Hull & Machinery insurance market on a crossroad

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

31 Oct 2007

Despite the shipping industry's boom during the recent years, some parts of the market seem to be underperforming, especially in the services sector, like the Hull & Machinery insurance market. As was highlighted in the International Union of Marine Insurance meeting, recently held in Copenhagen, 2006 marked one the worst years in the business and certainly the worst since 1999. This was despite the fact that rates were increased by 15.5% to reach an estimated $19.64 billion, without of course taking into account the rates of the P&I Clubs. This increase was mainly attributed to the large increases in ship values, while the question regarding the true reflection of asset prices through insurance rates, still remains. The under-pricing due to competition and the large claims produced during the first months of 2007 highlight exactly that, causing deep concern within the insurers. Besides that, total losses are on the rise, bringing added pressure to the market.At the same time, figures indicate that the world fleet is rapidly increasing in numbers. According to analysts, global orderbook is expected to reach 40% of today's fleet within the next five years. As a result the world fleet will increase in numbers by the surprising 65% during the period 1998-2012. The above, combined with the record values have put Hull & Machinery insurance market into a crossroad.One of the main conclusions drawn from the Copenhagen meeting was that insurance companies seem to be accepting the low rates, in order to keep volume growth. But another issue that brought skepticism among the participants was the fact that during 2006 ship damages were attributed by 60%-75% to human error. Hellenic Hull Mutual Association (HMA) observed these international developments with great interest. In a relative press release, HMA produced figures that stressed its increasing role in the market, given the fact that the Association covers exclusively a large number of Hellenic and Cypriot shipping companies. HMA covered 810 vessels during 2006, an increase over 2005' 710 vessels. Furthermore, it was stressed that HMA members have renewed their annual contracts on a 95% percentage from 2000-2007. These numbers prove that HMA has maintained its position in the market, despite the adverse conditions, while its participation became even more intense. According to the loss ratio of the world's insurance market (Hull & Mahcinery) during the last ten years is on the rise. Despite that, HMA has achieved to increase its results during the last six years. Of course, this can be translated as a concrete proof that the Hellenic and Cypriot fleet is the safest in the world. Nevertheless, this difficult business environment could be a sign of future mergers and acquisitions in the market, a clear indication of survival tactics among insurers. Such a scenario has already been analyzed by HMA and the association is ready for it.