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Issue 116 - 26th August 2010
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IUMI warns of challenges as marine market faced decade of change
The world’s marine underwriters are heading for Zurich in the next three weeks for the annual International Union of Marine Insurance conference with challenges seeming to outweigh opportunities. Union President Deirdre Littlefield believes the dynamics of the market and the current state of the global economy will test the industry. She said that shipowners and marine underwriters have reached another crossroads at a time when they need a period of stability to take stock and plan ahead for the future. “Despite the increase in capacity due to the influx of new tonnage, much of which was ordered when owners were riding the boom, paradoxically there are still newbuild orders being placed, especially by Greek owners. Yet many owners need urgently to refinance a considerable amount of debt, so the future for some operators is a hard one to call. “For underwriters, statistically speaking, a much younger profile for the world fleet should signal fewer ship casualties and claims. At the same time, however, we can anticipate landslide changes in shipping over the next 10 years as vessels and ports expand in size and a whole new raft of technological advances fall into place, making ships increasingly more complex to operate. “For example, major operator Maersk is said to be considering a variety of new concepts for both the ships of the future and existing vessels, including new hull forms and propeller designs. Class society Germanischer Lloyd has warned that the new, wider locks in the Panama Canal, expected to be in operation in 2014, will mean the rapid phasing out of the current panamax boxships. “And there is talk everywhere of ever bigger vessels – containerships, VLOCs, gas carriers, chemical tankers, cruiseships. Only in the crude oil tanker sector have sizes apparently stabilised.” Therefore, said Ms Littlefield, there are many challenges on the horizon for underwriters. At present, however, they have to cope with the threat of more intense competition if some capital providers behind companies and syndicates decide to move capacity into marine from the very difficult offshore energy market. Premium rates for hull insurance remain stubbornly flat for clean business. Some insurers are offering performance or continuity bonuses in place of reduced premiums. However, owners with a bad claims record can expect calls for higher rates and deductibles. Neither hull nor cargo underwriters expect any real improvement this year, she added, and both markets are facing a tougher reinsurance climate that started to emerge at the end of 2009.
End to terror safety net will have long term implications U.S. warned
Any decision to end the United States’ government-mandated terrorism backstop would have “an adverse effect on the long-term availability and affordability of terrorism insurance”, according to a letter submitted by Marsh to the President’s Working Group on Financial Markets. Marsh, along with Guy Carpenter, submitted the comments in response to a request for industry opinion on the availability and affordability of terrorism insurance. In a statement Marsh said: “In the event that the Terrorism Risk Insurance Act (TRIA) is discontinued and not replaced by a similar government-sponsored programme, Marsh anticipates that the availability of terrorism insurance would be greatly reduced in high-risk areas, such as business districts within major metropolitan areas. Marsh also anticipates that pricing for terrorism insurance would dramatically increase in these high-risk areas. This would have a profoundly negative impact on those businesses with the greatest need for protection against terrorism risks. “Terrorism, in all its forms, remains a significant risk that will need to be insured again over the long-term,” said Ben Tucker, leader of Marsh’s Property Specialised Risk Group. “Marsh would expect significant and adverse market impact in the absence of the TRIA backstop, as insurers do not have sufficient capacity to meet the terrorism risk needs of policyholders.” The broker warned that on occasions when TRIA coverage has been unavailable, Marsh clients have used terrorism policies provided by insurance companies on a standalone basis to manage and transfer their terrorism risk adequately. “However, a significant increase in either natural catastrophes or man-made events, such as terrorism, would likely result in a market hardening, which in turn would have an adverse impact on the affordability of terrorism risk insurance in the future,” Marsh said. This effect would be exacerbated in the absence of a mandated terrorism risk insurance mechanism.
Solvency II adding up to more demand for actuaries
Managing agents at Lloyd’s have seen significant growth in actuarial resources over the last three years as the demands on managing agents from Solvency II develop, according to a new survey. The 2010 Lloyd’s Market Association (LMA) survey, completed by 50 out of the 53 Lloyd’s managing agents, found that a total of 382 people were employed in an actuarial role, with the requirements of Solvency II being one of the main drivers behind the increase. The demand for better management information coupled with greater demands by regulators also drove the demand for actuarial talent. A similar survey in 2007 indicated that 256 actuaries were employed within the market. The top three actuarial roles within the Lloyd’s Market are reserving (119), pricing (88) and capital modelling (72). In total managing agents employ 179 qualified actuaries, with student actuaries and technical non–actuaries making up the balance. The survey shows that the upward trend is set to continue in 2011, with managing agents forecasting that by the end of 2011 they will see another 10% increase. Commenting on the findings, David Gittings, Chief Executive of the LMA said: “Over the last three years the rapid growth in actuarial resources throughout the managing agency community illustrates the growing demands for a greater depth of management information arising from the increasingly competitive and highly regulated environment.”
ILS still delivering value in challenging climate says study
Aon Benfield Securities, the investment banking division of reinsurance intermediary and capital advisor Aon Benfield, has released its annual review of the Insurance-Linked Securities (ILS) market. The ILS Review 2010 – Market Momentum revealed that “despite a challenging capital markets environment”, the ILS sector continued to “provide value” to sponsors and investors alike. Paul Schultz, President of Aon Benfield Securities, said: “Over the past year, the insurance-linked securities market has once again demonstrated its importance as a source of risk transfer capacity. The market has grown and evolved in response to a changing global economic environment, maintaining its relevance to both sponsors and investors. Our analysis elaborates on these market characteristics and offers a positive outlook for the future.” The report said over the past year, both ILS issuers and investors have adapted to a new capital markets landscape, which is evidenced by the evolution of the asset class. “Despite continued uncertainty and volatility in the global capital markets generally, the ILS market continues to perform strongly, with returns increasingly significantly from the year ago period,” it added. The study revealed that market activity remained high during the year ending 30 June 2010, with 20 new transactions totaling $4.6bn brought to market, compared to $1.7bn across 11 transactions during the previous 12 months. According to Aon Benfield’s ILS Indices, ILS products provided a total investment return of 12.85 percent for the year ending June 30, 2010 – up from 2.94 percent the previous year. “These results are primarily attributable to mark-to-market gains across all perils,” it added.
Deepwater fears spread to hospitality sector says Ironshore
Growing concerns over the impact of a pollution spill on a business has prompted underwriter Ironshore to launch a new product in an unlikely business sector. Ironshore Environmental announced it had expanded its suite of asset-class specific SPILLS programs to provide comprehensive environmental coverage to the Hospitality Sector. “The Deepwater Horizon Spill has heightened management awareness to the potential impact of a pollution incident that does not occur on the insured property but can result in a significant loss of revenue to a leisure establishment,” said Joe Boren, CEO of Ironshore Environmental. “The comprehensive SPILLS Hospitality program is designed specifically for the hospitality industry and therefore features Contingent Business Interruption coverage for pollution incidents within a specified radius of the property that threaten financial loss.” The hospitality program offers asset protection against a broad range of site pollution exposures, including Mold, Legionella, Contingent Business Interruption, Norovirus and Recreational Water Illnesses (RWI), as well as other facility-borne infectious viruses and/or bacteria. Mr. John O’Brien, President of Ironshore Environmental, added: “We develop products by asking insureds and brokers ‘what types of exposures are of a concern’ then we launch an insurance product that is “client-centric.” The product according to Ironshore was developed “specifically to address emerging risk management issues of the hospitality and leisure industry, including resorts, hotels, motels, casinos, cruise lines, and time shares”.
Jon Guy
Editor
Global Broker & Underwriter
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