Plentiful capacity and increasing competition are keeping pricing in the marine hull market flat despite a slight rebound in cargo business squeezed by the financial crisis, insurers and brokers say.

After several years of poor underwriting results, a short-lived squeeze in Norwegian capacity and expensive capital, underwriters succeeded in raising rates an average of 7.5% in early 2009, said Mark Edmondson, London-based class underwriter for marine hull at syndicate 1882, the Lloyd's of London syndicate that Chubb Corp. launched this summer.

“But by midyear, this momentum had been lost and the market flattened, which is where it has largely remained for the past 12 months,” said Mr. Edmondson, who also is chairman of the London market's Joint Hull Committee.

Due to an increase in machinery damage claims, Norwegian hull underwriters increased rates last year but then lost business to other markets, said Ole Wikborg, director and senior underwriter at the Norwegian Hull Club—Gjensidig Assuranseforening in Bergen, Norway.

Then, “more capacity came into the market and some insurers lowered their rates to gain business,” Mr. Wikborg said.

Today, underwriters generally are not willing to reduce rates on renewals and are looking for new business to maintain premiums and profits, said Steve Beslity, CEO of Aon Global Marine in London, part of Aon Corp. With new competitors entering the market, good risks are seeing slight rate reductions, he said.

“The hull market suffered a double whammy in 2009 with overcapacity and a reduction in insurable risk as the world fleet was hit by the recession,” said Mr. Edmondson. A significant number of vessels were laid up, overall insured values fell, and delivery dates were delayed, he said.

While the economy reduced the client base and insured values, the number of insurers competing for the business increased, said Nigel Fitzgerald, Houston-based marine global practice leader at Liberty Mutual Group Inc. Today, “competition in the marine hull market is aggressive with new entrants and plenty of existing capacity,” he said.

Liberty Mutual is among those expanding its marine offerings at Lloyd's; and W.R. Berkley Corp., Montpelier Re Holdings Ltd. and Barbican Holdings (U.K.) Ltd. have entered the marine market via Lloyd's this year, according to the “Review of the Marine Hull Insurance Market” by Jardine Lloyd Thompson Ltd.

For the marine cargo sector, insurance rates remain flat and premium volume is down from pre-financial crisis levels, said Nick Gooding, senior marine cargo underwriter at XL Insurance in London.

“The cargo sector has suffered enormously from the reduction in insureds' turnover because of the economic downturn. We expect that when statistics are released at the (International Union of Marine Insurance) conference in September, they will show another fall in premium volumes. Until there is a recovery in the global economy, it is unlikely that we will see global cargo premium volumes grow,” Mr. Gooding said.

Global marine cargo premiums are down 15% as a direct result of the ailing economy, said Richard Decker, New York-based president of global marine at Chartis Inc. “Japanese exports were down 45% (in 2009) and this was reflected in our premium,” he said. Today, “Japanese exports have returned to 80% of their peak in 2008,” he said.

The cargo insurance market has been soft for the past three to four years with no sign of changing, said Michael Harding, marine and aviation underwriting manager at Antares Holdings Ltd. in London. “There are some bright spots with cargo premium volumes picking up again and results remain satisfactory for many insurers, but there is still more than enough capacity; and there are new entrants at Lloyd's that are recruiting and providing additional capacity.”

Marine hull insurers remain concerned about a potential rise in claims frequency as shipowners look to cut costs, said Neil Smith, head of underwriting at Lloyd's Market Assn. in London. “The majority of owners maintain their vessels properly, but insurers are concerned that some may slacken off now that the freight market is off its peak.”

“If a vessel suffered damage in the past, the owner may have carried on trading, but now they could take the opportunity to get it repaired and claim from their insurers,” Mr. Smith said.

Less use of cargo vessels could affect maintenance, Mr. Fitzgerald said. “Machinery damage claims continue to be a significant part of the hull book, but it is too early to say if there has been an increase in (claim) frequency,” Ms. Fitzgerald said. “We do see an increase in severity and we are looking into why this has happened.”

While there have been few large losses this year, there were several large losses in 2008 and 2009 and insurers still are being affected by attritional machinery damage claims, said Simon Stonehouse, class underwriter for marine at Brit Insurance Holdings N.V. in London and immediate past chairman of the Joint Hull Committee.

“Marine hull insurers have struggled in recent years to meet the required returns on capital, and profit margins are now so slim that most hull underwriters are not able to offer reductions,” said Mr. Stonehouse.

Another factor of concern to underwriters is ships steaming slowly to conserve fuel because they are under less pressure to reach their destination.

“Slow steaming is being linked to fires and engine seizures, and there are concerns over potential claims that could arise from the use of low-sulfur fuels, which put added pressures on crews,” Mr. Stonehouse said.

“Low-sulfur fuels require adjustments to engines and ongoing maintenance,” Mr. Smith said. “If these are not carried out correctly, they would increase machinery damage claims.”

While there have been few significant major claims in the marine market this year, the April loss of the Deepwater Horizon mobile drilling unit in the Gulf of Mexico is one of the largest losses ever to hit the marine market and is likely to have implications for reinsurance, underwriters say.

“Hull underwriters looking to improve their net results through reduced reinsurance costs may have to think again, because any suggestion that the marine hull reinsurance will soften has now been dispelled,” Mr. Edmondson said. “If Deepwater Horizon is a major claim, no marine line will be immune from the effect of the loss on the reinsurance market, and higher reinsurance costs should, in practice, translate into higher direct rates.”