Marine insurance – too many players

When yards cannot build ships fast enough, bankers and investors can hardly lend money swiftly enough and owners of all vessel types have not seen such good business across the board for a long time, it sees extremely odd that one key historic area of the shipping business is in deep depression, both financial and psychological.

	Simon Beale, another senior member of the joint hull committee, has predicted that the London market faces a “creeping death” and that the grim reaper is being encouraged by “daft rates”.

Hull and machinery insurers around the world are with few exceptions losing money. There are simply too many players chasing the same business.
– It is competition not actuarial calculations that is driving premiums and that is madness, says one underwriter.

Lloyd’s of London has posted six successive years of losses on its marine underwriting business. There are now no exclusive hull and machinery syndicates. All are multi-line and with each business now required to show a return on capital, hull risks look distinctly unattractive.

On present trends, Lloyd’s, which began the modern business of marine insurance, looks as if it could be on its way out of the hull market. Ten years ago it still had 40 per cent of the international market. That figure is now below 30 per cent and falling.

Contraction

– London has contracted dramatically, says Peter Christmas, a long standing member of the Joint Hull Committee.

– If you go back 20 years ago when you had the full Lloyd’s market and the Institute of London Underwriters, there were hundreds of players in each. Now people are talking in terms of active marine underwriters in Lloyd’s now as numbering a maximum twenty and maybe less than 14. The company market was around 125, most of them British. Now there is only one left, Royal SunAlliance, and that is under pressure. There are also a few foreign companies involved in London, but you actually wonder why they are here when we cannot make money out of it.

What has done for London has been the competition from new entrants in other countries. Besides the Norwegians who now have between 15 per cent and 20 per cent of the world market, there has been competition from France, Italy, the United States and the Far East. Simon Beale, another senior member of the joint hull committee, has predicted that the London market faces a “creeping death” and that the grim reaper is being encouraged by “daft rates”.

Written too cheaply
– There seems to be a pattern to the new entrants, says another underwriter, they enter the market with domestic players first. The management of premium income may or may not be an issue but that domestic business tends to be at more realistic rates. This does not necessarily mean higher. The Norwegian market was able to write business cheaply for Norwegian owners because it knew the market and these were good shipping companies, top quality risks. It is when the new markets turn to international business that things start to go wrong. The data is not there to assess the risk. Business is written too cheaply. The losses start to come in. Cash flow suddenly becomes a concern so more business is taken on at whatever premium that can secure it. This is not a market; it is a bear pit from which not many contestants can emerge alive.

The irony is that the big losses in the market have not come from the rust bucket end but from quality owners.

– The most competitive rated business is the big fleet where people perceive that they need to be writing the policy business, says Christmas, but if you look at the casualties over the last five years, the majority has come from that quality end. Nobody minds paying for genuine maritime losses on household names. That is what we are in business for, but unfortunately we do not have the premium base to pay for them.

– One of two things is going to happen, says Christmas. You are either not going to have a specialist machine market or you will get down to the stage where the number of players is reduced to a more realistic level. I hope it is the latter, otherwise the shipping operators will end up without a specialist market which is what they want.

Exodus of skilled people
Shipping is a business in which a range of specializations and specialist relationships have always come together successfully. For a case that success in the market will go to the last man standing. Lloyd’s underwriters point to the exodus of skilled individuals and the reluctance of new talent to come into a business for which there seems such an uncertain future. This is a human resource which will not easily be replaced. More importantly, investors have better things to do with their capital than see it consumed by hull insurance business which not only offers no possibility of a realistic return but a very real likelihood of loss. Philanthropic though the London insurance market has been from time to time, it has never been a charity.

//Nigel Ash

Latest update 18-10-2006 8:49

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