07 November 2024
Cargo Insurance Market Update Q3 2024
Competition returns to Cargo
New capacity has reintroduced competitive forces into the market, exerting downward pressure on premium rates. However, this is not a return to the soft market conditions in 2017.
The first six months of the year have been a complex period for the global cargo insurance market, and the coming months are likely to highlight the benefits of long-established and proactive relationships.
The rating environment continues to be the market's overarching issue, but it is driven by the abundance of capacity committed to the class. This has created a growing need to exercise caution and diligence in business transactions. This capacity only continues to rise with now 4 London cargo MGA markets opening and/or awaiting to open. There are also new Lloyd’s entries coming in Q4 2024 and early 2025.
2024 has seen disruption to supply chains from the changes in shipments through the Red Sea, to US Port Strikes. This has led to new exposures for Cargo Underwriters, such as an increase in heavy weather losses during shipments being re-routed. However, on the whole most have so far weathered the storm and remain open for more business.
Carriers were aiming for growth in 2024, but we have seen a softening at a rate that has taken many in the market by surprise. Better-performing accounts have seen rates decreasing by 5%-10%.
New capacity enters the market
A significant driver for the increased pace of premium reductions has been the influx of new capacity. There has not been a sudden surge of new entrants into the market but rather the return of carriers that had exited the class in recent years but now view current conditions as suitably attractive. This has been augmented by existing markets looking to increase the capacity they will commit.
This starkly contrasts with 2023, when the market had favourable conditions, with high commodity prices , rising inflation and positive rate environment for underwriters. This lead to significant increases in premiums. However, these conditions have not been present this year, and the market has had to seek new business and assume new risks. Shifts are happening within the US domestic market, particularly in the mid-market sector which may affect how insurers target and assess risk in the current year.
In London there has been a rapid softening. While the market is not at the point where it can be compared to the extremes of 2017, softening continues. Most market participants aim for price adequacy and are generally satisfied with their pricing. However, there's a concern about the potential for the emergence of a two-tier market where new business is priced lower than existing business.
Fundamentally, there is intense competition across all market segments. The US is viewed as more competitive than the London market. However, we expect competition in EC3 to increase throughout the year.
Carriers are focused on maintaining discipline with underwriting control and risk management practices over pricing discipline, indicating a desire to maintain the size of insurance policies rather than adjusting prices.
Little can be done for intermediaries to reverse the trend, but the pricing dynamics will require careful management. We need to watch out for situations where the price disparity becomes too high for our clients.
Mixed claims experienced as storm season continues
Claims continue to be a concern in the throughout 2024. While the Baltimore bridge collision has dominated the headlines for the marine insurance market, the level of attritional claims remains a worry.
There have been a small number of larger claims, such as a Dollar Tree, and some fire and CAT claims which are still ongoing. Despite these large losses, the premium in the market is sufficient for most cases to survive such losses unless a company is involved in all of them.
However, attritional losses continue to concern carriers as exposures and accumulation risks increase, a situation which has not been helped by congestion in some of the world’s biggest ports, particularly in Asia.
Gallagher estimates for the first half of the year put the trade cost at risk of being disrupted by the ongoing port congestion at the ports of Singapore, Port Klang and Tanjung Pelepas at USD131 billion alone.
Now we are past the peak of the Asian cyclone season and North Atlantic hurricane season, we have witnessed above-average activity predicted and the arrival of the earliest category 5 hurricanes since records began.
The market seems to have avoided vast losses from Hurricane Helene and Milton, however, there are some losses starting to creep into the market. However, the market is feeling relieved that Hurricane Milton did not strike Tampa directly.
Attritional losses continue to concern carriers as exposures and accumulation risks increase, a situation which has not been helped by congestion in some of the world’s biggest ports
Geopolitical risk flashpoints remain
While the market has organised its response to the ongoing geopolitical situation in the Red Sea, the first half of the year has also seen a warning from the CEO of Maersk, Vincent Clerc, that the global maritime supply chain is at breaking point due to a lack of vessels to meet the needs of cargo clients.
It is yet to be determined whether this will impact the rest of 2024 and into 2025, but the underwriters are closely monitoring the situation.
Aside from the Black Sea, the Red Sea and Israel, geopolitically, there are also growing concerns over the potential impact on the cargo market of a severe deterioration in the ongoing political tensions between China and Taiwan and the implications of the potential claim should vessels be denied access to Taiwan for any significant period.
February 2024 Marine War Bulletin
Amid further anticipated softening, relationships will remain important
Undeniably, the cargo market remains robustly open for business, with several positives for clients and brokers. However, it also requires careful management. As such, the value that can be added to brokers is becoming increasingly evident.
While rates are softening, clients should be advised that there is much more to consider than the price in the current market, given the influx of capacity and the choice of carrier to assume your risks and where they are situated.
Carriers around the world are actively seeking new business, but while price can be an attraction, the speed of claim payment becomes all-important should a major loss occur.
Absent a significant major loss event, the remainder of the year will likely be defined by further market softening and carriers' efforts to access new business. At times like these, brokers can truly demonstrate their value to clients.
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Arthur J. Gallagher (UK) Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AW. Registered in England and Wales. Company Number: 119013.