To date, we have heard confirmation of the following new entrants into the Marine Hull sector :

1)    Barbican
2)    Canopius
3)     Liberty
4)     Skuld
5)     WTK/ Munich
6)     WR Berkeley

Scor may be about to enter the Lloyd’s  Market, although we are not aware as to their areas of interest as yet. Furthermore Aspen are reviewing their existing marine hull book and may start to write Asian Hull business.

We anticipate that such a significant influx of new capacity in to the market will only benefit Assureds as it further increases the excess of capacity in the hull market.

We await with interest the effect that this increase of capacity will have on rates, but it’s fair to assume that the new incumbents will want to gain market share either through targeting previously written accounts or the acquisition of new business or, more likely, a combination of both.

In addition, we are already seeing a number of existing markets extend their core business either geographically or by tonnage in a bid to gain market share and premium income.

Asia, Asian owners and Asian based managers look set to continue benefitting from the opportunities that this represents as the burgeoning capacity is likely to put further downward pressure on rates.

On the face of it, the global economic slump created conditions that should have left marine insurance clients bearing the brunt of a hardening market and spiralling premiums.  But according to Mr Philip Bilney, Group Executive Director, FP Marine Risks, not only did that not transpire, but it is not likely to happen in the foreseeable future either.

At the recent IUMI conference in Hong Kong, Ms Deidre Littlefield cautioned that whilst the global economy may be through the worst of it, there were still signs that insurers in Asia would need to focus on “underwriting, underwriting, underwriting”.

This would suggest that underwriters should be seeking universal rate rises, higher deductibles and self-insured retentions, tighter conditions and the imposition of further risk management requirements for their Assureds.

However, from an Asian marine insurance perspective, it is apparent that this has not happened and nor will it.

There are three key reasons for this – Asia’s quick economic recovery as demonstrated by the rebounding trade figures, investment in Asia and the subsequent capacity it has brought with it, and finally the ever-maturing environments in which the assureds are operating and thereby lowering their associated risks.

Recovery

There is no doubt that Asia is recovering quicker than Europe or North America.  The IMF has forecast GDP growth of 4% worldwide, but 10% in China and 5.3% in Asia overall for 2010.

The world seems to be recovering from the recession but whether it is a sustainable recovery is yet to be seen.  Recent figures from the World Trade Organisation show that the downward trend in trade experienced worldwide during 2009 has come to an end, with world merchandise trade up 25% in the first quarter of 2010 when compared with the same quarter in 2009.

Importantly, intra-Asian trade has played a key role in sustaining growth within the region.  The WTO has recently reported that the trade flows within Asia have rebounded more strongly than those of developed economies and believes this is due to trade within the region.

China – An engine of growth

Furthermore, China’s imports grew at 16%, twice as fast as its exports (8%), suggesting that the country’s fiscal stimulus package has benefited trade within Asia as a whole.

China is now the world’s largest exporting country and probably stronger than ever relative to the West as we emerge from the financial crisis.  Unless something catastrophic happens, we expect to see the continuing, phenomenal growth of that economy.

The benefits of Asia’s growth in GDP and trade will of course filter down to the shipping, trading and maritime industries as a whole.  There is no doubt that because of this, Asia is certainly the most exciting place in which to be writing insurance business at the moment.

Investment and capacity

Accelerating a trend going back at least two decades, the last two to three years have seen an uninterrupted, headlong influx of new insurance capacity into the Asian market.

I am therefore not surprised that we are seeing continued investment into Asia.  There are now 15 Lloyd’s syndicates operating in Singapore and another five in Hong Kong plus 11 independent coverholders, most of which write Marine.

International insurers have either entered the market or dramatically increased their underwriting capacity.  With the new Asian-domiciled start-ups and increases in existing capacity, according to our own estimates, total Hull and Cargo capacity in Asia is today around three times that of just five years ago with no signs of abating. We expect to see more international insurers active in Asia before the year is out.

Whilst the capacity available is considerable, Asian marine underwriters now have unprecedented levels of authority at their disposal. US$100 million Project Cargo lines and US$25 million Hull lines are no longer unusual (without reference to treaty underwriters or to an overseas head office).

This trend has given Asia a self-contained marine market capable of supporting the great majority of insurance exposures arising in the region.  No longer is there an automatic need to seek capacity or expertise in London or Europe because it can all be found here. Insurers are realising this and repositioning themselves accordingly.  If they want to be part of the Asia Pacific Century, what choice do they have?

The developing world is highly developed

Many of the major cities in Asia enjoy world-leading infrastructure – ports, airports, roads and railways – which operate with modern technologies and are expanding daily.

Asian-focused logistics companies are highly efficient and move cargo through the system seamlessly and – in their own highly competitive environment – with ever greater regard to the safety of their customer’s goods.

Losses are being minimised throughout the supply chain as newer technologies and a continual push for international competitiveness have helped improve safety records.

Meanwhile, the shipping industry is ever-more regulated for the benefit of seafarers and the public alike.

Benign and sophisticated claims environment

The combined benefit of this is a relatively benign claims environment.  There have been some increased cargo losses in particular areas and circumstances, but on the whole we believe this downward trend will continue.

According to IUMI, total losses have, on the whole, followed a downward trend over the last 30 years.  Whilst the costs of some claims have increased, repair costs for damaged vessels have largely fallen, and with fewer ships in service losses have been muted.

