​​Positive Outlook for Marine Hull Insurance Market as Capacity Expands, Says Miller Report

According to a recent report by Miller Insurance Services, the marine hull insurance market has successfully emerged from its previous challenges and is now experiencing renewed profitability. The sector, which underwent a remediation period, is witnessing growth in capacity, signifying a positive shift in the industry.

Miller noted that several Lloyd's syndicates include hull capacity growth in their business plans. This is with a particular focus on increasing capacity for syndicates already engaged in hull insurance. This development indicates a favorable market trend.

Lloyd's has tentatively projected 14.3% overall top line growth across all lines of business. This forecast translates to a rise in written premiums from £48.9 billion in 2022 to £56 billion for 2023.

While an increase in hull capacity without a corresponding rise in hull insurance demand might suggest a softening market, Miller explained that the main contributing factor to these circumstances is the "cost of capital." Capital providers require a certain return to sustain their support for the insurance market rather than diverting their investments to other industry sectors. While the Direct Hull market capacity is currently ample, it remains tied to the existing level of profitability.

Analysts pointed out that if the insurance market softened significantly, available capacity would likely diminish. It is essential to remember that the hull business represents only a fraction of the overall insurance market.

Miller's forecast for the marine hull segment indicates a continuing delicate balance for the market this year. However, unlike 2022 pricing concerns, the primary issues now revolve around coverage and wordings, predominantly influenced by the Russian invasion of Ukraine.

Historically, marine hull insurance has experienced fluctuations, often underperforming compared to other lines of business. However, the present scenario demonstrates that it is now supporting underperforming lines.

Since capital providers assess the hull business in the context of the entire insurance market, general underperformance in the market puts pressure on all lines of business, as explained by Miller.

Analysts predict an ongoing delicate equilibrium for the Hull market. This projection is based on the Marine market's current flat rates, despite losses in other lines of business. This is primarily due to the appeal of the class to underwriters, the implementation of remedial measures, and the perceived profitability within the existing rating environment. However, global inflation introduces upward pressure, making renewal negotiations challenging.

There are three key aspects to consider when it comes to coverage and wording. Firstly, reinsurers restrict vessel aggregation to prevent multiple losses due to invasions. Imposed wordings limit recovery to a single risk, effectively shifting accumulation risk from reinsurers to direct underwriters. Consequently, this reduces direct underwriters' war risk capacity due to the potential increase in retained losses.

The second aspect relates to sanctions. Typically, war risks are covered under covers and lineslips, with the leader taking responsibility for sanctions checking on behalf of the market. However, many underwriters find this arrangement unacceptable and demand autonomy to conduct their own sanctions checks. This requirement renders existing facilities ineffective if each underwriter must make individual decisions regarding sanctions.

The third aspect concerns the Russian nexus. Miller observes that an increasing number of underwriters are seeking to distance themselves from risks associated with the region. This is regardless of their exposure to war perils. In the case of hull risks, some underwriters exclude Russian exposure or touchpoints. This exclusion adds to the overall considerations of sanctions checks.