Hull and Machinery insurance has remained relatively static in H1 2024: Gallagher Specialty

The Hull and Machinery insurance market has remained relatively static in the first half of 2024, according to analysts at Gallagher Specialty, who have also noted the looming possibility of a slight softening as the year goes on.

The market has seen some new entrants, most notably in the MGA space, such as AI Marine, but it is the ambitious premium growth targets of some of the more established participants what is more significant for the market dynamics according to analysts.

“In London, the current premium rating levels are generally considered to be more adequate and sustainable following several years of more conservative underwriting. So, it is perhaps a natural time for the London market to re-establish some of the market share that was so quickly given up during the ‘decile ten’ period,” Gallagher stated.

‘New business ’needs to wrestle with competitors on pricing, conditions, and claims handling service, which leads to inevitable downward pressure on rating, especially for the most well-regarded fleets and sought-after tonnage types.

Analysts said: “For some time, brokers have been able to selectively move small shares to new participants to generate overall improvements. But this may start to give way to reductions and enhanced coverage from incumbent markets, initially in the form of additional bonuses and continuity credits, and eventually cash discounts.

“The concern around claims inflation remains, but underwriters are having to suppress these fears for the time being as applying corresponding rate increases will undoubtedly lead to the loss of the most attractive and profitable accounts.”

During H1 2024, the market experienced one of the most significant marine casualty events in recent times, the collision of the MV Dali with the Francis Scott Key Bridge in Baltimore, US.

The overall cost of the incident has been estimated at between USD2 billion and USD4 billion, which includes hull repairs, GA/salvage, loss of life, crew injury, repairs to the bridge, business interruption, etc.

Gallagher highlighted that even at USD2 billion, this would most likely make the incident the biggest maritime casualty ever, exceeding the costs of the Costa Concordia or the Ever Given.

“Whilst the majority of this claim will likely fall into the IG reinsurances and the liability market, there will undoubtedly be consequences for all marine reinsurance rates, with Hull and Machinery being no exception,” analysts noted.

“The consequences for the direct market are hard to predict, but it will largely come down to what level hull insurers are buying protection at, and what proportion of their direct premium is affected by a sizable reinsurance price hike,” they explained.

Adding: “Other recent reinsurance rises have not always translated into noticeable increases in direct premiums, but it is possible that we could see the brakes being applied to the potential softening going into 2025.”

H1 2024 also experienced the fire at Germany’s Lürssen shipyard in Schacht-Audorf on 2 July, which is reported to have completely destroyed a superyacht that was nearing completion.

Estimates seem to be in the USD150 million range, and despite not being as large as some similar events in years prior, the figure still serves as a stark reminder of the type and size of casualty that can occur during marine construction projects.

“There is substantial additional capacity entering the builder’s risk market, which has seen a sharp softening in recent months. It will be interesting to see if this particular incident has any wider effect on the premium rating for builders’ risks,” analysts added.

Gallagher also warned about an extremely active Atlantic hurricane season for this year, with 17–25 named windstorms predicted, a much higher number than historical averages.

The start of the hurricane season was marked by Hurricane Beryl, the earliest Category 5 hurricane on record in the Atlantic Basin, which caused catastrophic damage and loss of life in the Caribbean and the US following its landfall in Texas.

Gallagher concluded: “There is significant marine exposure across the region, and we should be braced for a possible wider impact on the (re)insurance market generally, due to major catastrophic losses.”

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