Review of the Marine Hull Insurance market - JLT

trade had a delayed impact on themarine insurance market. We haveseen a huge reduction in insured hullvalues and an increase in thenumber of vessels being laid up.These trends continued until recentlywhere in the last few weeks we haveseen values being increased andvessels being reactivated. In somesectors we have also seen a numberof new buildings being delivered.From a marine insurance perspective,lower values, lay ups and thereforereduced exposures meant reducedpremium volumes coming into boththe Hull and Loss of Hire marketswhich has generally been the trendfor the past nine months.Underwriters remain concerned thatthe apparent lack of liquidity Ownersand Operators are experiencing willimpact vessel maintenance but thisconcern has not translated into anyincrease in claims activity. Strictregulations and the high standardsmaintained by ship owners generallyhave ensured this concern has notmanifested itself.We have seen a greater focus fromunderwriters on Owners’ financialcommitments, with disclosure ofmortgage arrangements becoming acommon request. The potential forlate premium payment is also ofsome concern and tight creditcontrol monitoring is commonplace.This activity is now generallyoutsourced in the London marketwhere the underwriters themselveshave little influence on extendingterms of trade.The “Deepwater Horizon” case willundoubtedly have an impact on theimage of the shipping sector and thecarriage of energy related products bysea which the industry has fought sohard to improve over the years. Theoffshore energy sector will obviouslyfeel this far more keenly both in termsof image and increases in rates. Inour opinion we do not believe thatthis claim will have a negative impacton marine insurance rating. Whilst anumber of treaty reinsurances areplaced on a combined energy andmarine basis we could see somecapital providers reallocatingcapacity into what they considermore stable classes of insurance.Piracy remains a concern forUnderwriters, Owners and Operatorsalike, with vessels trading throughthe Gulf of Aden and Indian Oceanhaving to cope with the peril, exposureand cost of Piracy. This crisis seemsset to continue with in excess ofUSD 300m in ransoms and associatedcosts having now been paid out bythe insurance industry over the pasttwo years. Underwriters arebecoming increasingly nervousabout the spread of this activity to1,000 miles off the Somali coast.The White House Executive Order13536 on 12 April 2010 has appliedmore pressure and an even tighterframework within which the shippingand insurance industries are able todeal with this criminal activity. Wehave written a separate paper onthis subject providing guidance toowners and operators on the impacton this order and under whatcircumstances OFAC need to becontacted. Please visitwww.jltgroup.com/piracy-insurance.The United Nations Security Counciladopted Resolution1929 imposingadditional sanctions against Iranwhich strengthened the existingmeasures in place. The EU isexpected to implement thisResolution with further substantivesanctions in the near future. Thesanctions stipulate that no insuranceor reinsurance contract can beprovided relating to the movement ofrefined petroleum products to Iran.This is a developing situation but thedepth of international concernregarding Iran and the need tocarefully and diligently monitorcompliance with all existing andfuture sanctions against Iran isparamount. A Lloyd’s MarketBulletin was issued on 8 July 2010(reference Y4409) to direct themarket accordingly.