Marine market remains soft but rates show signs of bottoming out

Despite a continued softening of rates in the marine reinsurance market, there are signs that pricing is finally bottoming out, according to specialist marine brokers at Ed.

Reflecting upon the January renewals, Tim Wescombe, director of reinsurance at Ed, said there remains an abundance of capacity in marine with new market entrants adding to existing competition in what he calls “an already crowded marketplace”.

This reflects the views of some of the larger brokers who saw a similar trend towards stabilisation in the wider reinsurance market, also citing similar issues of overcapacity and increased competition.

However, Wescombe said that predictions that rates would level off in the marine market are unfounded, as of yet.

“While the decline has been less dramatic when compared with recent renewals there has still been an average of approximately 5 percent decrease in underlying rates across the market,” said Wescombe.

Furthermore, Wescombe suggests the price of oil continues to have a profound and negative effect across the shipping and energy sectors.

Part of the issue, Wescombe said, is that global cargo numbers are on the ebb, exploration and drilling activity has reduced and many ships are lying idle in ports across the world.

From a marine and energy reinsurance perspective, a decline in rates has been compounded by a 17-20 percent reduction in portfolio sizes, he said.

Wescombe continued: “At first glance the outlook appears bleak. However, there are reasons for optimism. First, while margins are being squeezed, re/insurance businesses are still turning a profit. The sector remains attractive – a fact borne out by the continued new entrants to our market.

Second, there are areas of tremendous almost untapped potential. “The shift in economic power eastward and the burgeoning economies of Asia represent a cause for optimism for reinsurance brokers,” he said.

“At least for those which recognise the need for a different approach. One which partners with local businesses rather than attempts to plant flags and transplant a Western approach which ignores established methods and customs. To realise these opportunities also requires the ability to be nimble and adapt quickly. For some organisations, over encumbered by bureaucracy, this will prove more difficult.”

In the non-marine market, David Baldwin, also a director of reinsurance at Ed, suggested that rates have held up a little better, however there was still some underlying softening, although on a risk-adjusted basis.

Proportional treaties had been performing well, Baldwin said, with commission increases between 1-2 percent.

In contrast to recent years, Baldwin believes the market is now beginning to view treaties on their individual merits rather than succumb to a blanket downward trend.

He suggested that although prices are shifting downwards, it is not at the same rate as seen in recent years, and could signal that the market is approaching the low point on this cycle.

Baldwin commented: “By itself, this might not seem the most positive of results. However, similar to the marine market, the powerhouse economies of Asia and the potential to develop partnerships with local players offers significant potential.

“For the non-marine market, Africa also represents a region of exceptional growth opportunity. At present, the continent represents a mere 2 percent of global re/insurance premiums, of which 80 percent are derived from South Africa. The burgeoning economies and favourable demographics across the continent clearly represent an opportunity for those brokers willing and able to work with, rather than compete against local markets.”

For a broader picture of the January renewals, Intelligent Insurer compiled a round-up of the views of some of the larger brokers.

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