Hull and machinery reductions may be possible for best fleets

Marine hull underwriters could begin offering rate reductions to attractive fleets, broker Gallagher has suggested.

While widespread reductions “are not on the table” at present, rate reductions on hull and machinery (H&M) coverages may be achievable for the best-performing accounts, the broker said in a new report on the sector.

“Memories would have to be very short indeed for general rate reductions to set in, but it does seem like some of the most attractive fleets may start to be rewarded where they have performed well for underwriters over a number of years,” Mike Ingham, executive director, marine at Gallagher Specialty, said.

The H&M insurance market has been “relatively flat” during the first half of the year, Gallagher said. Despite claims inflation and rising reinsurance costs, there has been little push for price increases, with extra capacity and increased appetite generally in the market sufficient to dampen any concentrated increase in rates, the broker said.

“Memories would have to be very short indeed for general rate reductions to set in, but it does seem like some of the most attractive fleets may start to be rewarded where they have performed well for underwriters over a number of years”
_{Mike Ingham
Gallagher Specialty}

Underwriters will be keeping a close watch on the claims situation. Although the number of total losses continues to reduce, the number of general casualties remains constant, with machinery damage forming the majority of claims although fire seems to be a growing area of concern.

According to Allianz Global Corporate & Specialty, shipping losses hit a record low in 2022 with only 38 total losses of large ships reported globally, down from 59 the previous year. But there were more than 200 fires reported in 2022, representing a 17% year-on-year increase.

Inflation is expected to push up the cost of an average claim, Gallagher said, but it is difficult for underwriters to predict what that percentage increase ultimately will look like.

“The market has a habit of being reactionary in these circumstances. There are plenty of underwriters in the market willing to make an educated guess on where loss ratios will end up, yet there will only be a collective inclination to take action if these predictions actually materialise,” Ingham said. “Any underwriter who attempts to take a unilateral approach to this risks losing good accounts in the short term.”

Overall, the H&M market remains “quite finely balanced” and there are some headwinds.

While major casualties have been limited over the past 18 months, it would not take many incidents of this size to push the market back into a harder cycle, according to the broker.

“Some of the near-misses should also serve to remind us of the type of claims that in the long run feel inevitable,” Ingham said. “The potential for major fires on containerships due to misdeclared cargo remains a risk which the industry is generally struggling to manage. Similarly, the risks associated with lithium batteries on car carrying vessels is still an area of concern.”