SlothSea

Marine Insurance Market: Hull & Machinery Report (1st Semester 2023)

According to our previous article (https://www.linkedin.com/pulse/total-losses-hull-insurance-market-new-all-time-low-slothsea%3FtrackingId=HxfWS5wxvTQ6J81QAhKYEA%253D%253D/?trackingId=HxfWS5wxvTQ6J81QAhKYEA%3D%3D) marine claims hit an all-time low in 2022, shipping losses hit a record low in 2022 with only 38 total losses of large ships reported globally (lowest figure in 12 years), down from 59 the previous year. Although the number of total losses continues to decline, the number of general claims remains steady: machinery damage accounts for many claims, although fires appear to be a growing area of concern. More than 200 fires were reported in 2022, a 17 percent increase over the previous year, making it the third largest category.

In addition, as was to be expected, the first half of the year saw a relatively flat hull and machinery insurance market. The push for increases due to potential claims inflation and rising reinsurance costs was predictably muted. Additional capacity and greater market appetite in general have been sufficient to dampen any concentrated rate increases. The issue of inflation continues to be of interest. As described earlier, the number of general ship claims remains constant, and it seems inevitable that the cost of an average claim will increase due to rising prices for steel, labor, and spare parts.

However, it is very difficult to predict precisely what the final percentage increase will be; there are many underwriters in the market who can make assumptions about the direction that loss ratio rates will take, but there will be a collective inclination to act only if these predictions materialize. Indeed, underwriters who try to take a one-sided approach risk losing good clients in the short term (this situation mainly benefits the Scandinavian and London markets on the expense of the Italian market). Despite all the noise in the final months of 2022, difficult reinsurance renewals have so far had little impact on the direct market. At least for the time being, it remains a reasonably good market for buyers, although no widespread reductions are expected for now.

There have been few serious casualties in the past 18 months, but the recent fire on the “Grimaldi Grande Côte d’Ivoire” or the one that occurred at the “GNV Superba” reminds us of the potential for serious financial losses. It would not take many accidents of this size to push the market into a harder cycle. Some of the near misses should also serve as a reminder of the kind of casualties that seem inevitable in the long run. The risk of major fires on container ships due to improperly declared cargo remains a risk that the industry is generally struggling to manage. Similarly, risks associated with lithium batteries on car carriers are still an area of concern; an example is what happened to the ship “Fremantle Highway, the car carrier in service for K Line with 498 electric cars on board that caught fire off the Netherlands in recent days.

With market conditions likely to remain favorable for the remainder of 2023, the key issue for shipowners to consider at this point is the likely market situation 12 to 18 months from now. Will inflation bring loss ratios back to a level that will make hull business unprofitable? Will the rising cost of reinsurance and higher net retentions begin to take their toll? Will we see an increase in the frequency of serious casualties, or does the trend toward fewer serious accidents generally reflect higher safety standards in the industry? And what would be the impact of a downturn in shipping markets on the overall performance of the global fleet?

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alberto.testino1996

alberto.testino1996

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