London broker warns of hull market ‘rate supression’ - 23/07/2014

Marine insurance continues to be a buyers’ market, although there is some evidence of an appetite for lowly rated hull business declining.

Insurance broker Lloyd & Partners warns that the market has reached a stage “where greed and fear meet” and suggests that the demand of top insurance managers for growth is weakening market discipline.

The broker reports that “rate suppression continues to be prevalent within the London hull market”, although it is not particularly clear whether this is simply a fancy way of saying premium levels are falling or something more.

Rate suppression is a term usually applied to deliberate attempts to drive down premiums typically by regulators who want to prevent insurance costs soaring in crime- threatened neighbourhoods or earthquake prone regions.

Lloyd & Partners reports that overcapacity continues to be a feature of most marine classes and competition between underwriters remains strong and likely to continue to stay keen.

The broker warns that the energy insurance market is particularly weak with overcapacity leading to the pace of reductions doubling since March.

The second quarter of 2014 has seen upstream underwriters in the weakest pricing position since 2000, according to Lloyd & Partners.

Reductions of as much as 40% are being achieved on upstream risks with Lloyd & Partners describing the market as a “buying sweet spot”.

“Placements that last year were difficult to complete due to, say, poor loss records, high catastrophe exposure, offshore drilling exposure or bad engineering, all got easily completed this year and often suffered significant signing issues,” said the broker.

“Signing issues” is a reference to brokers arranging more capacity than is required to cover a risk and then scaling underwriting shares.

Lloyd & Partners warns that a “tsunami of risk capital has led to some insurers abandoning their underwriting pens to brokers”.

Pricing is expected to weaken further in the second half of the year as a result of new entrants to the market and weakening reinsurance pricing.

in 18/07/2014