new entrants, some of whom are now exiting.

"As result, underwriters are addressing their portfolios with urgency and reviewing technical rate adequacy, expenses, terms and conditions, deductible levels, and capacity and limit deployment," he added.

IUMI president Richard Turner said most insurers are currently facing a "painful period of adjustment" due to the reduction in capacity and the "worrying trend of commoditising products and transferring individual policies into bundled facilities". He noted that although there are many factors that are contributing to the current climate of "chaos", IUMI would continue to support marine underwriters during these challenging times.

"We are concerned by increasing protectionism and political instability," Turner said. "We are also seeing structural changes to the maritime and transportation sector, particularly in relation to the continued rapid growth in Asia – both in terms of a demand for raw materials and an upsurge in manufacturing. And, of course, ships and ports continue to grow in size and accumulate higher levels of values and associated risk."

He concluded: "Throughout the centuries, marine insurance has always found a way to adapt, regardless of the challenges and chaos it might have faced at the time. Cycles have come and gone, but as an industry, we've consistently found ways to reinvent ourselves. Through invention and innovation, I am confident we will find a sustainable way through the current challenges. Marine insurance underpins global trade and will remain a valuable enabler of business wherever it is conducted."

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