The global marine insurance industry is experiencing heightened risks due to the increasing size, value, and complexity of vessels, according to Wang Xing, senior marine underwriter at Swiss Re Asia, in partnership with the General Insurance Association of Singapore (GIA).
This growth in potential severity is leading to a significant impact on the market, particularly when major losses occur.
Data from the International Union of Marine Insurance (IUMI) underscores the substantial influence that major losses have on the marine hull insurance market. From Underwriting Years (UY) 2013 to 2021, only 2% of reported losses exceeded $10 million, but these accounted for 29% of the total loss amount.
Xing points out that this illustrates the disproportionate effect major losses have compared to more frequent, smaller losses.
One-third of these losses being classified as major highlights their significant impact on the market. Insured parties often find that a large portion of their premiums is allocated not to attritional losses—those smaller, more frequent losses during the insured period—but to cover the potential risk of substantial losses that could occur at any time.
This scenario creates a market where infrequent but severe claims heavily influence premium calculations, affecting all participants, regardless of their individual loss history.
Historically, the marine hull insurance market has demonstrated its vulnerability to major losses. The Costa Concordia disaster in 2012, for example, resulted in approximately $522 million in losses, impacting over 10% of the European marine hull insurance market.
Similarly, the 2021 Suez Canal blockage by the Ever Given ship, while the hull insurance claim was manageable, had significant implications for global trade and supply chains, leading to financial impacts well beyond the marine industry.
Xing notes that, while it may not always be feasible to estimate the severity of losses for every underwriting year, it is possible to gauge the impact of major losses over a more extended period. Data from IUMI and the Nordic Marine Insurance Plan (CEFOR) indicates that the average major loss ratio to the value of the marine hull book is around 13% annually for UYs 2013-2022.
This figure, while dynamic, suggests that a 10-20% major loss ratio is generally acceptable in marine hull insurance costing, both in direct and reinsurance portfolios globally.
If major losses are excluded, the attritional loss ratio tends to be more stable and predictable. However, there can still be volatility, as seen in the higher attritional loss ratios during UYs 2014-2018.
Xing attributes this to additional factors such as fluctuations in hull values, changes in direct market insurance capacity, and broader economic influences like inflation, all of which contribute to performance volatility within the marine insurance cycle.
The interplay between major losses and the marine insurance cycle is critical to understanding the volatility in a marine hull insurance book. Major losses introduce significant unpredictability, making it challenging to forecast short-term performance accurately.
A long-term perspective is essential, smoothing out the impact of major losses and providing a more stable view of a portfolio’s performance over time.
Insurance statistics from IUMI reveal specific challenges within the marine hull insurance market, particularly during soft cycles. These cycles, driven by factors such as reductions in hull value, premium rates, and overcapacity, consistently affect the market’s performance.
Over time, shifts in reinsurance market capacity and intense competition further contribute to these cycles, complicating the landscape for marine hull insurers.
Xing and Swiss Re Asia, in collaboration with GIA Singapore, continue to emphasize the importance of understanding these dynamics as the industry navigates the challenges posed by an evolving and increasingly complex marine environment.
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