Sources told Insurance Insider that pricing was broadly stable at 1 January renewals in hull, but rate decreases were beginning to creep in for clients with healthy loss records.
“The 1.1s went pretty well but there was the first pressure on hull,” a mariner noted. “We lost a few clients where we refused to reduce on price.”
With new capacity continuing to enter the market – predominantly via MGAs – rating pressure and competition is continuing to ramp up.
Hull underwriting sources warned that retaining robust rating discipline was essential following a year of spiky claims in 2023 alongside increased reinsurance costs and ongoing claims inflation.
“We have still got inflation pressures,” a hull underwriter said. “Our margins are squeezed.”
The consensus amongst heads of marine is that cargo business has remediated far more successfully than the hull portfolio.
Hull underwriters pointed to several large losses during 2023 – such as the $100mn+ Kodiak Enterprise fishing boat loss – which have impacted performance.
With most carriers shouldering increased retentions since reinsurance conditions hardened at the beginning of last year, such claims have had a substantial impact on results for certain carriers.
Nonetheless, brokers are optimistic that they will finally be able to secure widespread rate reductions for their clients during 2024, following a period of multi-year hardening which has seen prices rise for 26 successive quarters.
In a December report, Gallagher said that there was potential for a “gradual softening” in the hull market in 2024, as carriers looked to grow their portfolios and secure the most attractive fleets.
Marine hull spent a prolonged period in the rating doldrums until the Lloyd’s Decile 10 process kick-started a major remediation drive, and since then the performance of the class has improved substantially.
Data from the International Union of Marine Insurance (Iumi) shows that loss ratios fell from around 90% in 2016 to below 60% in 2022.
However, on a combined ratio basis, sources estimated that the average performance in the hull market was likely around the mid-nineties for 2023, delivering only a slim level of profitability.
Underwriters said that whilst rates were broadly adequate, the class was not producing sufficient margin to give ground.
War market influence
Adding to the complexity of the class’s performance profile is the performance of the marine war book, which commonly sits within the hull portfolio.
War business has undergone a period of major volatility, with claims of approximately $450mn stemming from Ukraine, but the war also brought a substantial slug of additional premium income.
With conflict escalating in the Red Sea and rates soaring, there is further opportunity to boost premium income, although this is tempered by the number of shipping lines opting to divert around the Cape of Good Hope.
While war business can be lucrative and respond quickly to losses, its high-risk nature makes it especially volatile, and there is underlying concern around aggregations and major blocking and trapping claims.
With ships worth in excess of $100mn seized in the Red Sea since November, there is clear scope for major loss activity.
Underwriters estimate that overall for 2022 and 2023 the war market delivered healthy returns, but major claims have the potential to quickly change the balance.
Mixed outlook
Extensive discussions with both brokers and underwriters delivered little consensus about the trajectory of the class in 2024, although broadly speaking brokers were bullish that rates would soften.
Meanwhile, the majority of underwriters said they were budgeting for rates remaining flat during the year, with modest decreases for good clients balanced out by rate rises for loss-hit business.
Some sources noted that the downward rating pressure that crept in at the end of last year was caused by concern around hitting ambitious income targets for the year, rather than a sign that the market was going to soften more broadly.
“I think what happened in 2023 is that a lot of people got to the third quarter and thought they are a bit light on plan,” one source noted.
A word that came up again and again was inflation, with claims costs having risen substantially since the pandemic.
On top of this, carriers have faced significantly increased reinsurance premiums and retentions, squeezing profitability.
A market transformed
Despite trepidation about potential softening in 2024, sources highlighted that the hull class entered the year in a position of strength, having successfully turned around performance after years of making losses.
Decile 10 led to a wave of syndicates exiting the hull market in Lloyd’s, with the resulting squeeze in capacity allowing for a multi-year period of pricing improvements.
One consequence of remediation, however, has been the collapse of the Lloyd’s market share of hull business.
Data from Iumi shows that the Lloyd’s share of hull business declined steadily since 2013, whilst the premium flowing to Nordic markets surged.
During 2022, the Lloyd’s hull market experienced premium growth for the first time in many years.
Sources said that London carriers were likely to push for further gains in market share during 2024.
There are risks on the horizon that still give underwriters cause for concern.
In particular, there is a trend towards the construction of mega ships, with soaring values requiring the capacity of the majority of participants in the market.
For example, Royal Caribbean’s mega cruise vessel Icon of the Seas is scheduled to enter service later this month, with a hull value in excess of $2bn.
From both an insurance and reinsurance perspective, such large exposures are troubling for underwriters.
Other perennial problems, such as fires on containerships, remain persistent sources of loss activity.
In general, sources in the market remain optimistic about the prospects for the class of business for 2024, but following the strides taken to return the market to profitability, underwriters are wary not to repeat the mistakes of the past.
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