Latin America

Tide turns on Latin America’s marine market

Arturo Posada, Senior Vice President, Head of Marine, Latin America, Liberty Specialty Markets, reviews the impact and implications of the recent hardening in the Latin American marine insurance market

What is the most painful task on your current to-do list? Perhaps it’s a challenging piece of writing, a difficult conversation with a stakeholder, or a project that you know will take weeks to complete. As someone who’s worked in the marine insurance industry long enough to witness quite a few pricing cycles run their course, it has been fascinating to observe the current hardening of rates in Latin America’s marine sector.

The question is whether we can maintain this momentum on rates and what impact will it have on the marine market in this part of the world.

LOSS-MAKING BEHAVIOUR

The first signs in this region that the market for marine risks was hardening became apparent two to three years ago. Since then, those indicators have intensified.

On the hull side, we’ve experienced increases of 30–40%. Stock throughput programmes (STP), which protect businesses engaged in importation, exportation and distribution of goods, including the stock exposure in the ordinary course of transit have experienced similar rises.

The reasons behind these rate adjustments go back several years. Back then, many new entrants into the Latin American marine market needed to grow their books of business and market share.

Capacity in the insurance market internationally was plentiful so marine business was a prime target for that capital. New entrants piled in and, in response, underwriters cut rates to maintain their portfolios, ultimately to levels that would prove unsustainable.

While the Latin American market was not impacted by any high-profile or large claims, low rates and soft underwriting conditions meant that premium volumes were no longer sufficient to support the day-to-day attritional

losses characteristic of any marine sector. This was most evident in hull.

Considerable capacity was also directed towards writing STP risks. As Latin America is a region affected by natural catastrophes such as earthquakes and some Atlantic windstorms, it is no surprise that losses followed. The trough of the market cycle was making itself felt.

IMPROVING OUTLOOK

this time around there are a few wild cards that could change the cycle’s “The impact of this reduction in dynamics. global trade on claims was mixed. With PANDEMIC IMPACT Chief among these is the impact fewer ships at sea and less trade taking of the COVID-19 pandemic. There is no doubt that this hit ports and place, the volume of attritional losses was shipowners in Latin America hard. Expectations of volumes of trade flowless than usual. However, this must be ing through South American ports and routes proved much higher than the Conditions began to change in 2018 balanced against other claims arising reality of a locked-down world. Cargo when Lloyd’s of London focused on the and containers did not move back and sustained poor performance of some of directly from the pandemic.’’ forth as usual. The routes between its syndicates and launched its Decile 10 China and the US were particularly initiative. Arturo Posada, adversely affected.

Syndicates that had sustained losses Liberty Specialist Markets The impact of this reduction in in three consecutive years were told global trade on claims was mixed. to develop remediation plans, while With fewer ships at sea and less trade all syndicates were instructed to draw up plans for the taking place, the volume of attritional losses was less worst-performing 10% of their business. than usual. However, this must be balanced against other

The result of this process was that a significant claims arising directly from the pandemic. number of Lloyd’s syndicates lost their authorisation to With lockdowns affecting large parts of the globe, write marine business in the Americas. Others simply restaurants stopped buying food; retail outlets closed. decided that their skill set was not best suited to the Latin With their normal income stream affected by the American marine market. pandemic, policyholders start to review their outgoings

In parallel, many non-Lloyd’s insurers that had been and expenses. Insurance is one of the items that was top incurring losses in the sector withdrew from it. The net of their list and with less activity the marine policies were result of this was a sharp reduction in capacity available, an obvious target for review. thus giving the remaining underwriters, including Liberty Post-pandemic, the long-term financial impact of Specialty Markets, greater sway in rate negotiations. COVID-19 has yet to play out fully.

Today, market conditions have put the focus firmly on With such a huge impact on GDP and government technical underwriting. Terms and conditions have also borrowing in so many countries, we could be facing become more technically based. This is clearly good news several years of economic difficulties around the world. for underwriters, but equally it bodes well for clients. For the marine sector, this may materialise as reduced

A market that rises and falls dramatically, with insurers standards of risk management or health and safety by pulling out, is ultimately unhealthy for clients. By contrast, clients as their profits are squeezed. continuity, measured pricing and a sensible renewal process For insurers, the challenge now is to prove to clients are all in the client’s interest. and brokers that they will behave proportionately and

The question this leads to is whether the Latin American fairly during what could be difficult times. marine market can maintain this hardening, or will its Liberty Specialty Markets has been an active player for increasing profitability attract additional capacity and thus many years and remains committed to Latin America’s begin a fresh down-swing? marine market for the long term. The company is keen to

From a personal perspective, I wish more insurers would show clients what itcan achieve when it works in use the data at their disposal to develop a more accurate partnership, particularly with itsability to offer both picture of their exposures and their claims experience. primary insurance and facultative reinsurance.

The marine sector, it can be argued, is less data-driven Latin America’s marine market is poised at a crossroads. than market segments such as property. It is a blind spot for If underwriters behave sensibly and fairly, the potential our industry and one that needs to be addressed. The better for healthy returns is good. The key is for underwriters to the data our industry has access to, the more sustainable its rely on data and sound judgement rather than the age-old decisions may become. pressure to chase market share. That ship has most

But no matter how you sort the data, it is hard to argue certainly sailed. against the inevitability of the insurance cycle. However,