Underwriters set to ditch costly marine classes, experts warn

The reinsurance market is also said to be abandoning some classes
The reinsurance market is also said to be abandoning some classes

As the marine insurance market gets set to head for Cape Town this month, two leading rating agencies have warned that they believe the move by some to withdraw from the market is “a double-edged sword”.

On 16 September, South Africa will host the annual International Union of Marine Insurance (IUMI) conference, where members of the marine insurance sector will discuss the future of the industry and the challenges facing the market and its clients.

On 4 September, rating firms Standard & Poor’s (S&P) and Fitch Ratings said there was clear evidence that underwriters, particularly at Lloyd’s, were starting to rethink their involvement in the marine classes after years of losses and their inability to achieve price increases.

Lloyd’s itself is undergoing a review of its business and had told syndicates to look at the poorest-performing 10% of its risks, of which marine and aviation feature heavily.

Already this year, a number of syndicates have said they will withdraw from the marine insurance and reinsurance classes and it is feared that more will follow both inside and outside of the market.

Dennis Sugrue, director of insurance ratings at S&P, said, “Lloyd’s has told its syndicates to ensure that the business coming in to the market is fit for purpose. It may well be concerning for some in the market.

“They are undergoing a business review and we have seen some syndicates announce their withdrawal from some marine markets. Both in marine and aviation, we may well see a reposition and, with it, a repricing, and given what we have seen in these classes in the past, it would be welcome.”

“Welcome”, perhaps, for the underwriter, with the withdrawal of capacity likely to see the quality-rated marine capacity drop and enhance the ability of insurers to raise premiums, but it would spell a difficult time for some ship and cargo owners as rates would likely increase with poor claims records.

Another issue is that the reinsurance market is also said to be walking away from some classes, leaving marine insurers to assume more of the risk themselves or look to place reinsurance with new and potential less financially strong reinsurance carriers.

David Masaters, a director at S&P, said, “Without doubt there has been some retrenchment in the marine classes by the reinsurance sector. I do not think it is at a level where there is a capacity shortage, but it does leave some primary insurers with a decision to make.”

Despite years of underwriting losses and the effects of the three North Atlantic hurricanes in 2017, marine and aviation insurance and reinsurance rates for the most severely affected risks have jumped by 10% and for the majority of others, they have increased by a flat rate.

Graham Coutts, director at Fitch Ratings, told IHS Markit, “We are seeing more evidence of insurers and reinsurers looking to withdraw from some marine classes. The actions of some at Lloyd’s has been well publicised, but while in the past there was talk, we are actually seeing the withdrawals happening. It is across the wider markets and Lloyd’s has been looking at the issue more keenly.”