A statement issued by The International Union of Marine Insurance (IUMI) this week following its Spring Conference earlier in the month, shows that whilst in general, major losses remain stable, the continued erosion of the global premium base means that attritional losses are becoming much more significant. The increased risk of large, more complex and costly claims has the potential to impact all marine underwriting sectors in 2019.
Although the global fleet continued to grow at around 3% in 2018, the number of total losses (vessels over 500GT) stood at a 20-year low. Only 21 total losses were recorded last year and this is on the back of a general downward trend witnessed since 2010. The reduction was seen across all vessel classes.
Serious casualties¹ (excluding total losses) have stabilised over the past three years but are still higher, on average, than in 2014. There is likely to be a spike in Q1 2019 when numbers have been finalised. 900 incidents were recorded in 2018 representing 1.6% of the global fleet (or 1.2% in GT).
Rama Chandran, Chairman of IUMI's Ocean Hull Committee commented, "We are pleased to see a stabilisation in total losses and serious casualties and this is a clear indication of an enhanced safety culture, improved vessel design and more effective regulation across the industry. Statistics show total losses of younger tonnage (<15 years) are dramatically lower in 2014-2018 than in 2009-2013. Underwriters welcome the industry's overall improvement in safety but also recognise that increasing size, scale and complexity of new tonnage is affecting the current risk profile."
"There is the potential for severe volatility in a conventional hull portfolio influenced by the continuing erosion of the premium base. Reduced asset values and reduced activity (in some sectors) has driven down premiums. As a result, the increased impact of attritional losses has become significant. This, coupled with occasional spike losses, is seriously affecting international underwriting results."
"Going forward, our main concerns continue to be the accumulation of risks associated with large container vessels and, in particular, the risk of onboard fires. We are also focused on advances in digital technology – both in naval architecture and in vessel operations – and the ability of seafarers to effectively manage cutting edge technology and growing amounts of data. We are also likely to see increased machinery claims resulting from the 2020 sulphur limit", said Chandran,
The biggest concern for underwriters is reductions in cargo insurance. On the back of a slowdown in global economic growth (forecast to reduce from 3.2% in 2018 to 2.8% in 2020), the WTO is expecting growth in global trade to scale back to 3.7% this year (from 3.9% in 2018). As a result, the outlook for shipping is mixed with cargo increases in some trades offset by reductions in others.
Sean Dalton, Chair of IUMI's Cargo Committee, explained what this means for marine cargo underwriters. "Global cargo marine insurance has been unprofitable for a number of years – historically it was one of the most profitable lines of marine insurance. Whilst there are regional variations, on a global basis, premiums are not technically adequate to cover losses and expenses. This is major concern. Going forward, we see the main challenges will include larger and more complex risks, NAT CATs, and unknown vessel and port accumulations. We are also seeing an increasing gap in underwriters' technical competencies. For many years, accounts have been largely underwritten and priced on loss experience with less attention paid to exposures which have now grown in size and complexity. Coverage has also broadened significantly. Market conditions, however, are slowly improving and underwriters are now addressing the issues of technical premium inadequacy, exposures and terms."
Of growing concern is the recent spate of shipboard fires including Sincerity Ace, Yantian Express, APL Vancouver, ER Kobe and Grimaldi Grande America. Whilst IUMI cannot speculate on the causes of these fires, past issues such as cargo mis-declaration, improper packing, loading, labelling and shipping of hazardous cargoes are likely to be factors. Other significant issues have included loss of containers overboard, notably the 300 boxes lost from MSC Zoe in the North Sea.