For the past decade, the marine insurance market has been struggling to keep its head above water. And to make matters worse, premiums dropped 4.1 percent between 1998 and 1999-marking the third straight year of decline. Industry experts are blaming it on poor pricing strategies fueled by overcapacity, but these same experts are optimistic about the future.
With premiums and profits declining, it is imperative that U.S. ocean marine insurers take steps to outperform the property/casualty, according to James Zrebiec, past chairman of the New York-based American Institute of Marine Underwriters. Zrebiec told attendees of AIMU’s annual meeting last November that he is confident those companies that can survive will soon see positive results.
Looking at the p/c business as a whole, signs of a turnaround are apparent, as the commercial market is witnessing a rise in rates.
“The marine market has somewhat lagged the property/casualty market in the turnaround, and we’re maybe nine months behind them in terms of rates and the general market conditions,” said Richard DeSimone, president of global marine for The St. Paul. “What we’re seeing is, as of January 1, a definite change in the reinsurance market; rates are going up there pretty significantly, and that’s going to have a very significant impact on the primary [marine] market.”
So what’s the problem?
“I think the problem we have right now as an overall market is profitability,” DeSimone said. “And that’s a major problem, because if we don’t make money for our companies then they don’t have a lot of reason to have us around, so it’s a very important issue that every company has to look at.”
Gary Gilbride, assistant vice president of the Marine Office of America Corporation, part of CNA Maritime, said that the market isn’t experiencing problems per se, but rather that it “is in a state of flux.” “The rates are too low, but they seem to be coming back some,” Gilbride added. “We’re trying to bring the rates up in general, and we’re achieving some success in that vein.”
According to Gilbride, whose specialty is bluewater hull and machinery, producers and buyers understand that rates across the board generally have not been where they should be. “The basic difference now is that this understanding is categorical. I think things are headed in a much better direction than they were before,” he explained.
Paul Greenaway, broker for Birmingham, Ala.-based wholesale broker Cooney Rikard & Curtin, described the marine market as being in “general turmoil.” “Twelve months ago, the whole market was soft; prices were continuing to spiral downward by about 15 to 20 percent a year across the board,” Greenaway said. “But we’ve certainly seen some changes in the last year.”
Greenaway runs CRC’s marine department and has been involved in the marine market for roughly 24 years—17 years in London and seven years in Alabama. He feels that the market has not been affected by some of the reinsurance problems affecting other markets, “mainly because it’s such a small market compared to the overall p/c market.”
The bottom line is that the marine segment is just a blip on the radar screen of the entire p/c market, reporting roughly $1.7 billion in 1999 premiums written in the U.S., according to A.M. Best data. And to stress the fact that the marine market really is a specialty line of business, all one has to do is look at the premium total—$286 billion in 1999—of the property/casualty market as a whole.
Breaking it down
“The marine marketplace is very complex, because it’s not just property or casualty or umbrella,” Greenaway said. “And it really depends which part of the country you’re in, what day of the week it is, and what the underwriter had for breakfast as to what you get out of the end of it.”
Ocean marine is broken down into three basic types: hull (involving loss or damage to the ship); cargo (involving loss or damage to cargoes); and protection and indemnity or P&I (involving liability of shipowners to others). Other forms of related coverages are included in ocean marine insurance, such as miscellaneous liability policies for owners of piers, docks, marine repair facilities, marinas and shipyards.
An ocean marine insurer also underwrites policies for large pleasure craft or yachts, providing property and liability in one policy. Within these product lines, cargo comes in as the largest segment at 39 percent, followed by yacht with 21 percent of industry premium.
Sign of the times
In the wake of competitive market conditions, a number of marine underwriting operations have ceased writing business, according to DeSimone. In fact, he believes that the market is going to continue to see some of the companies that are not strongly committed to marine insurance reviewing their strategies. “And some of them, I’m sure, will make a decision that this area of the market is not a core or a historical or a potentially profitable line of business and will probably exit the market,” he added.
