mountains and bridge

IUMI Global Marine Insurance results indicate a modest recovery but the pandemic adds uncertainty

South Africa Publication November 2020

The International Union of Marine Insurance has released its 2020 Marine Insurance Statistics. They comment that the general health of marine underwriting has been extremely challenging this year and, understandably, the pandemic has significantly impacted trade, shipping, commodity prices and consumer activity. Despite this, their analysis reflects the beginnings of a modest market recovery in most business lines.

Copies of the marine insurance report, the statistics, and the press release are available here: https://iumi.com/statistics/public-statistics

The data reflects the following two primary observations which are of relevance to the South African market:

Cargo

The premium base declined by 1.5 percent from 2018 to 2019 and there is no doubt that it will decline far more significantly into 2020 as a result of the pandemic. As a result, it will be difficult to predict the future performance of the cargo market.

Loss ratios in Europe generally increased from 2016 through to 2019 with significant losses as a result of containership fires. The accumulation of cargo in stock and in transit due to the pandemic increasing the likelihood of damage to vulnerable cargoes will adversely affect ratios from 2020 onwards.

Hull

Global premiums are relatively stable despite the global fleet continuing to grow. The growth has slowed over the last few years, but there is still a significant gap between the premiums and the size of the fleet.

In general, the age of the world fleet is increasing as a result of decline in investment by owners, but this has been balanced by a long term downward trend in total losses which are now at an all time low. Large vessel fires however remain an issue and the increasing costs of major losses as a result of increased ship sizes, accumulations, and new trading patterns remain a significant risk. The pandemic has resulted in the reduction in vessel utilisation which has limited claims.

The South African market has felt the impact of the increase in containership sizes and resultant significant increases in losses with casualties such as the MSC Napoli several years ago and, more recently, the mv APL Austria. Ship size, reduction in crew, outdated firefighting requirements and resultant inability to control particularly underdeck container fires once they start, remains the most significant challenge for hull and cargo insurers. IUMI and hull and machinery underwriters have been engaged in discussions around this issue, but the massive increase in containership size driven by market forces means that there is much more work to do on the regulatory and risk management front to mitigate the massive increase in losses on this ship type.

The effect on rates of the factors detailed in the various IUMI documents is unclear particularly with the effects of the pandemic only now filtering through to the market. The decline in trade volumes places pressure on all service providers including cargo and hull underwriters who are both chasing a dwindling pool of ships and cargo. The effect of this will probably filter through the market over the next few years and the uncertainty reported by IUMI is partly because it is still not clear when and if normal trade will resume.

In the interim underwriters will have to continue applying underwriting and risk management principles relating to risk assessment and reinsurance to reduce their exposure in these uncertain times.



Contact

Head of Transport, Africa; Master Mariner; Director

Recent publications

Subscribe and stay up to date with the latest legal news, information and events...