Up until the start of 2020, the marine insurance market has been considered a buyer’s market.
With numerous competitors, aggressive underwriting practices resulting in low premium rates for clients, this ‘Soft’ Market was one of the longest starting around 2010 and ending relatively quickly last year.
As 2020 started, extreme changes were starting to be seen, especially at Lloyds of London. Several hurricanes making landfall into the U.S. combined with an increase in ship losses and liability claims caused Lloyds to lose over $4.5 billion over the course of 2 years. Changes were made, which resulted in over a dozen Syndicates being closed and several underwriters losing their jobs. Those that were left were made to stem the losses by increasing premiums and being more selective on accounts they insured.
This spread to the U.S. in mid-2020 and since then we have seen the less insurance companies competing for the same business and some outright pulling out of writing marine insurance at all. The ‘Hard’ Market had started.
Has the market significantly changed since the Hard Market conditions seen last year creeped in?
The short answer is, yes, they have, and clients are seeing exponentially higher premiums than any time in recent memory.
The long answer is that at the onset of 2020 market conditions were changing rapidly. Allianz, U.S. Fire and Aspen Insurance had given notice they no longer would be writing marine insurance in North America. Lloyds of London implemented an oversight committee to monitor so-called Profitability Plans generated by Syndicates. Those plans that were not accepted or believed to be realistic saw the Committee close the Syndicates. Rates were starting to harden, and underwriters were having internal discussions on the best way to move forward in the wake of several years of unprofitability and rising reinsurance costs.
In the 12 months since then, things have only become worse.
Horror stories of clients either not being able to renew their insurance or receiving excruciatingly high rate increases are becoming commonplace. Certain segments of the marine industry have found it difficult to get insurance and accounts that were once fought over are now fighting to keep their rates at affordable levels with a reduced number of insurance companies to select from.
Reinsurance Capacity, once abundant and seemingly never-ending, is now shrinking at an alarming rate. This is due to Reinsurance Companies mandating the need for rate increases and more selectivity by insurance companies in what they take on. Hedge Funds have pulled back considerably on Reinsurance Bonds they have been issuing for fear of increasing natural disasters and overall increased claims costs negatively affecting their investors. Overall, it has led to several exits by insurance companies that once wrote marine insurance and has stymied the competitiveness and pricing aggressiveness of the ones left over.
The overall outlook looks grim for the next couple of years. Insurance Companies are trying to make up for all the losses they took in the last 5 years. Hurricanes are developing more frequently with more intensity and storms overall around the globe seem to be increasing as well. Pricing models have shown that most insurance companies had underpriced their client’s policies significantly. Now, they are under orders to bring the premium levels back to more realistic and sustainable levels to offset claims activity. Those that don’t, see job security come into question.
It will take a few years for this cycle to run its course. The insurance market has always been cyclical with periods of Soft and Hard Markets conditions. It just so happens the previous Soft Market lasted longer than anybody could have ever imagined (approximately 10 years). While no one suspects the Hard Market will last anywhere as long, it’s no question that we are in for a few years of increased rates and stubborn, frustrating, underwriting practices.