Superyachts

Smooth sailing: A new approach to risk management for Superyachts

Matt Halpin, Lead Class Underwriter – Yacht at MS Amlin, says that success in the booming yacht and superyacht market has to be based on good risk management and better sharing of data for the benefit of all

Staying afloat in the yacht market has been no mean feat for insurers in recent years. However, with the global yacht insurance premium per annum currently sitting at around $500-600m, it remains a class of significant opportunity. As with any challenging market, it is important to remain focused on underwriting discipline with rates, but it is just as critical that we implement practical and holistic services for our clients.

While many people associate yachts, and indeed superyachts, with glamorous designs, vessels of jaw-dropping size and cutting-edge architecture, world-class safety is a fundamental requirement which we in the insurance market can vouch for.

At Lead Yacht, we have honed in on the delivery of this key ingredient, offering a new and differentiated approach to risk management. Partnerships with other market players have been integral to the success of this service and we see such collaboration as a crucial pathway to the growth and development of the market more broadly.

A BUOYANT MARKET

Since Lead Yacht was founded in 1995 as the world’s first superyacht MGA, the market landscape has shifted dramatically.

A period of challenging results between 2015 and 2017 left the market navigating choppy waters because of a variety of factors, including significant hurricane losses. Equally as important was the softening of the market in all areas. With more than $1.5bn of capacity available, the market severely suffered from over-saturation, leading to premiums at all-time lows. The level of coverage provided widened, resulting in lower-valued vessels being given the same coverage as much higher-valued vessels. Deductibles were also at unsustainable levels.

In the last few years the class has undergone significant positive remediation and correction in rating levels. We are now seeing a light at the end of the tunnel and the consensus is that the London market should stabilise in the next year or two.

As the market finds itself back on an even footing, growth opportunities are simultaneously increasing. Last year was the strongest year on record for the yacht market in terms of transactions and total money spent. One of the main drivers for the increased demand for yachts is the sustained creation of wealth, with the number of billionaires rising sharply during the pandemic. We have also seen the impact of low interest rates providing access to cheap capital, and an ever-growing demand for the privacy and private isolation that yachts, and to an even greater degree Superyachts, can deliver.

SAFETY FIRST

At Lead Yacht, we write approximately 50% of the world’s 100 largest superyachts by length. In our 25 years of experience, we continue to see accidents occurring despite

tremendous efforts by captains and crews of superyachts. Time and time again, human error is the main cause of incidents, many of which are easily preventable. This is clearly an issue that needs addressing to protect owners, captains and crews, as well as the insurers that are providing coverage. The finest solutions often arise from bringing together market-leading experts from different areas. Lead Yacht teamed up with specialist marine surveyors Maritime Services International (MSI) to provide risk management reviews for all of the Superyachts that we insure. MSI has carried out reviews on more than 850+ Superyachts on our behalf to date. This collaboration aims to bring together best practices from different operational areas to introduce processes and controls to help reduce the likelihood of incidents occurring or mitigating the effects if an incident has already occurred. The ultimate goal of the risk management review is to assist the captains and crews to operate yachts to the highest possible standards rather than simply complying with regulation which is the lowest standard to be achieved. These reviews are critical in passing on correct procedures and supporting owners, captains and crews to prepare should an incident occur. We offer this as a complementary service, as in our experience, it always ends up paying for itself in time.

Approaching underwriting with a long-term lens has provided us with a clear differentiator in the market and a truly sustainable business model that is aligned with the needs of our clients. “In the last few years the class has undergone significant positive remediation and correction in rating levels. We are now seeing a light at the end of the tunnel, and the consensus is that the London market should stabilise in the next

year or two.’’

Matt Halpin, MS Amlin

IMPROVING COLLABORATION

Having witnessed the benefits of collaboration in action through the success of our risk management reviews, the value is clear. However, despite the yacht market being relatively small, partnerships and collaboration have not historically been the sector’s strong point. An additional key area that would reap almost instant benefits from collaboration is the sharing of data. Without a holistic view of the market, it is difficult to have a comprehensive assessment of loss trends and the broader drivers for losses.

There have been a number of attempts in the past few years to try and get a working panel together and we should continue to prioritise such efforts in the coming years.

LOOKING AHEAD

Zooming out and taking a view of the year ahead, it is clear that the London market is well-positioned for growth. Much work has been done in recent years in terms of underwriting discipline, leading to writing and placing levels being at the highest points in a long while, although we will continue to keep one eye on the ongoing competition from European and US domestic markets. The concerns over supply and demand of yachts in the market is likely to be resolved over the course of this year. We saw a slight reduction in the number of new yachts being delivered in 2021 because of global supply chain issues. Lockdowns and social distancing also led to a less efficient workforce.

However, the unprecedented demand for new yachts has led to increased supply, with most shipyards now reporting full-order books. In addition, the second-hand yacht market is booming, all the way from small motor cruisers up to the largest superyachts. As the market continues its upwards trajectory, we are ultimately at an exciting inflection point. We must continue to fine-tune our offerings to capitalise on the demand, working collaboratively wherever possible to provide best-in-class services to our clients.

Alandia posts healthy 2021 result despite higher claims

Swedish Marine insurer Alandia has reported strong growth in premium for 2021 compared with 2020 with premium up from €85m to €93m

The group said that a large part of the increase of 10% in premium income came from hull and machinery, P&I and Cargo insurance.

Claims were higher than expected leading to a loss ratio of 80.4% against 72.6% the year before. The combined ratio was 104.6% in 2021 compared with 94.3% in 2020 leading to an underwriting loss of €3.7m last year compared with a profit of €3.4m the year before.

The group, however, posted a strong investment result of €27.4m compared with €15.9m the year before. The result from remaining operations was therefore €18.4m in 2021 compared with €16.4m the year before.

The group equity stood at a strong €161.9m compared with €168.4m.

Alandia CEO Tony Karlström said: “In 2021 the increase in premiums has been good with 10 % higher earnings compared to the previous year. Claims costs were higher than expected resulting in a negative result for the insurance operations. The result of the investment operations was very good with a result that mainly derived from investments in stocks while the return of the fixed income portfolio was slightly negative.” Karlström also explained that on 1 December 2021, Alandia signed a letter of intent with Finnish mutual insurance group LokalTapiola regarding the selling of its statutory accident- and patient insurance portfolio, including customer relations to LokalTapiola.

“The transaction does not involve any changes to the insurance coverage of the customers concerned and the customers do not need to take any measures. For the transaction to be completed, approval is required from FIN-FSA Financial Supervisory Advisory and both parties’ general meetings. The transaction is intended to take place on 1 July 2022,” explained Karlström.

In more detail Alandia explained that a large part of the 10% increase in premium income came from hull and machinery, P&I and cargo insurance.

The €65.6m claims cost compared with €58.8m the year before was covered by reinsurance of €1.8m. Reinsurers share of the premiums amounted to €9.2m. Operating expenses amounted to €19.4m compared with €16.5m in 2020 and the expense ratio was 24.3% up from 22.7% the year before. The group said that the increase was mainly from increased broker commissions because of a larger part of the premiums underwritten through brokers.

The return-on-investment portfolios was 9.3% against 5.4% in 2020. “The return was relatively evenly spread across the year. All asset classes apart from fixed income contributed to the positive result,” said the insurer. The solvency ratio remains very healthy at 247%.

Looking forward Alandia said that premium income in 2022 is expected to end at the same level or slightly above the 2021 outcome. l

KPI’S

“In 2021 the increase in

premiums has been good with 10%

higher earnings compared to the

previous year. ’’

Tony Karlström, Alandia CEO