U.S. Marine Insurers Predict Continued Profitability

November 24, 2003

U.S. ocean marine insurers expect 2003 full-year results will show continued profit as underwriters maintain their pricing discipline, according to David French, chairman, American Institute of Marine Underwriters (AIMU).

Addressing the annual meeting of the AIMU in New York recently, French said the results of an informal survey of AIMU members found that most agreed that results in 2003 would be at least as good, if not even better than 2002. Almost all said that their expenses ratios improved this year, French noted.

Looking further ahead, the survey indicated that in 2004 the combined ratio for ocean marine would rise a bit. Respondents believe that results in the hull and P&I lines would improve, while cargo and yacht would remain the same. The results for energy and offshore risks were deemed most likely to deteriorate, French observed.

Despite a decline in net written premium growth for ocean marine in 2002, French did not believe this indicated a turn in the marine market. “I think not. Anecdotal information suggests that pricing discipline has not yet been abandoned,” he said.

French cited an Aon insurance market overview that suggests that marine markets are leveling off. The report said that “most U.S. marine markets will conclude 2003 with favorable combined ratios” and that management will continue to mandate increases to offset poor investment results, he noted.

AIMU members continued to outperform the property/casualty business in 2002. “We turned the corner faster than the P/C business as a whole. And, of course, we did not share in the catastrophic losses of 9/11,” French said.

While the industry-wide combined ratio for 2002 was 107.2 percent, AIMU members posted a far more respectable 92.2 percent – a further improvement from the nearly 99 percent combined ratio recorded in 2001, and the market’s lowest combined ratio in six years, he observed.

In other words, French said, ocean marine insurers attained that target ROE of 12 percent that the P/C industry as a whole is still struggling to reach. Still, he cautioned that there were several signs that needed watching closely in the market.

Net written premiums for ocean marine insurers in 2002 rose just 5.7 percent to nearly $1.3 billion, compared with a 12.3 percent increase between 2001 and 2000, and 14 percent net written premium growth for all property/casualty lines.

“The sluggish economy in the U.S. and worldwide is likely a contributing factor to the modest increase in premiums experienced by marine underwriters last year,” French said. “U.S. GDP rose only 2.9 percent last year and is expected to rise only 2.4 percent this year.”

French pointed out that to a great extent, the ocean marine industry’s performance will follow the results of its two largest lines – cargo and yacht. In 2002, cargo recorded a remarkable combined ratio of 75.4 percent, nine points lower than in 2001. On the other hand there was some deterioration in the performance of the yacht line, where the combined ratio rose to 97.5 in 2002, up from 93.3 percent in 2001.

The most dramatic deterioration in results was in ocean hull, which recorded a combined ratio of 132 percent in 2002, up from 113 percent in 2001. These are the worst numbers since 1998, French noted.

At the same time, the most significant improvement occurred in offshore risks which saw a combined ratio of 93.3 percent in 2002, down nearly 60 points from the nearly 153 combined in 2001.

Given the state of the U.S. economy and the dynamic insurance marketplace, French said it was hard to recall a more challenging time than the one the overall property/casualty industry and marine insurers confront today.

To succeed in a highly competitive industry, marine underwriters must be equipped with a growing body of knowledge and information, French said, and this is where AIMU comes in.

In addition to monitoring significant changes in regulation and legislation such as the maritime security bill, AIMU provides direct services in support of its members. “AIMU staff and committees work diligently with a variety of constituencies in classification societies, law enforcement, government and international marine and trade organizations,” he said.

AIMU also maintains an international intelligence network of correspondents in port cities throughout the world who also arrange surveys of damages to identify the cause and value of losses and help speed claim settlements.

“All this work is done with a common objective in mind – to create an environment in which marine underwriters can grow and prosper,” French concluded.

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