A perfect storm for shipping
Asian shipping has endured the coincidence of low freight rates, market consolidation, and the continued broader economic slowdown. Simon Saunders of Barbican Insurance Group discusses the implications of current conditions with SIRC Today.
What are the biggest trends and developments impacting the marine re/insurance market in Asia?
The global insurance and reinsurance market is likely to see a significant loss of capital in the wake of the devastating Atlantic hurricane season. It remains to be seen what impact this will have on the global re/insurance market, although rate stabilisation is likely to extend to Asian marine business.
This has been a challenging period for Asian shipping business. There has been a perfect storm of low freight rates, market consolidation, and the continued broader economic slowdown. Shipping is heavily reliant on the global economy. If the economy slows, shipping slows.
The knock-on effect is that many of the smaller shipping companies have struggled to meet insurance costs. This has in turn put pricing pressure on Asian insurers, whose biggest cost is reinsurance, and that pricing pressure has been passed on to their reinsurers.
However, conditions in the Asian shipping market are showing signs of improvement. Some parts of Asia have been through a difficult period, but if the region continues to pick up on the back of ongoing global economic recovery, the shipping industry should see increased buoyancy and organic growth.
This in turn should drive increased demand for hull and cargo insurance and reinsurance. Growth and the prospect of stabilisation of global insurance rates translates into an outlook for Asian marine reinsurance that is certainly more positive than this time last year.
From a line of business perspective, where does the greatest potential for profitable growth lie?
Marine risks are evolving, particularly given the growing awareness of cyber threats in the wake of several high-profile incidents in the shipping industry and other industrial sectors.
Cyber risks are generally excluded from marine policies, and companies are beginning to recognise this emerging threat and seeking appropriate cover to protect themselves. It is essential that companies quantify the cyber risks that exist within their operations and supply chains and ensure they have the right specific coverages in place.
At Barbican we are increasingly looking to provide joined-up coverage to clients, where we believe they can benefit from the cross-fertilisation of underwriting expertise across multiple classes of business.
Insurance companies in the Asia have historically preferred to buy their marine reinsurance cover on a standalone basis and it is expected that this will continue. However, as emerging risks such as cyber develop there will need to be suitable standalone insurance and reinsurance products in place.
From a regional viewpoint, where do you see the most significant growth potential for marine re/insurance?
Shipping is an inherently global business, and marine re/insurance coverages are relatively standardised around the world. However, there are regional nuances throughout Asia, and each Asian market has to be treated on its own merits. At present, some Asian markets are looking more buoyant than others.
Asia remains a very strong market for manufacturing, although the balance of manufacturing power has shifted within the region over the years, ebbing and flowing between countries such as China, Taiwan, Vietnam, Japan and Korea, to name a few. However, the actual ownership of brands remains consistently strong within the region, which will always give opportunities to insurance and reinsurance markets locally and internationally.
How important is it to have a local presence in these territories to gain sufficient market traction?
The only way for an underwriter to fully understand its clients’ business is to see them in their home environment. It is crucial to our underwriting that we spend time in the offices of the brokers and ceding companies we work with in Asia. We invest a lot of time and effort travelling to the region. In fact, in many cases we are told that we meet with those companies more often than their local partners do.
Asian companies are traditionally relationship-driven, and that mirrors our philosophy. Our client base has remained very stable since we started writing marine business in the region in 2008. If you can show commitment and a genuine desire to build a long-term relationship, through good times and bad, then we believe you will be rewarded with loyal, long-term partners. We believe that this respect for relationships is particularly pronounced in Asia.
We also see the mutual benefits for us and our clients in Asia around education. Through our local partners we continue to strengthen our knowledge of both the local insurance market and the underlying shipping business in Asia; by working with a Lloyd’s underwriter, our Asian clients can likewise benefit from our knowledge of comparable business throughout the rest of world.
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