Jardine Lloyd Thompson cautions hull market recovery is limited

Leading broker reports marine underwriters in period of consistent inconsistency

A new level of determination is evident in the marine insurance market but underwriters’ hopes of a rate recovery remain just that.

The hull insurance business has been showing early signs of revival but a state of the market report from the Jardine Lloyd Thompson (JLT) insurance broking group suggests this is still quite limited.

Sean Woollerson, a senior partner in JLT’s marine division, said the foundations for a harder market were in place but the hull market remained generally flat at the New Year renewals.

Underwriters are taking varying stances on both renewals of existing accounts and on new business, according to Woollerson.

“Different market, different underwriters, different syndicates, different companies are all being consistently inconsistent,” he said.

Woollerson said JLT was able to achieve satisfactory renewal terms for clients and picked up a good amount of new business but it was difficult to generalise across a diverse spread of accounts.

“On paper, many of the ingredients for a change in the marine market are present, but whether this can be sustained will depend on a number of factors that have yet to play out,” Woollerson wrote in JLT’s Risk Specialist publication.

He said the market was being shaped by poor results from the marine market and the wider impact of recent natural catastrophes, including hurricanes Harvey, Irma and Maria.

“Marine insurance lines will now have to compete more fiercely for capital with other lines of business where returns may be more attractive,“ he wrote.

TradeWinds reported signs late last year that the hull market was beginning to turn after a protracted period of loss, with a hardening reinsurance market expected to be a significant factor.

But the New Year reinsurance renewals came and went without a dramatic change.

“The reinsurance market pushed up on the marine side but nothing like as much as expected,” Woollerson said.

He suggested excess underwriting capacity was outweighing pressure from reinsurers even though marine underwriters were showing more resolve.

There are encouraging signs that freight rates are picking up in some sectors and secondhand values are increasing, certainly in the dry sector, according to Woollerson, with this providing good opportunities to protect improving income streams with delay and loss of hire insurance products.

Woollerson said multi-year hull deals were still possible in certain circumstances, although, in a sign of market uncertainty, underwriters had become somewhat wary of such commitments.

The broker said JLT was working on some attractive products related to ship finance to protect net asset values that could help owners in a tight ship-finance market.

“Banks say the reason they are not lending is they don’t like the risk,” he said. “But risk is our business and we can transfer some of that into the market.”

But isn’t protecting future values a challenging task?

“Yes, but it can be done,” Woollerson replied.

The protection-and-indemnity clubs got a reduction in the cost of their huge reinsurance programme ahead of this month’s renewal but Woollerson said the dynamics of the P&I market were different to other areas of marine.

He highlighted that the large free reserves enabled the clubs to challenge reinsurers but also allowed JLT to contest the clubs' rating models.

Woollerson said the yacht market had been particularly affected by large hurricane losses, with the insurer of one yacht chartering outfit facing a $95m claim.

As a result, direct insurance rates had increased significantly across the yacht market.

The Risk Specialist report said some underwriting discipline had returned to the cargo market, with JLT senior cargo partner Jay Payne predicting premium levels would rise by 5% to 7.5% in 2018.

Energy side managing director John Cooper said that since hurricanes Harvey, Irma and Maria, upstream and downstream accounts were being renewed at between expiry terms and 10% increases.

In an overview, JLT Specialty chief executive Paul Knowles said the hurricanes had had a significant effect on the mindset of insurers, ending a prolonged period of market softening.