IUMI Chief: Despite Lower Yields, Marine Market Looks to Global Trade Increases
Saturday, 28 January 2012 | 00:00
As it faces lower financial yields on its investments and a worrisome trend toward regionally based regulation, the marine insurance market has been buoyed by expectations of an increase in global trade, according to Ole Wikborg, president of the International Union of Marine Insurance.Wikborg addressed the International Underwriting Association and also spoke to Best's News Service. The IUA hosts a presentation each January by IUMI. Wikborg, who is also director and senior underwriter of the Norwegian Hull Club, emphasized that he spoke in his role as head of IUMI.
The lack of investment income means that insurers need to look to their technical resources, Wikborg said.
"And I think the underwriting community needs to readdress their pricing structures and what is being charged for the exposures that they assume," he added.
The maritime insurance industry suffers from having an out-of-date business model, Wikborg said. Insurers had long benefited from good investment income and a favorable claims structure, he said.
"Today's financial markets produce no yield," Wikborg said, noting the challenge insurers face in producing technical profits.
Wikborg said the increasing population in developing nations will create more demand for marine insurance. "There will be more business for us going forward," Wikborg said, noting the most promising emerging economies of the world as China, India and Brazil.
"These economies still have considerable growth," Wikborg said. "And as a consequence of that there will be a need for transporting goods into these countries and for taking exports out."
The international economy is "in for some pretty tough times, but I think there will always be a possibility to scale your [underwriting] business to the actual situation."
A move toward regional regulation would work against the development of international trade, which "should be borderless."
IUMI, would like most global trade regulation to be set by the International Maritime Organization, he said. The introduction of Solvency II by the European Union "will require underwriters to have a more academic approach to the pricing of risk."
Wikborg refused to estimate the potential insurance loss from the Costa Concordia cruise liner disaster in Italy. Nor would he speculate on the possibility that the Iranian government might close the Strait of Hormuz, a vital passageway for oil, as a result of tensions with the West over its nuclear program.
"It's too early to say anything about what the final outcome [of the Costa Concordia loss] will be, and where the liability will be placed," Wikborg said.
Wikborg said he expected much of the loss from the cruise ship disaster to be covered by hull machinery market and property underwriters. "And there will be some discussions and investigations on the liability issues," he said.
Similarly, Wikborg said, marine insurers are seeking clarification as to their potential exposures from the political sanctions that have been imposed on Iran.
"We think it has to do more with financial transactions than the actual business that we're doing there," Wikborg said. "But a lot of steps will have to be taken in order to scale down our activities with Iran."
Apart from individual losses, Wikborg said, the maritime insurance industry is not especially concerned about developments in Italy or Iran.
"For our members to be worried, it takes more than just one or two incidents or one or two casualties," he said.
IUMI has been encouraged by actions that have been taken against piracy by such countries as Norway and the United Kingdom. Most of the piracy in the Indian Ocean, he said, emanates from Somalia, which he described as a "failed state" that has been beset by civil war, he said.
IUMI has, for instance, supported the use of armed guards on ships in waters where pirates are known to operate. IUMI has called for the specific rules to be set by the flag state and the shipowner.
Wikborg said, contrary to some suggestions in the press, the insurance industry does not effectively abet the activities of pirates.
"Insurance has always responded to the risk and the needs of its clients, including the need for financial security from risks associated with piracy," Wikborg said.
Source: A.M. Best Company, Inc.