Marine insurers may face deteriorating margins
Marine insurers are facing challenging times, the exiting chairman of the American Institute of Marine Underwriters said at its annual meeting last week.
“While recent marine insurance results have been good relative to the overall property/casualty industry, there are several pressures that threaten our business and must be managed,” said Richard Decker, president of AIG Global Marine. He pointed to trends in the marine insurance industry such as corporate pressure for growth; increased capacity; lack of adequately trained professionals; inadequate time or information to properly assess, underwrite and manage risk; and client expectations from soft market conditions.
“I believe marine underwriters will experience deteriorating margins,” Decker said. “These will be driven by increased loss activity, an inability to cut expenses quickly, all against reduced premium income” because of fierce competition and diminished economic activity in the United States and around the world.
While statistics for the current year are not available, Decker said 2008 “has been a very difficult year for marine underwriters.” It included Hurricane Ike, which some have said to be the third most costly hurricane in U.S. history.
Reviewing last year’s statistics, he said AIMU member companies had a combined ratio of 85.9 percent, nearly identical to the 86 percent recorded by AIMU members in 2006. He said this was a very favorable compared to the overall property casualty industry, which had a combined ration of 95.6 percent, up from 92 percent in 2006.
(The combined ratio is the percentage of each premium dollar a property/casualty insurer spends on claims and expenses. A decrease in the combined ratio means financial results are improving; an increase means they are deteriorating.)
“As we compete in this uncertain insurance market, there are many other immediate concerns which should give marine underwriters further pause,” he said. Examples were hurricanes, cargo accumulations on large vessels and in ports, the upswing in terrorism and piracy, “moral hazard brought on by the economic downturn,” the possible effects of climate change which could open new shipping routes and reduce water levels on the Great Lakes, and a shortage of trained seafarers.
Decker highlighted work AIMU is doing with the FBI to focus attention on cargo crime, and noted that cargo theft was added to the FBI’s Uniform Crime Reporting System when the Patriot Act was renewed.
At the meeting, Dennis Marvin, vice president of Ocean Marine for Max Specialty, was elected to succeed Decker as chairman of the AIMU. ' Chris Dupin