The announcement last week that specialist insurer Lloyd’s of London had accumulated a GBP2bn loss, its first in six years, could be the catalyst need to turn around marine insurance, which has been making a loss for nearly two decades.
Prior to the Lloyd’s announcement the International Union of Marine Insurers’ president Dieter Berg had declared that the end of the soft market for marine insurance had arrived. In Hong Kong there has been a more nuanced reaction.
Locally, Pierre Martelly, chief executive of AXA Corporate Solutions in Hong Kong has detected signs that underwriters are resiting downward pressure on marine and cargo rates: We see indeed that we are at the bottom of the cycle: some claims from US hurricanes and from typhoon Hato wiped out most of our Asia technical profit, and 2017 was a low point in terms of overall earnings contribution of Asia Marine.
“In the Corporate Solutions branches, we track carefully and account by account the Margin Ratio, i.e. the ratio of the premium rate secured over the technical premium rate that we should have as per our pricing model. Our IT system reports for 2017 and 2018 YTD show a largely stable margin ratio, so we do not believe that our accounts are better priced than one year ago. This being said, our accounts tend to be the top tier in terms of size and risk quality, so maybe there are other more challenging parts of the market that are getting re-priced. In the General Insurance subsidiaries, we do not follow the margin ratio account by account (smaller business), but the underwriters’ feeling is largely the same i.e. of a stabilized market.
“Where we have strong teams of underwriters and strong multi-channel distribution (notably HK, SG, Malaysia) or in trade sectors where we have strong expertise (logistics, high tech, commodities, project cargo), we are strong enough to fight back any challenger without compromising on the pricing. In others countries where we have limited penetration or in trade sectors that we know less, we may feel that the markets are still a bit soft.
We do see that the insurance market has become a bit more disciplined. Underwriters are more open to telling the client’s insurance broker or agent that the terms are not acceptable,” he adds.
By contrast Hong Kong-based marine brokers FP Marine Risks has seen less evidence of discipline entering the market. Chief executive Mark Johnson explains:
“Whilst all the factors should point to at least a firming market, the reality is that the old rule of supply and demand still governs the market. Therefore, although some underwriters are trying to maintain existing levels and in some cases, are trying to increase premiums, there is still sufficient well rated security available to secure as expiring or better terms for fleets with reasonable records. Insurers are able to take a firmer position on fleets with an adverse record but, even then, capacity is generally available. How long this will continue is open to debate and the recent announcement between XL Catlin and Axa may spark further M&A which could lead to a reduction in market capacity.”
So if a hardening of the market is largely illusory at this point what actions can be taken to push sentiment into hard results?
Mr Martelly believes there are a number of factors that could tip the market into hardening in the future:
Mergers: AXA buying XL Catlin: these two are amongst the largest marine players. This is definitely a significant market concentration to deal with for the brokers. E.g. the top two yacht insurance brokers in Asia, Aon and JLT, rely on regional binders led by XL Catlin and AXA respectively!!! E.g. both are, from Hong Kong, active fac reinsurance providers to the Korean market.
Some once mighty Marine insurance teams are now part of financially weak companies: e.g. QBE, Allied World ex RSA Asia. And they still hold a number of accounts. A couple of old MGAs are struggling to keep their pen and their staff: e.g. SART.
New entrants punished with bad profitability and recapitalization: Great America
Treaty reinsurance prices did go up somewhat in Jan 2018, in my experience. It is not massive and some insurers accept higher retention or reduced commission, but this is still eroding the profitability a bit more.
Macro-economy: Expectations of higher global interest rates could move capital away from the insurance market towards bonds and monetary markets, but this is yet to be confirmed. On the other hand, any trade war that would reduce the amount of global trade would be very bad for the Marine insurance market.
Sources:hongkongmaritimehub
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