The International Union of Marine Insurance (IUMI) has said the signs of recovery the market saw last year are set to be shattered by the impact of COVID-19.
IUMI presented its analysis of the latest marine insurance market trends during its annual conference which this year is being held online. They reported marine underwriting premiums for 2019 were estimated to be $28.7 billion which represents a 0.9% reduction from 2018.
The $28.7 billion global income was split between these geographic regions: Europe 46.3%, Asia/Pacific 31.8%, Latin America 10.3%, North America 5.3%, Other 6.3%.
2019 saw Europe’s global share reduce slightly from 46.4% (2018) to 46.3% and Asia’s share increase modestly from 30.7% (2018) to 31.8%.
For global marine premium by line of business, cargo continued to represent the largest share with 57.5% in 2019, hull 24.1%, offshore energy 11.7% and marine liability (excluding than IGP&I) 6.8%.
Philip Graham, Chair of IUMI’s Facts & Figures Committee said the figures were an indication that marine insurance was starting to right the ship after years of poor performance, but that COVID would impact that recovery.
“The numbers we are reporting today cover the 2019 underwriting year and are pre-COVID-19,” he explained. “In the past, we’ve been able to analyse trends to get an understanding of potential future outcomes but COVID is such a significant global event that it will inevitably impact on all statistics, including IUMI’s. Clearly there is a lag between IUMI’s reported 2019 numbers and the effect that COVID is having on the marine insurance markets. The loss ratio figures as of 2019 suggest the start of a modest recovery in the hull and cargo segments and a continued fragile balance in the energy segment, but it is still early days and it remains to be seen how far COVID-19 will impact these trends going forward.”
He added: “One consequence of COVID is that people are travelling less and buying less. This has translated into a lower utilisation of certain vessel classes such as containerships, cruise ships and yachts. A direct result is the abnormally low level of claims incidents recorded in recent months. While this is good for underwriters in the short-term, we should be wary of a return to normality as utilisation begins to increase. Similarly, COVID has negatively impacted the oil price causing a slow-down in offshore activity. Underwriters need to be aware of the uncertain consequences of a return to more normal levels of production.
“In my view, the coronavirus pandemic has, in a few short months, digitally moved many industries, particularly the insurance industry forward by at least a generation. In many ways this is extremely positive and we need to maintain that momentum as we look to improve efficiencies and manage down the transitional cost of insurance, driving a more flexible, efficient and inclusive environment.
“However, we must also be mindful of how the pandemic has financially impacted many of our clients and the potential impact that could have on risk management. As importantly, we must not forget the sacrifices being made every day by all those at sea who as a result of the pandemic have continued to serve world-trade in extremely challenging conditions for extended periods and often without the ability to see loved ones for a considerable time with the associated fatigue and mental anguish that accompanies that”.
The offshore energy market saw a modest 1.4% reduction in total premiums in 2019 when compared with 2018. Premiums dropped sharply from 2014 to 2016 but more recent years have seen a flattening out. Premiums in this market are strongly influenced by the oil price. There is generally an 18-month time lag between a rise in the oil price and activity levels catching up. Oil prices had begun to recover from 2016, although with some variation, which led to a reactivation of offshore facilities and a corresponding stabilizing of the global premium base. However, COVID-19 has reduced the demand for oil forcing prices downward again leading to more uncertainty in this sector. The cycle of laying-up and then reactivating offshore assets brings more unpredictability to this market.
IUMI said the global premium base for the cargo market for 2019 was reported to be $15.6 billion – a 1.5% reduction from 2018. Exchange rate fluctuations impact most heavily on this sector and so comparisons with earlier years cannot be exact.
In general, cargo premiums are strongly correlated with world trade values but they have lagged behind in recent years. IUMI said its 2019 numbers do not account for the impact of COVID-19 but the virus has injected significant uncertainty into future world trade forecasts in terms of values, volumes and changing trade patterns. This makes it difficult to predict the performance of the cargo market going forward.
Global premiums relating to the ocean hull sector were relatively stable. IUMI reported a 2019 premium number of $6.9 billion representing just a 0.2% increase on the previous year.
The correlation between the size of the world fleet and the value of global premiums has been diverging (in terms of tonnage) since 2011, but 2019 numbers show that this unsustainable situation is moderating. Global premiums have stabilized but the global fleet continues to grow. Whilst this has slowed the increase of the gap, the gap still remains and is likely to continue to widen. In general, the age of the world fleet is increasing which is reducing the overall value of the asset base. This, in turn, has the potential to negatively affect premiums.
The long-term downward trend in total losses continues and has now reached an all-time low. However, as with the cargo sector, large vessel fires remain an issue. A major loss incurring unprecedented cost (resulting from increased vessel sizes, accumulations and new trading patterns such as arctic routes) remains a significant risk and one that could impact catastrophically on the hull sector. COVID-19 has reduced vessel utilisation and this has impacted positively on claims since early 2020.
Vice-Chair of IUMI’s Facts & Figures Committee, Astrid Seltmann explained: “Cargo and hull results started to recover somewhat in 2019 but from a very low – and for the hull market, unsustainably low – level. In the context of the COVID-19 disruptions in 2020, the challenge is to analyse how the current changes in the market environment will impact marine insurance market trends going forward. There are a number of substantial changes which don’t allow us to simply extrapolate the data going forward but which need close monitoring of world trade and shipping trends and their impact on the marine insurance segments. The same applies to IMO 2020 and the ongoing endeavours of the industry to improve sustainability by introducing new technical solutions – these are very welcome but they create new types of risk.
“Different market sectors have reacted differently to COVID-19. Cruise and offshore have been significantly impacted and, to a lesser extent, has the containership sector. Other markets such as crude oil tankers have fared much better, particularly from the demand for floating storage. The general reduction in vessel utilisation has been positive for the claims environment but underwriters should beware of a potential increase in claims cost due to lapsed maintenance routines, the delay of spare parts or surveys, and an unusual accumulation of high-value vessels in areas exposed to natural catastrophes . Independent of COVID-19, the high incidence of major vessel fires and the recent spate of vessel issues in the North and South American inland waterways continue to be a cause for concern.”
“Taking all into account, around the turn of the year there was confidence that a modest market development was beginning to get underway – albeit from a very low base – and that should be encouraging for marine insurers across the globe. With the arrival of COVID-19 and the related changes coming in with full force from the Q2 2020, the degree of uncertainty surrounding the future of marine underwriting has increased considerably again. However, as marine insurance is all about handling risk, the industry is confident to deal with these additional challenges in a professional way.”