CRC’s Greenaway concurred. “On the brownwater, hull and P&I area…we’ve lost some of the major carriers in the last 12 months,” he said. “We’ve lost HIH, United Capitol, St. Paul, Neare Gibbs, Highlands, Mariner Management—so there’s been a whole slew of markets that have disappeared and therefore the market is getting harder.”
“Consolidation is happening all over, and it’s just a sign of the times,” MOAC’s Gilbride said. “Whether or not there is more to come, I think it’s possible, but not cast in stone.”
DeSimone shared his reasons why The St. Paul exited the brownwater P&I business. “There was an operation called Neare Gibbs that was a writer of basically…business on the river systems in the central United States, and it proved to be a very, very unprofitable operation to the extent that a decision was made to exit that business,” he said. “So the areas that have specific problems we have pretty much put behind us.
“But The St. Paul has a pretty broad sweep in the marine market…and on the standard cargo, liabilities, hull and pleasure craft, we had a good year last year. We saw growth in those areas and we got rates up, and so the general trend, I believe, is pretty positive for us.” According to A.M. Best, St. Paul Cos. ranked fourth in the 1999 top writers of ocean marine, with $102 million in direct premiums.
Meanwhile, as the nation’s largest marine writer, marine coverages make up only 2.4 percent of CNA Insurance Cos.’ overall premiums.
The company reportedly wrote $239.4 million direct premiums in 1999. “Our goal is profitability, and we’re trying to be very selective on all lines of business that we write,” Gilbride said.
Losses on and off the high seas
As far as losses are concerned, cargo theft is a continuous problem for marine insurers, according to DeSimone. But it’s not a problem that’s isolated to one particular area. “Southern California is one of the more active areas for container theft—but it’s also true in the New York areas, South Florida and certainly overseas,” he said.
Another big problem on the cargo end of the business involves container losses at sea. DeSimone spoke of four or five incidents involving the loss of a large number of containers in bad weather.
“One, a vessel called the Carla, broke in half and lost several hundred containers,” he said. “And this is something that, while it happens occasionally, there just seems to be an inordinate number in a very short period of time.”
On the hull side, a continuing problem has to do with substandard tonnage and older vessels that are not properly maintained. “Older vessels and substandard vessels continue to be a problem, and I think people are working on these issues because they’re not going to go away,” DeSimone said.
All in all, MOAC’s Gilbride believes that the loss experience for general marine navigating losses is “generally getting better.” “Operators are putting more emphasis on operating their equipment safely,” he said.
Storm clouds are clearing
AIMU’s Zrebiec finished up his term as chairman during the November meeting, and Deirdre Littlefield, divisional head of special lines on the Americas for Swiss Re, was elected as this year’s chairperson. She is the first woman to hold the post in AIMU’s 102-year history.
During his final speech as chairman, Zrebiec delivered an important message to insurers involved in the marine market. “Unfortunately, marine pricing seems to be stuck in neutral, and unless it improves soon, there will be even more shops shutting their doors than we’ve already seen in the last two years,” he said.
So it’s sink or swim for marine insurers—companies need to understand the business and not be afraid of raising their rates. It’s something that The St. Paul’s DeSimone understands well. He said that as of year-end 2000, the company was averaging “a little higher” than a 5 percent increase on renewal business. “We’re seeing the market tick up, and it is my understanding that in general, marine companies are increasing rates.”
The good news is that the overall picture is optimistic for the marine market. “Our economy is strong, our world trade is growing and it will continue to grow, and the development in third world countries is going to necessitate increased trade, so I’m very optimistic,” DeSimone said. “I’m looking forward to the next several years of improving market conditions, and I think that the market in general will get back to a good level of profitability.”
To comment on this article, please send e-mail to smingo@insurancejournal.com.
Topics Profit Loss Property Property Casualty
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