Claims are an inevitable part of insurance, but when losses do occur, the Asian claims infrastructure is ever-improving.  Every major adjuster, or international law firm, is heavily represented in the region and local expertise is growing.

Market with credibility and strength

Not only are the risks getting better, they are more plentiful too. The new capacity in Asia is addressing a growing pie, as the economic data demonstrates, but what it does not reveal, and what we are witnessing, is that more marine insurance business is being attracted to the region’s markets.

Asian buyers now have better insurance options here than overseas, and foreign companies trading in Asia are more easily convinced by the international insurance brand names which are now on offer locally.

A number of international insurers have brought their existing Asian books with them and further still many Asian underwriters are increasingly writing non-Asian business.  This has created a market with credibility and strength.

Good news for Assureds

The world recovery, which is proving to be strongest in Asia, combined with plentiful capacity and better risks means it is unlikely the Asian marine insurance market will harden.  Whilst no one believes we are truly out of the woods just yet, there is no reason to assume that insurers in the region will do anything other than carry on being competitive.

As more underwriters continue to build up their regional presence in Asia, the need to increase rates and narrow conditions is suppressed.

An abundance of options for Asia’s Assureds combined with a determination on the part of underwriters to increase their market share has naturally created a competitive environment.  But, with continued investments in infrastructure and an increase in trade volumes combined with a reduction in claims, insurers in Asia understand that underwriting, underwriting and more underwriting does not need to translate into rate increases and a tightening of conditions.

Instead, underwriters in the region can utilise their local knowledge to write more business and a greater premium volume through a broader spread rather than increasing premium through increases in rating.

The global downturn’s effect on trade has meant shipowners are facing further pressures to reduce costs, including reducing their premium spend whilst maintaining good quality security.

However, London and other European markets are pressing for rises on all business of between 5% and 10% on Hull and Machinery before any adjustment for adverse records.

Fortunately for shipowners, however, Asia continues to present an abundance of capacity and strong security whilst offering competitive ratings.

The difficulty for many shipowners is in reconciling the high value they place on maintaining long term relationships with their insurers, with the economic imperative of driving down costs.

The result is that we are seeing shipowners willing to move to new markets for relatively minimal price reductions as the necessity to reduce expenses wins the day.

Consequently London and European underwriters have in some instances lost shares.

Moreover, many markets outside of London are now seeking tonnage that falls outside of their traditional appetite in order to maintain premium income levels. This change of approach has created additional options for shipowners that were not necessarily available this time last year.

The continued effects of the downturn continue to keep the need to reduce costs in sharp focus for shipowners. However, the drive for premium increases by the more established hull markets such as London, has given rise to opportunities for other capacity, particularly from Asia, to step in.

Brokers are becoming an “essential part of the insurance buying process” in Asia, according to Lloyd’s first accredited broker in the region.

Philip Bilney, executive director of FP Marine Risks, says that although there is a well-established market in Asia already, there is still a lot of potential for growth. He adds that the time is right for brokers who want to start offering their services in the region.

“As a developing market, the primary distribution channels have traditionally been via insurance company agents,” he says. “But as risks become more complicated and buyers more sophisticated, brokers are becoming an ever more essential part of the insurance buying process.” This sentiment echoes the findings of recent research conducted by Lloyd’s which found that there is significant and growing demand for specialist services offered by commercial brokers.

Bilney adds: “Looking at the region as a whole, the insurance industry is more experienced and better founded than it was a decade ago. The Asian market is more mature and has more experienced individuals within it.”

Bilney believes that this has in part been reinforced by the Lloyd’s syndicates established in Asia over the last several years.

“From our perspective, the Lloyd’s market is enormously relevant,” he says. “It’s at the hub of marine insurance worldwide. It has far more experience than any other single market or body of underwriters. There are very few risk types which are entirely new to Lloyd’s underwriters, so it’s not just about innovation, but experience and expertise.”

The Lloyd’s market is also willing to commit substantial capacity to specialised or complex risks, the kind that some Asian international insurance companies might be more wary of, according to Bilney.

FP Marine Risks is a specialist marine insurance broker with offices in Hong Kong, London, Melbourne and Taipei, operating in key markets such as Asia, London, continental Europe, the United States and the Middle East.

But is this a lot of noise being made by those who would talk-up the market, or does it reflect a genuine trend?

There is a common misconception that insurance rates are predicated solely on the likelihood of loss. In fact, insurance rates directly reflect the volume of investment capital coming into the industry and the competition that generates for the premium dollar.

Claims rarely have a direct impact on rates unless they are of such a magnitude they drive insurers out of the market or any given sector of the market.

Executive Director Philip Bilney adds, “In reality, rates only rise when people like us - brokers looking for the best deals for our clients - run out of options. When the competition for risk dries up, then the market hardens. Insurance capacity is a commodity and like any other commodity if demand outstrips supply, the price goes up. It’s as simple as that.”

So were Katrina and Rita big enough to move the market? Frankly, we don’t know yet.

At first, we doubted they were, but the losses now stacking up in the Energy Market are starting to suggest otherwise.

The Hull market is definitely hardening, with increased rates being charged in London.

The trend is a little more difficult to discern on the Cargo side. There is a great deal of talk about the Professional Re’s imposing tough terms on the 1 January treaty renewals, although Reinsurers are yet to put pen to paper.

It looks increasingly likely the soft pricing of the last 12 months may indeed have come to an end.