State of the market

Syndicate closures and capacity withdrawals have reshaped marine insurance. Adrian Ladbury reports

Marine market sails into unchartered waters as insurers rethink appetite

Marine insurance markets have sailed through choppy waters during the past 18 months and look set for continued uncertainty during 2020 as insurers look to improve the profitability of their portfolios. Capacity reductions, which effectively began with the Lloyd’s 2019 business planning process, have spread beyond London with ramifications for underwriters, brokers and buyers across international marine markets.

Exits from the class have seen underwriters facing job losses and a reduction in capacity available to brokers. This, in turn, has driven up the cost of cover for buyers.

The current predicament was born out of a need to improve pricing following several years in which marine classes had struggled to achieve profitability.

Recognising the need for action, Lloyd’s senior management, led by franchise performance director Jon Hancock, reshaped the business planning process ahead of the 2019 underwriting year. Syndicates were required to review the worst performing 10% of their portfolios with poorly performing syndicates facing even more stringent requirements to have their business plans passed.

For many syndicates these poorly performing classes included marine lines, and this triggered the widespread withdrawal from the class which has reshaped marine insurance markets.

The Marine Insurer | March 2020 Withdrawals have included the demise of certain marinefocused syndicates. The Standard Club’s Syndicate 1884, Skuld Syndicate 1897 and Advent’s Syndicate 780 are among those to have entered run-off.

Marine hull exits for the 2019 underwriting year included Aspen’s Syndicate 4711, Channel Syndicate 2015, CNA Hardy Syndicate 382, Liberty Syndicate 4472 and Navigators Syndicate 1221.

Barbican, which has since been acquired by Arch Capital, exited marine hull and cargo but did increase capacity for marine reinsurance.

RIPPLE EFFECT Outside Lloyd’s, Swiss Re Corporate Solutions announced that it would be closing its London marine hull operation and instead writing the business from its office in Genoa. Events in London had a ripple effect to other international hubs which have also seen marine capacity reductions, notably in Asia.

Singapore has lost several hull carriers, among them ArgoGlobal Syndicate 1200 which exited Lloyd’s Asia and most of its hull underwriting business after warning that the business was not sustainable.

Allianz Global Corporate & Specialty (AGCS) revealed it was exiting marine hull and liability markets in Asia and North

increase rates. But, they were limited in their success by a continued abundance of capacity.

Reinsurance broker Willis Re reported that some reinsurers had pushed hard for increases on clean accounts, while buyers looked to reduce their retentions and limit volatility.

The ripple effect from capacity reductions across marine markets will continue to play out in 2020 as insurers rethink their risk appetite for marine classes.

While the spate of exits over the past 18 months has created a somewhat chaotic market, there are signs of optimism.

From the perspective of those insurers still in the market, the exits have had a desired impact on pricing with the market firming across all marine classes. Broker Aon has reported the highest America with effect from February 2020 in a bid to improve profitability.

The capacity withdrawals have been prompted by greater management focus on underperforming lines amid a recognition of the need to improve underwriting results.

Already in 2020 there are signs of the trend continuing. In January, Beazley revealed that it is to place several marine lines in the UK into run-off, including regional cargo, freight liability and commercial hull. The decision did not impact its core London market marine business.

Those that have remained have sharpened their risk selection. According to Lloyd & Partners, each carrier is now scrutinising renewal terms as if they were the market leader. Carriers are now much more selective about which risks they will provide capacity for, with a reduction in the number of carriers willing to write multi-year policies.

While marine hull and cargo classes were at the heart of the market changes implemented in 2019, Lloyd & Partners said marine liability classes were also showing signs of instability towards the end of 2019 with some retraction of capacity. Should this trend continue, marine liability classes will also experience upward rating pressure and more selective risk selection in 2020.

At the January 1 reinsurance renewals, insurers saw a late renewal season with reinsurers generally attempting to increases in marine cargo, ports and terminals and logistics classes, with shipowners and cruise business also seeing doubledigit increases.

The broker said capacity had tightened across virtually all marine lines. SIGNIFICANT CAPACITY Marine hull, which has seen the most significant capacity withdrawal, has been selected as one of the two pilot classes for the new syndication model at Lloyd’s which is aiming to create a greater distinction between lead and following markets at Lloyd’s.

The Corporation hopes that this modernised means of risk syndication will bring several benefits, one of which is cost reduction.

While the market has been dominated by exits, there have been some new entrants looking to capitalise on the improving rating environment.

Most notable of these has been Convex, the new start-up led by Stephen Catlin and Paul Brand.

John Potter left Antares at the end of last year to head up a new marine account at Convex, where he has since been joined by Peter Gower as marine liability underwriter.

The recalibration of the marine market is expected to continue during 2020. Insurers are continuing to manage their books at an increasingly granular level in a bid to improve profitability, in many cases they are investing in data analytics to analyse their portfolios in greater detail.

Lloyd’s has promised it will continue its tough approach to underperforming business, suggesting there will remain upward pressure on the pricing environment.

The choppy waters of the past 18 months will have caused pain for some in the sector, but, the prolonged soft cycle which led to the widespread capacity reduction was ultimately unsustainable. “Exits from the class have seen underwriters facing job losses and a reduction in capacity available to brokers. This, in turn, has driven up the cost of cover for buyers.” Withdrawals have included the demise of certain marine-focused syndicates. The Standard Club’s Syndicate 1884, Skuld Syndicate 1897 and Advent’s Syndicate 780 are among those to have entered run-off.