Although global hull premiums reported at the International Union of Marine Insurance (IUMI) conference this week were stable, Rama Chandran, Chair of the IUMI Ocean Hull Committee was more upbeat. He said:

“Yesterday, our Facts & Figures Committee reported total 2019 global ocean hull premiums of USD 6.9 billion which is a very small increase of 0.2% from last year. However, there have been indications of a more significant market development recently and I am confident that the ocean hull sector is now on an upward trajectory – although the current gradient of the recovery remains shallow”.

“We are starting a recovery from a very low and unsustainable base where our sector has suffered technical underwriting losses almost every year since 2005. Fundamentally, we have an ever-widening gap between an increasing amount of tonnage being insured and a decreasing global premium pot. The 2019 IUMI numbers show that global premiums have now stabilized and although the gap still remains, it is not widening so rapidly.”

Chandran believes there is cause for cautious optimism as the 2019 numbers do not account for the shrinkage of underwriting capacity in the hull market which really only took effect at the end of 2019 and early 2020. This was particularly felt in the London market where Lloyd’s took the decision to withdraw a number of marine syndicates.

However, the hull market is continuing to suffer from an ever-ageing – and less valuable – fleet coupled with depressed newbuilding prices. An overall reduction in asset values will directly impact premiums.

According to Chandran, the impact of COVID-19 must also be carefully monitored. Vessel utilization in some vessel sectors has significantly reduced and this has been reflected in an unusually low claims environment, however, this might be short-lived:

“The coronavirus situation has made it difficult for owners to commission on-board inspections, secure spare parts and perform routine maintenance. Once the situation normalizes, we are likely to see a sharp increase in attritional claims”, he said.

“In general, total losses have reduced across all vessel types and this is extremely good news, but we are still seeing a worryingly high number of major on-board fires, particularly on containerships and – earlier this year – on a car carrier and a VLCC”.

Chandran also highlighted the issues with IMO2020 compliance. Whilst damage caused by fuel switching had largely been eliminated, there was significant cause for concern over an increased amount of engine damage as a result of accepting off-spec low-sulphur bunkers. Owners were being made aware of this issue, he said.

Summing up, Chandran said:

“The ocean hull market has been operating unsustainably for many years and is now at a level where premiums will cover attritional losses only. Although COVID-19 has introduced additional uncertainty into our sector we are observing signs of a market recovery.”