The Chair of the International Union of Marine Insurance’s (IUMI) Ocean Hull Committee, Rama Chandran, told its annual conference that rates were finally rising after years of underwriting losses.

While there were grounds for cautious optimism, he cautioned the impact of the COVID pandemic may still undo all or much of the sector’s progress but that the green shoots of recovery were evident.

“Yesterday, our Facts & Figures Committee reported total 2019 global ocean hull premiums of USD 6.9 billion which is a very small increase of 0.2% from last year,” said Mr Chandran. “However, there have been indications of a more significant market development recently and I am confident that the ocean hull sector is now on an upward trajectory – although the current gradient of the recovery remains shallow.

“We are starting a recovery from a very low and unsustainable base where our sector has suffered technical underwriting losses almost every year since 2005. Fundamentally, we have an ever-widening gap between an increasing amount of tonnage being insured and a decreasing global premium pot. The 2019 IUMI numbers show that global premiums have now stabilized and although the gap still remains, it is not widening so rapidly.”

Mr Chandran added there remains cause for cautious optimism as the 2019 numbers do not account for the shrinkage of underwriting capacity in the hull market which really only took effect at the end of 2019 and early 2020. This was particularly felt in the London market where Lloyd’s took the decision to withdraw a number of marine syndicates.

However, the hull market is continuing to suffer from an ever-ageing – and less valuable – fleet coupled with depressed newbuilding prices. An overall reduction in asset values will directly impact premiums.

However, like the rest of the global risk industry the sector need to carefully monitor the ongoing effects of COVID-19. Vessel utilisation in some vessel sectors has significantly reduced and this has been reflected in an unusually low claims environment, however, this might be short-lived.

“The coronavirus situation has made it difficult for owners to commission on-board inspections, secure spare parts and perform routine maintenance. Once the situation normalizes, we are likely to see a sharp increase in attritional claims”, Mr Chandran explained. “In general, total losses have reduced across all vessel types and this is extremely good news, but we are still seeing a worryingly high number of major on-board fires, particularly on containerships and – earlier this year – on a car carrier and a VLCC”.

“The ocean hull market has been operating unsustainably for many years and is now at a level where premiums will cover attritional losses only,” he added. “Although COVID-19 has introduced additional uncertainty into our sector we are observing signs of a market recovery.”