Renewals and market conditions

Following the busy Q1 renewal season, the second quarter of 2022 continues to show that markets are willing to differentiate between more or less attractive new and renewal business.

Previously, it was too early to tell what effect the 2021 new entrants would have on the market. Now at the half way point of 2022, it has become clear that these new markets are not necessarily willing to undercut rates to gain market share; however, this new capacity (approximately USD 200 million) to the marine liability market has helped put pressure on existing markets and led to a shift in the balance between supply and demand. As such, markets holding out for better terms are less successful and pricing has become more competitive.

We are beginning to see a new phase of the market cycle, where the standard level of rate rise for loss-free renewals is declining from around 10% - 15% in Q1 to around 7.5% - 10% in Q2, with lower rate rises being applied to well performing accounts. This is a positive step compared to the market’s position this time last year, where some clients were feeling the effects of several years of sustained premium increases driven by the hardening market. Notwithstanding this, loss impacted placements are still facing rises in excess of these current market standard rises, as markets continue to address accounts with a negative credit balance or where levels of loss activity are high. In addition, a firmness remains on carriers’ appetite for certain risks, which can also lead to higher rate rises than the market standard. 

Whilst it appears to be an improving market for buyers, (re)insurers are pushing the idea that we are entering a world of heighted uncertainty and volatility, with economic and social inflation becoming two of the most common factors underwriters are citing in an effort to maintain the level of premium increases they have achieved in recent years. Increased cost of claims, driven by inflation, is at the forefront of these arguments and is becoming an increasing concern to the market. As a result, some underwriters are now looking to factor much higher levels of inflation into their analysis of historical loss records. This can have a significant impact on their view of historical losses, even those which were well within client’s retentions, with reinsurers now arguing that if these claims were to occur today, they would be a (re)insured loss. There are different attitudes towards what level of inflation should be applied – typically markets with more experience of US casualty exposures tend to apply a much higher percentage of inflation, fearful of seeing the same level of claims cost increase in US body injury claims affect other parts of portfolios. Lloyd’s expect underwriters’ 2023 business plans to show explicit and relevant inflation assumptions in addition to exposure and market related rate change, and any changes in the view of risk. 

At Miller we use our strong actuarial capabilities to help assist our clients to evidence that higher levels of inflation do not necessarily apply to their exposures. Our analytical approach has helped us to show reinsurers that they do not need to apply such a heavy-handed approach to inflation on the vast majority of our clients’ portfolios and, in some cases, that they are not affected by claims inflation at all. Over the coming months, and looking towards 2023 renewals, this work with clients and markets will become even more essential so that market ratings reflect a realistic inflation position for marine liability risks.

Looking wider, appetite within the marine and transportation liability market remains buoyant in London, with additional capacity expected later in the year (see or ‘Market capacity and movements’ section below). Although sufficient capacity, the market is still seeking rate increases due to the deteriorating performance of the ‘G’ risk code, which is the code allocated to marine liability and ancillary coverages in Lloyd’s. Rate rises of between 7.5% - 12.5% are being applied across the board depending on specific product class, claims performance and the amount of previous ‘rate surgery’. Accounts with losses, auto exposure and excess layer policies are seeing significantly larger rises, with insurers looking to make pricing corrections to an historically underpaid product. 

There is also still significant appetite in the ports and terminals/marine property product class, where the rating environment seems to be steadying quicker than marine liability.

Losses

The market has seen significant improvements in a number of historical claims, which has been a good news story this quarter and helped to show that a) claims do not just deteriorate negatively overtime and b) whilst often initial reserves are high and set at a conservative level, they often reduce over time once cases are fully developed. 

We discussed the implications of the long-tail nature of charterer losses in our July 2021 bulletin article: “Reinsurer reaction to large charterers' losses and managing the information gap”, where we commented on the effects of the incurred claims figures sitting on the reinsurance records impacting the premium, and skews reinsurers ultimate loss ratio analysis. Therefore, to see two high profile claims significantly improve in the marine liability market is a good result and will hopefully continue to drive the pricing momentum down. 

At Miller, we work closely with our clients in communicating the nuances of a claim to reinsurers and use our deep knowledge and expertise to make sure that the claims are being dealt with as fairly as possible and not just based on the incurred amount, ensuring we obtain the most competitive terms for our clients.  

Market capacity and movements

Q2 has seen limited change to overall capacity in the marine liability space. Two new additions in the form of Everest Re and Crescent Specialty  have both hired senior individuals, creating new marine divisions at their respective companies. Everest Re are due to commence writing marine liabilities later this year. It is too early to tell what Crescent Specialties offering is, but Miller is keeping a close dialogue with these companies to understand their appetites. 

Ukraine and Russia

Our continued thoughts are with those affected by the ongoing war. From an insurance perspective, during Q2 we have seen a number of IG Clubs and P&I providers issue a Notice of Cancellation for war risks to their charterers book for capture, seizure, arrest, restraint or detainment in Russian & Ukrainian waters only.

Miller, as a recognised world-leading marine war broker has secured a market leading buy-back solution for this exclusion (capture, seizure, arrest, restraint, or detainment in excluded waters only, for charterers) for individual calls which is available to all current or prospective Miller clients. If you are interested in learning more about this buy-back solution, please don’t hesitate to contact us. 

The UK and EU agreed to a joint ban on insurance for all Russian ships carrying Russian oil, meaning that all Russian ships will have to find alternative sources of insurance or risk being turned away from ports across the globe. The situation is constantly changing and we are monitoring this closely. Our knowledge of complex risks, and expertise of war and P&I will allow us to quickly respond to any new risks or exposures our clients may face.