Underwriting sources told this publication that rates were consistently increasing by over 20% and carriers were able to push for stricter terms and conditions, as well as driving premium levels significantly higher.
It is now becoming challenging for brokers to complete slips, as underwriters cut back on line sizes and in some cases, policyholders are being forced to take on higher retentions and co-insurances, or are opting to purchase lower limits.
The cargo market has been working to lift itself out of the doldrums since 2018, when it was identified as the second worst-performing class of business in Lloyd’s as the Corporation launched its Decile 10 remediation drive.
Despite the positive rating outlook, 2020 results have been overshadowed by a spell of sizeable losses, which are understood to have pushed the cargo market in Lloyd’s to a major loss in the second quarter, with a loss ratio well in excess of 100%.
Most damaging for the market were the losses arising from a tornado that ripped through Nashville in March, which is understood to have resulted in a claim of around $300mn from computer manufacturer Dell, after a number of its warehouses were extensively damaged. The account was heavily insured in the Lloyd’s market.
Key cargo underwriters in the London market include Ascot, Beazley, Axa XL, Chubb, Brit and Axis.
In addition, the explosion in the Port of Beirut in August resulted in sizeable cargo claims, with overall marine losses initially pegged at $250mn by Guy Carpenter.
At the recent International Union of Marine Insurance (Iumi) conference, cargo committee chair Sean Dalton said that the global cargo market was “hard” or “improving”, but that the last year had been significantly impacted by major losses.
Overall, underwriting sources speaking to this publication were positive about the state and trajectory of the market, especially as current price hikes were coming on the back of prior-year rises, but cautioned that there was still more work to be done before rating adequacy was achieved.
Reducing exposure
A key priority for underwriters is to reduce levels of exposure for any single loss, which is being achieved both by putting down smaller lines and amending terms and conditions.
“The entire market has been working hard on getting exposure down,” said one source. “We are still very volatile on those large losses. Some of our exposures are massive in our portfolios.”
As a result of price rises, major carriers can afford to cut their lines and still grow their top lines, which is making it challenging for brokers to complete slips, and can lead to attractive opportunities for carriers to fill the top of a tower.
“I think people are writing more balanced books than they were before,” another senior underwriter noted.
Following the windstorm losses, underwriters have tried to limit the aggregate that a policy can pay out for a single tornado strike, either by imposing limits on how many locations they will pay out for after a single weather event or by reducing overall limits.
The market has also been able to push through blanket communicable disease exclusions.
Brokers have expressed frustration at the changing terms, but there is little option to shop around for alternatives.
“We haven’t lost any business because of the pandemic exclusion,” one underwriter said.
A market in recovery
The cargo market has undergone extensive remediation since 2018 when it was labelled as one of the worst-performing classes of business in Lloyd’s.
The Corporation's Decile 10 initiative prompted numerous syndicates to withdraw from the class of business, and although capacity has become more stable, there have been further pull-outs this year.
Neon and StarStone both wrote cargo books that closed as the two businesses were placed into run-off, whilst K2 International recently put its marine specialty book into run-off, after it transferred to the business from shuttered Pioneer earlier in the year.
Rating has been accelerating since the latter half of 2018, and at the beginning of this year, rate rises were running at around 15%, with the tornado losses prompting further hardening.
There are signs of an increased interest in the class following the sustained years of rate growth.
Announcing its growth plans for 2021, Atrium Syndicate 609 identified cargo as one of the areas it intended to grow.
Meanwhile, Tokio Marine HCC has appointed a team of highly regarded cargo underwriters from Hiscox to build out its presence in the class, prompting speculation about a succession of underwriting personnel moves.
The onset of the Covid-19 pandemic has resulted in minimal loss activity to date for the cargo sector, although there have been some changes in risk exposure, such as accumulation of stock in warehouses.
Iumi president Richard Turner has warned that the significant downturn in global trade is likely to result in a proportionate decline in marine insurance premiums, but market sources said that so far the effect had not been drastic and there was still a healthy amount of business passing through the market.
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