IUMI: Hull Sector Premiums Keep Falling

Global marine underwriting premiums for 2016 fell by 9% reduction on the figure reported for 2015, as the hull sector saw a 10% reduction on the previous year.

According to the International Union of Marine Insurance (IUMI) global marine underwriting premiums were at USD 27.5 billion for the year, while the the hull sector achieved a premium income of USD 7 billion.

Although exchange rates may have been partly attributable for the decline, this has much less impact than in the cargo sector due to the global nature of the hull portfolio. While the world fleet continues to grow, it also continues to age.

“A certain reduction in vessel values will follow with the aging of these vessels, but the two-digit drop in values from 2015, and particularly for bulk and supply/offshore vessels, must be seen in the context of the challenging market environment,” IUMI said, adding that hull premiums have deteriorated in line with falling average vessel values, and there is now a mismatch between fleet growth and income levels.

Claims frequency continues its stable/downward trend and total losses are also continuing a positive trajectory albeit with a recent fluctuation of around 0.1%. However, falling vessel values increase the probability of constructive total losses, as these incur when the cost of repair exceeds a certain percentage of the vessel’s value.

In addition, the inflow of high-value vessels into the global fleet increases single-risk exposure and thus the possibility of even more costly single casualties. The occurrence of major losses in single years increasingly drives the volatility of hull results, but current income levels do not cater for the occurrence of such events.

The 2016 number for global marine underwriting premiums “follows a continuing downward trend in marine underwriting premiums,” Astrid Seltmann, Vice-Chairman of IUMI’s Facts & Figures Committee, said.

“We attribute part of the reduction to the strong US dollar when compared with other currencies, but also to general weak market conditions in terms of the global economy, general commodity prices and the poor state of the shipping and offshore sectors. This worrying downward trend leads to an increasing mismatch between income levels and the marine insurer’s obligation to cover major losses, particularly in light of the trend for larger vessels and greater accumulation of risks in port,” Seltmann added.

The 2016 total comprised income from global hull with 25%, transport/cargo with 54%, marine liability with 7%, and offshore/energy with 13%.

“Global premium income continues to fall and this puts pressure on our sector. Although, fortunately, we are seeing only moderate major losses currently, that situation can reverse at any time,” Donald Harrell, Chairman of IUMI’s Facts & Figures Committee, said.