Dieter Berg, president of the International Union of Marine Insurance (IUMI), has highlighted the need to manage “unthinkable” risks, which are becoming more commonplace.
Of special concern is the increasing risk of a large event loss, either a natural catastrophe (nat-cat) or man-made, in the cargo sector due to increasing value accumulations on single sites or vessels, in combination with stronger nat-cat impact.
Losses like Deepwater Horizon (insured loss US$6bn), Costa Concordia (insured loss US$1.5bn) and the Tianjin port explosion (insured loss $2-3bn) would have been assessed as “unthinkable” until recently.
Nat-cats have also been creating large losses such as hurricanes Katrina and Rita in 2005 (total insured offshore energy/marine loss US$12.57bn) and hurricanes Harvey, Irma and Maria in 2017 which resulted in more than US$1bn in yacht losses.
With the increasing accumulation exposure and climate change, this might indicate a “new normal”.
Berg said: “Climate change will continue to influence risk profiles. Earthquakes and wind storms are not the real issue, unless you are an offshore energy underwriter. But flooding and storm surges can create massive losses.”
The increasing risk of large event loss (either nat-cat or man-made) in the cargo sector due to increasing value accumulations on single sites or vessels, combined with stronger nat-cat impact, has become a concern for IUMI.
“Growing accumulation of risks at sea and ashore is of increasing concern,” Berg said. “On large containerships where around 20% of boxes are empty, we are likely to see a combined cargo and hull value of around US$1.5bn, and that doesn’t include any wreck removal or pollution costs. In ports and terminals, the values are higher as was seen at Tianjin.”
Premium income for marine cargo insurance was estimated at US$16.1bn for 2017, which is a 6% increase on the 2016 result.
The cargo market suffered a large increase in loss ratios, primarily caused by the impact of outlier and nat-cat losses, from 2014 to 2016.
This trend is assumed to affect 2017 more than average due to a number of nat-cat events including hurricanes, the Mexican earthquake, flooding in Bangladesh and the California wildfires.
A final gross loss ratio of around 80% is expected to be reported once all claims attaching to the 2017 underwriting year are known.
Premium income across all marine business segments reached US$28.5bn in 2017, which represents an increase of 2%.
Astrid Seltmann, vice-chair of IUMI’s facts & figures committee, said: “This upswing is largely attributable to growth in trade plus strengthening of European and other currencies against the US dollar.
“But it masks the dramatic situation which is unfolding when current premium levels are viewed in relation to covered risks and the impact of claims.”
Cargo continued to represent the largest share for the global marine premium by line of business in 2017 with 57% while hull had 24%, offshore energy had 12% and marine liability (other than P&I) had 7%.
The only line with an actual increase in volume and its relative share of the overall global premium was cargo.
However, the increase in absolute numbers was the result of an upswing trade in combination with exchange rate fluctuations.
The hull sector recorded a global underwriting income of US$6.9bn, which is a decrease from 2.3% on the 2016 result while global premiums for the offshore energy sector reached US$3.5bn representing a 5% reduction.