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The pleas at last year's annual gathering of the International Union of Marine Insurance for a return to responsible underwriting practices appear to have fallen on deaf ears.
Not only did 1997 mark the third successive year that shipowners and shippers enjoyed falling insurance rates, but there also are no signs yet of the market veering from this course.
Richard DeSimone, chairman of the American Institute of Marine Underwriters, said the U.S. market "is the most competitive market we've ever seen." His remark could be applied equally to the global scene.
While insurers so far have been lucky in that there have been no major marine claims over the past year, they can't expect their luck to hold for any extended period, warned Mr. DeSimone.
Commenting on current prospects, Mr. DeSimone, who is also senior vp-marine with Atlantic Mutual Cos. of Madison, N.J., said he expects that in the first half of 1998 most underwriters have not had a good year and that there has been no improvement in the hull market.
Also commenting on the U.S. market, John Hickey, president of the New York-based American Hull Insurance Syndicate of New York, said that hull premiums are now 60% less than they were four years ago. "The prognosis is poor, and unless companies improve their rates dramatically, I doubt that you'll see much improvement in 1999," he said.
Others at this year's IUMI gathering in Lisbon, Portugal, were equally pessimistic about global prospects.
Hartmut Rehders, chairman of IUMI's Inland Hull Committee, complained that the current market is so bad that "nobody can earn money in this field."
Peter Christmas, chairman of IUMI's Ocean Hull Committee, said, "The international hull market is in the middle of its fourth year of serious reduction in the levels of premiums; conditions remain soft with no signs of upturn."
Hull rates have never been lower, and in some cases they are as low as 25% of those obtained at the peak of the cycle in 1994, Mr. Christmas said. He added that the situation is exacerbated by huge and still-growing overcapacity, the reluctance of insurers to lose market share, and the availability of cheap reinsurance.
The theme of this year's IUMI meeting was "adding value." IUMI President Georg Mehl, who is also chairman of Stuttgart, Germany-based Wurttembergische A.G. Versicherungs-Beteiligungsgesell-schaft, said it is time that marine underwriters abstained from competing for market share at any cost and instead set a definite bottom line below which they would not go. Underwriters need to communicate better with customers and to do more to help them prevent losses, he said.
Mr. DeSimone also emphasized the importance of adding value. He said U.S. marine underwriters who are weathering the current competitive phase of the underwriting cycle are those who keep their clients by "providing good claims service, loss control and an understanding of their business."
Underwriters are not overly optimistic about prospects for an upturn.
According to Mr. DeSimone, the upturn could come as management in some of the smaller, marginal markets decides to withdraw capacity. However, Mr. Hickey said he thinks it would take more, such as a dramatic downturn in the financial markets, most likely in bonds, which would cause investors to withdraw their money from the insurance sector.
One positive element for marine insurers is a reduction over the past few years in major maritime casualties.
The Institute of London Underwriters annually releases casualty figures at the IUMI gathering, and this year the figures show the number of merchant ships lost in 1997 fell to 170 from 223 in 1996. The 1997 total represented 0.22% of ships afloat, down from 0.27% in 1996 and the lowest proportion for more than 10 years.
The IUMI meeting began with the usual policy statement from the executive committee that in order for the IUMI to comply with U.S. laws, there would be no discussion of rates or conditions of insurance, though both topics were inescapably uppermost in everyone's thoughts.
In addition to comments from speaker after speaker about the dire state of the international marine market, with rates at a three-year low and showing no signs of improving, ample statistics were presented to demonstrate the competitive state of the market.
Norway's Central Union of Marine Underwriters presented its annual compilation of global marine premiums. It showed that in 1996, the latest year for which some IUMI member associations could provide figures, global marine premiums fell to $15.1 billion from $16.7 billion in 1995.
Within this total, premiums fell in all sectors of the marine market: hull premiums fell by 11% to $4.5 billion, cargo premiums by 1.6% to $8.7 billion, liability premiums by 29% to $1.1 billion, and offshore energy premiums by 34% to $810 million.
The figures also indicate that in 1996 Japan finally overtook London as the world's leading marine insurance market. That year, Japan produced marine premiums of almost $2.7 billion, down from $2.9 billion in 1995. However, in London, where Lloyd's of London then still was trying to push through its reorganization, marine premiums fell dramatically, to $2.2 billion from $3.4 billion.
According to figures from both the CUMU and the American Institute of Marine Underwriters, the third-largest marine market in 1996 was the United States.
However, AIMU figures for the U.S. market, which are more up to date than those of the CUMU, show that, after rising for a number of years, total marine premiums of U.S. insurers fell to $1.51 billion in 1997 from $1.60 billion in 1996. Hull premiums are 60% lower than they were four years ago, according to the AIMU.
Mr. DeSimone, the AIMU chairman, said this demonstrates "a dramatic deterioration" in results, making it "the most competitive market we've ever seen."
U.S. marine insurers' combined loss ratio deteriorated in 1997 to 98.24% from 91.59%, and in a number of classes exceeded 100%. These included cargo, where the ratio deteriorated to 100.45% from 91.32% on premiums that fell 4.3% to $643.9 million; deep-sea hull, where it worsened to 130.35% from 85.93% on premiums that were down 9.5% to $89.4 million; and other hull, which went to 120.04% from 98.64% on premiums that were 20.5% down to $152.1 million.