29 July 2024
Hull and Machinery Insurance Market Update H1 2024
In the first half of 2024, the Hull and Machinery insurance market has remained relatively static with the looming possibility of a slight softening as the year goes on. There have been some new entrants to the market, most notably in the MGA space, such as AI Marine who commenced their underwriting operation on 1 January. But, perhaps more significant for market dynamics, are the ambitious premium growth targets of some of the larger established participants. In London, the current premium rating levels are generally considered to be more adequate and sustainable following several years of more conservative underwriting. So, it is perhaps a natural time for the London market to re-establish some of the market share that was so quickly given up during the ‘decile ten’ period. The majority of what is regarded as ‘new business’ generally needs to be wrestled from competitors on pricing, conditions and claims handling service. This is leading to inevitable downward pressure on rating, especially for the most well-regarded fleets and sought-after tonnage types. For some time, brokers have been able to selectively move small shares to new participants to generate overall improvements. But this may start to give way to reductions and enhanced coverage from incumbent markets, initially in the form of additional bonuses and continuity credits, and eventually cash discounts. The concern around claims inflation remains, but Underwriters are having to suppress these fears for the time being as applying corresponding rate increases will undoubtedly lead to the loss of the most attractive and profitable accounts.
The allision of the MV Dali with the Francis Scott Key Bridge in Baltimore is by far the most significant marine casualty event in recent memory. The overall cost of the incident, including hull repairs, GA/salvage, loss of life, crew injury, repairs to the bridge, business interruption, etc. have been variously estimated at between USD2bn and USD4bn. Even at USD2bn, this would most likely make the incident the biggest maritime casualty ever, exceeding the costs of the Costa Concordia or the Ever Given.
Whilst the majority of this claim will likely fall into the IG reinsurances and the liability market, there will undoubtedly be consequences for all marine reinsurance rates with Hull and Machinery being no exception. The consequences for the direct market are hard to predict but it will largely come down to what level hull insurers are buying protection at, and what proportion of their direct premium is affected by a sizeable reinsurance price hike. Other recent reinsurance rises have not always translated into noticeable increases in direct premiums, but it is possible that we could see the brakes being applied to the potential softening going into 2025.
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Navigating the Aftermath: The MV Dali Bridge Collision
A fire at Germany’s Lürssen shipyard in Schacht-Audorf on 2 July is reported to have completely destroyed a superyacht which was nearing completion. Estimates seem to be in the USD 150m range which, although not as large as the claim from a similar incident at Lurssen’s Bremen Aumund yard in 2018, still serves as a stark reminder of the type and size of casualty which can occur during marine construction projects. There is substantial additional capacity entering the builder’s risks market which has seen a sharp softening in recent months. It will be interesting to see if this particular incident has any wider effect on the premium rating for builders' risks.
Hurricane Beryl was the earliest Category 5 Hurricane on record in the Atlantic Basin causing catastrophic damage and loss of life in the Caribbean and the US following landfall in Texas. Loss estimates range between USD2bn and USD4bn and mark the start of what is widely predicted to be an extremely active Atlantic hurricane season. There are 17-25 named windstorms predicted which is much higher than historical averages. There is significant marine exposure across the region, and we should be braced for possible wider impact on the (re)insurance market generally, due to major catastrophic losses.
Escalating threats
Since our last market bulletin, containing information on War Risks and the Red Sea, the threat of Iran directly joining a wider regional conflict has increased. The ‘Galaxy Leader’ remains detained in Yemen by the Houthis and the recent seizure of the MSC Aries by the Iranian Revolutionary Guards demonstrates that Iran is very capable of disrupting shipping in the Straits of Hormuz and will do so in its attempts to exert wider political influence. Insurers are watching closely as total loss exposures due to vessels detained and/or blocked can quickly become very significant. Whilst rates remain very high for transits of the Red Sea in particular, the volume of voyages is still significantly down due to many vessels diverting via the Cape of Good Hope. The frequency of losses in the Red Sea has increased as the Houthis have intensified their attacks. The recent sinking of the ‘Tutor’ followed an attack on 12 June with a remote-controlled water-borne improvised explosive device forcing the crew to abandon the ship. The following day the ‘Verbena’ was struck by three missiles in the Gulf of Aden causing a major fire and severely injuring a crew member. These incidents highlight the ongoing serious threat to shipping transiting the southern Red Sea. Since the illegal seizure of the ‘Galaxy Leader’ in November, there have been countless incidents, not least the attack on ‘True Confidence’ on 6 March leading to the tragic loss of three seafarers. The frequency of attacks is clearly in evidence as on 1 July alone, the Houthis advised of attacks on four separate vessels claiming they were linked to the US, UK, or Israel. The situation represents a completely different risk profile for insurers than a typical war scenario. These losses are not consequential to a land-based war where merchant ships are occasionally caught in the crossfire. The ships are being deliberately targeted and fired upon with sophisticated weaponry. Losses seem inevitable until the threat is eliminated or substantially reduced.
Premiums continue to be expensive for vessels calling to the Black Sea, Ukraine and Russia ports with no end to the hostilities in sight. The recently approved US aid package gives Ukraine much-needed support to defend itself against further incursions into its territory. The majority of insurers are still writing calls into the Black Sea with no reinsurance protection, causing rates to remain stubbornly high. It will be interesting to see whether there is any softening of the reinsurance position on Russia/Ukraine exposures in the second half of the year, given the sharp reduction in maritime casualties relating to this ongoing conflict. Given the ongoing level of marine war loss activity elsewhere, it would seem unlikely.
Market moves
Jonathan Moss, Gustaf Kristiansson and Harvey Booth have commenced roles Underwriting at AI Marine. They were previously at Norwegian Hull Club, Alandia, and Markel respectively.
Andrea Cupido and the Hull Underwriting team at Swiss Re have moved to MGA platform Dual. They are joined by Aram Stoop who previously was underwriting for MS Amlin in Rotterdam. Dual will write hull, war and builders’ risks with Swiss Re security. Swiss Re plans to support the MGA in lieu of writing a direct book.
Richard Young has commenced writing hull, war and builders’ risks at the newly established MGA Clearwater. Richard was previously head of marine at Beazley.
Simon Lovell will join Liberty later in the year to write Hull and War. Simon will move from his current role at Talbot and will replace Alex Becker who has recently joined Skuld.
Gard recently announced the acquisition of the Marine & Energy portfolio of Codan for approximately USD 163m subject to regulatory approval. Once complete Gard will establish an office in Denmark with around 50 current Codan staff due to move across.
London based Fidelis Partnership will commence writing various classes of business through a new Lloyd’s platform as Fidelis Partnership Syndicate 3123 with a GWP target of 180m for H2 2024 and USD450m for 2025. Fidelis have written marine insurance in the London market for a number of years and the syndicate will provide a further expansion of their offering.
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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.