Marine insurers feel the pinch as global trade slumps
A 45% slump in global shipping trade in the final quarter of last year had a resounding effect on all major shipping ports. The continued downturn has also placed further strain on marine insurers already coping with higher claims and eroding premium rates.
PSA International Group CEO Eddie Teh outlined an ominous forecast during an annual results briefing in March. The Singapore-based port operator handles 28 ports in 16 countries including China, the UK and India.
“I see an extremely tough and increasingly challenging year in 2009, with more and more economies falling prey to the collapse of financial systems, and global trade almost grinding to a halt,” he said.
For marine insurers, the downturn is set to have an obvious impact on written premium.
Zurich Global Marine Practice Leader Lee Meyrick says a reduction in world trade means there has to be an impact on cargo premiums. “Our global competitors and our competitors here in Australia have been making similar statements,” he told insuranceNEWS.com.au in a special briefing last week.
Mr Meyrick, who joined Zurich in March from AIG where he was a Senior VP in its marine division, says continued rate erosion and rising claims have hardly helped marine insurers.
Zurich’s local subsidiary Associated Marine last year saw claims increase 10% while the average value increased 12%. Mr Meyrick says that’s a common international trend and given the gloomy trade environment, something has to give.
“Prices have been subject to erosion for the past three to four years, especially on the cargo side which is where we write most of our business,” he said. “There’s been an absence of any real catastrophe loss out there and it is a competitive market.
“I think most markets have now come to the conclusion that rates really should be increasing because while premium level per risk has reduced, the claim level per risk has not.”
It’s an interesting irony that in recent years many of the highest exposures for marine insurers have occurred on dry land. For Associated Marine, it’s railroad derailments in Australia and globally Zurich Marine has noted the prevalence of road incidents in South America.
“We see a lot of hijacking and poorly maintained vehicles, which I guess has some parallels with the rail situation here, where we have seen some examples of infrastructure and rolling stock not being as well maintained as it should,” Mr Meyrick said.
While some sectors of the insurance industry are yet to see any evidence of an increase in premium rates, that’s not the case in marine insurance.
“We’re seeing a fair amount of levelling out in most places with an increase in rates if necessary,” he said. “All of the necessary signs that you would see in a normal hardening market are there and that’s further exacerbated by the global financial crisis.”
In response, marine insurers have adopted a firm focus on core business activity as a rich vein of investment income begins to run dry. That’s putting more pressure on them to improve their margins.
“We’re at the place now where investment income is negligible, if there is any at all, so underwriting results really have to stand on their own two feet,” Mr Meyrick said.
“We look at every risk on its own merits but as a generalisation one can see rates increasing over the short term.”
How much? He says it’s “probably too early” to quantify the rises needed.
Zurich Marine and Associated Marine aren’t alone in that conclusion with local competitors Lumley Marine & Logistics and Vero making similar noises about the need to get rates up.
PSA International Group CEO Eddie Teh outlined an ominous forecast during an annual results briefing in March. The Singapore-based port operator handles 28 ports in 16 countries including China, the UK and India.
“I see an extremely tough and increasingly challenging year in 2009, with more and more economies falling prey to the collapse of financial systems, and global trade almost grinding to a halt,” he said.
For marine insurers, the downturn is set to have an obvious impact on written premium.
Zurich Global Marine Practice Leader Lee Meyrick says a reduction in world trade means there has to be an impact on cargo premiums. “Our global competitors and our competitors here in Australia have been making similar statements,” he told insuranceNEWS.com.au in a special briefing last week.
Mr Meyrick, who joined Zurich in March from AIG where he was a Senior VP in its marine division, says continued rate erosion and rising claims have hardly helped marine insurers.
Zurich’s local subsidiary Associated Marine last year saw claims increase 10% while the average value increased 12%. Mr Meyrick says that’s a common international trend and given the gloomy trade environment, something has to give.
“Prices have been subject to erosion for the past three to four years, especially on the cargo side which is where we write most of our business,” he said. “There’s been an absence of any real catastrophe loss out there and it is a competitive market.
“I think most markets have now come to the conclusion that rates really should be increasing because while premium level per risk has reduced, the claim level per risk has not.”
It’s an interesting irony that in recent years many of the highest exposures for marine insurers have occurred on dry land. For Associated Marine, it’s railroad derailments in Australia and globally Zurich Marine has noted the prevalence of road incidents in South America.
“We see a lot of hijacking and poorly maintained vehicles, which I guess has some parallels with the rail situation here, where we have seen some examples of infrastructure and rolling stock not being as well maintained as it should,” Mr Meyrick said.
While some sectors of the insurance industry are yet to see any evidence of an increase in premium rates, that’s not the case in marine insurance.
“We’re seeing a fair amount of levelling out in most places with an increase in rates if necessary,” he said. “All of the necessary signs that you would see in a normal hardening market are there and that’s further exacerbated by the global financial crisis.”
In response, marine insurers have adopted a firm focus on core business activity as a rich vein of investment income begins to run dry. That’s putting more pressure on them to improve their margins.
“We’re at the place now where investment income is negligible, if there is any at all, so underwriting results really have to stand on their own two feet,” Mr Meyrick said.
“We look at every risk on its own merits but as a generalisation one can see rates increasing over the short term.”
How much? He says it’s “probably too early” to quantify the rises needed.
Zurich Marine and Associated Marine aren’t alone in that conclusion with local competitors Lumley Marine & Logistics and Vero making similar noises about the need to get rates up.