Marine renewals stable

Ample capacity and heightened competition among marine market players resulted in mainly stable to softening hikes at year-end renewals, and 2007 may be even more of a buyer's market, marine brokers and underwriters say.

The lack of significant increases witnessed at midyear 2006 continued through the end of the year—even in the face of rising reinsurance costs, they say.

Overall, the current marine market is "very favorable from a buyer's standpoint," said Tony Mayer, managing director Marsh Inc.'s global marine and energy practice in Houston. "The hull and the cargo market continue to be what we would describe as soft and competitive," Mr. Mayer said.

"There generally is sufficient capacity in the market for the traditional marine lines of business for cargo, liability and hull," said David French, president and chief executive officer of Starr Marine Agency Inc., a subsidiary of New York-based C.V. Starr & Co. Inc. "I see business getting placed."

Starr Marine is seeing rate stability on cargo and blue water—or ocean marine—hull business. However, marine liability and brown water—or inland marine—hull coverages have both begun to see some "merited" price decreases, he said.

For hull risks, "the market in general is pretty static, probably more static than it has been for a number of years," said Brendan Flood, marine underwriter for Lloyd's insurer Hiscox P.L.C.

"Clients with very good track records and attention to loss control are enjoying price decreases," said Richard J. Decker, president of AIG Global Marine, a New York unit of American International Group Inc.

Insurers are still eyeing individual clients' exposures, however, Mr. Decker said, and loss records and changes in exposures could impact rates. "As our clients diversify, and consolidate and merge with other companies, the exposures can change dramatically," he noted.

"The business that is probably getting the most scrutiny is business relating to offshore operations in the Gulf of Mexico," Mr. French said.

Underwriters are generally "taking note" of Gulf Coast fleets and related exposures rather than making any significant rate changes on those accounts, Mr. Mayer said.

While higher reinsurance costs have been an issue for some, particularly for catastrophe-prone risks, they have yet to halt the general softening in the marine market.

For example, "cargo business, particularly to the extent that it involves static storage locations, is exposed to loss for wind, flood and earthquake," but, "the failure of cargo rates to increase significantly in the face of increased excess-of-loss reinsurance costs is due to ample willing capacity," said Mark W. Blackman, executive vp and chief underwriting officer for NYMAGIC Inc. and the MMO Group of Cos. in New York, in an e-mail response.

In addition to plentiful capacity, buyers also are benefiting from growing competition in the marine marketplace, noted Mr. Mayer, who in the past 12 months observed U.S. and European market players outside of Lloyd's of London becoming more aggressive.

During the latest renewals, "We did have a significant account that had been in the Lloyd's market that (has) moved to some other companies," Mr. Mayer said.

"The break-up of (American International Group Inc.) and C.V. Starr means that there are now two large carriers chasing the same business," added Mr. Blackman. Even so, "it remains to be seen what impact, if any, this will have on overall rates."

In 2007, underwriters are likely to feel more pressure from policyholders to provide those merited price decreases, said Starr Marine's Mr. French. He said he hopes "all marine underwriters remember that it has been a relatively catastrophe-free year" and not to "overreact."

Still, as 2007 progresses, "we are going to see those rates start to soften, possibly 5% to 10% reductions," said J. Cran Fraser Jr., managing director of Arthur J. Gallagher Risk Management Services Inc.'s marine group in Houston.