Renewals and market conditions

For the fifth consecutive quarter, the rate rise sought by marine liability underwriters has continued to increase. Loss free, flat exposure renewals are attracting between 10% to 15% rate rises as underwriters look to address rate adequacy. 

Pressure to further increase rates through Q3 has been driven in part by a number of high profile marine related incidents with the potential for significant losses. These include:

• MV WAKASHIO running aground off Mauritius 
• Höegh Xiamen car carrier fire at Jackonsville dock
• Port of Beirut explosion
• Tilbury Port Grain terminal explosion
• New Diamond VLCC fire off Sri Lanka
• Loss of livestock carrier Gulf Livestock 1 in the East China Sea
• Waymon L. Boyd pipeline explosion and vessel fire in Corpus Christie
  
  

Insurers are also in their business planning cycle, setting their 2021 appetite and target rate to be approved internally and where required, by Lloyd’s. As management oversight becomes greater, the potential for individual account analysis grows and underwriters are empowered to walk away from accounts that do not meet profitability criteria. Insureds that embrace and value longer-term relationships with their reinsurance partners are likely to secure the best results possible.

Current rating in the Marine liability market is not out of step with most other classes of business, which are experiencing a hardening. Marine liability continues to be at the lower end of rate increases being seen across the sector, where business is attracting market increases of anything from 20% - 100%+ depending on the class - as all lines look to address long-term unprofitability. This is the ultimate expression of the losses of the few falling on the many. 

Now more than ever, each class is competing against other lines of business for allocation of capital, with the classes that offer the highest return allocated more resource. This has increased pressure on the minimum rate on limit, especially for higher excess layers where pricing is driven more by the limit purchased rather than exposure and experience. 

We are continuing to debate the relative merits of each account with underwriters and keep in regular contact with the wider market to ensure we obtain the best possible terms for our clients. 

A Covid-19 exclusion or, in some cases, a communicable disease exclusion remains a requirement on most, if not all marine liability placements. In order to argue against their inclusion, we will need to have sufficient evidence that on an individual account basis, exposure is manageable and there is less exposure to systemic risk and a high level of aggregated loss.

Market capacity

Other that Sirius syndicate at Lloyd’s, which opened its marine & energy liability book as of 1 October 2020, there has been no significant reported changes in available capacity within the Marine Liability sector. However, over the coming months, there are a number of factors that may affect available capacity.

As we head into Q4, a small number of new start-ups that were speculated to enter the market as “Class of 2020” are still a possibility. It remains to be seen if they are able to enter the market in time for the Q1 2021 renewal season and whether they would have the appetite for marine liability reinsurance risks. 

Investors have also focussed on supporting growth of current companies to take advantage of the harder market conditions by scaling up. Although until business planning is complete, it is not clear in which lines of business they will look to grow.

We continue to monitor the potential opportunity to access new capacity through follow-only syndicates. This is an emerging sector of capacity whereby specific syndicates agree to follow leaders on a pre-established basis, whether using algorithms or other approaches. 

As insurers complete their business planning, some will have increased line sizes approved, whilst others may have to reduce their line size or written premium, which will impact the available capacity.