Proprietary and Confidential | © General Reinsurance Corporation
Marine Underwriting and
Reinsurance Market Trends
October 2014
Proprietary and Confidential | © General Reinsurance Corporation
The material contained in this presentation has been prepared solely for
informational purposes by Gen Re. The material is based on sources believed to be
reliable and/or from proprietary data developed by Gen Re, but we do not represent
as to its accuracy or its completeness. The content of this presentation is intended to
provide a general guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Proprietary Notice
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 2
Proprietary and Confidential | © General Reinsurance Corporation
The information supplied herewith is believed to be correct but the accuracy thereof is not guaranteed and the Company and
its employees cannot accept liability for loss suffered in consequence of reliance on the information provided. Provision of this
data does not obviate the need to make further appropriate enquiries and inspections. The information is for the use of the
recipient only and is not to be used in any document for the purposes of raising finance without the written permission of
Clarkson Research Services Ltd.
The statistical and graphical information contained under the heading is drawn from the Clarkson Research Services Limited
("CRSL") database and other sources. CRSL has advised that: (i) some information in CRSL's database is derived from estimates
or subjective judgments; and (ii) the information in the databases of other maritime data collection agencies may differ from
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Clarkson – Disclaimer
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 3
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Today’s P&C Reinsurance Market
Marine in Today’s Market
Emerging Marine Underwriting Issues
Closing Points
Today’s Agenda
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 4
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Today’s P&C Reinsurance Market
Economic Forces at Play in the Industry
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Reinsurance Outlook – Negative
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 6
Moody’s
Pressures on many fronts including oversupply of capacity, new entrants, substitute products, low interest rates, greater bargaining power of buyers.
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Reinsurance Outlook – Negative
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 7
Moody’s
Pressures on many fronts including oversupply of capacity, new entrants, substitute products, low interest rates, greater bargaining power of buyers.
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Reinsurance Outlook – Negative
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 8
Moody’s
Pressures on many fronts including oversupply of capacity, new entrants, substitute products, low interest rates, greater bargaining power of buyers.
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Reinsurance Outlook – Negative
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 9
Moody’s
Pressures on many fronts including oversupply of capacity, new entrants, substitute products, low interest rates, greater bargaining power of buyers.
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Making Sense of the Headlines
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Results
New Capital
Market Impact
Emerging Strategies
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 10
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Forecast
Reinsurance Industry Results 2009-2014
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 11
Global Reinsurance – Combined Ratios
Source: Standard and Poor’s
56.8 62.4 75.1
57 53 62.5 64.5
30 30.2
30.5
31.1 33.4
35 36.5
86.8 92.6
105.6
88.1 86.4
97.5 101
0
20
40
60
80
100
120
2009 2010 2011 2012 2013 2014 2015
Loss Ratio Expense Ratio Combined Ratio
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• Lower premium volume in many cases
• Higher acquisition costs (ceding commissions) with shift toward
Proportional
Keys to Interpreting Recent Results
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 12
Expense Ratios
are growing
• Significant benefit of reserve releases over the last 5 years may
be over
• Natural catastrophe losses in 1H 2013 & 2014 were 20% below
10-year average
Loss Ratios
appear better
than they
really are
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P/C Reserve Development, 1992–2015E
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 13
2
(2)
(8)
(3)
(7)
(10)(10)
(4)
(0)
11
24
15
1210
(4)
(9)
(13)(12)
(10)
(14)(11)(10)
(7) (7)
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
$25
$30
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13E
14E
15E
Pri
or
Yr.
Rese
rve R
ele
ase
($
B)
-6
-4
-2
0
2
4
6
8 Imp
ac
t on
Co
mb
ine
d R
atio
(Po
ints
)
Prior Yr. Reserve
Development ($B)
Impact on Combined
Ratio (Points)
Source: A.M. Best, ISO, Barclays Research (estimates for 2013-2015). Insurance Information Institute
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Catastrophe Losses – Actual vs. Expected
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 14
Source: Lloyd’s
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Extraterrestrial events
(Meteorite impact)
880 Loss events
Earthquake China, 20 April
Severe storms,
tornadoes USA, 18–22 May
Floods India, 14–30 June
Hailstorms Germany,
27–28 July
Winter Storm Christian (St. Jude) Europe, 27–30 October
Typhoon Haiyan Philippines,
8–12 November Severe storms, tornadoes USA, 28–31 May
Hurricanes Ingrid &
Manuel Mexico, 12–19 September
Floods Canada, 19–24 June
Floods Europe,
30 May–19 June
Heat wave India, April–June
Typhoon Fitow China, Japan,
5–9 October
Earthquake (series) Pakistan, 24–28 September
Floods Australia,
21–31 January
Meteorite impact Russian Federation, 15
February Flash floods Canada, 8–9 July
Floods USA, 9–16 September
Geophysical events
(earthquake, tsunami,
volcanic activity)
Hydrological events
(flood, mass movement)
Meteorological events
(storm)
Selection of significant
Natural catastrophes
Natural catastrophes
Climatological events
(extreme temperature,
drought, wildfire)
Natural Loss Events – Full Year 2013
Source: Munich Re Geo Risks Research,
NatCatSERVICE – as of January 2014.
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 15
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Global Natural Catastrophe Update – Loss Events Worldwide 2014 Overview and Comparison with Previous Years
We’ve Been Lucky – More Events but Less Damage
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 16
Source: Munich RE
2014
(Jan – June)
2013
(Jan – June)
Average of the
Last 10 Years
2004-2013
(Jan – June)
Average of the
Last 30 Years
1984-2013
(Jan – June)
Number of Events 490 470 410 315
Overall Losses in US$ m
(Original Values) 42,000 66,000 95,000 66,000
Insured Losses in US$ m
(Original Values) 17,000 21,000 25,000 15,000
Fatalities 2,700 9,100 53,000 30,000
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Making Sense of the Headlines
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Results
New Capital
Market Impact
Emerging Strategies
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 17
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Alternative reinsurance is effectively any form of managing and
transferring (re)insurance risk through the use of the capital markets
rather than the traditional reinsurance market. These nontraditional
structures commonly include catastrophe bonds (cat bonds),
collateralized quota-share reinsurance vehicles (sidecars) and industry
loss warranties (ILWs).
Alternatives to traditional reinsurance essentially began following
Hurricane Andrew in 1992, the first cat bond in 1994, and later sidecars
in 2001, following the events of Sept. 11, 2001. The market began to
grow significantly following Hurricane Katrina in 2005.
New Capital
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 18
Source: Fitch Ratings; Insurance Information Institute, shortened by Andrew Flitcroft/Takashi Ishii
Alternative
Reinsurance
Market
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Alternative Capacity Development, 2001-2013:H1
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 19
Source: Guy Carpenter; Mid-Year Market Report, September 2013; Insurance Information Institute.
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• Previously limited to Private Equity and Pension Funds
• Now including Hedge Funds and other professional asset managers, in some
cases in partnership with existing insurance companies (e.g. ACE & BlackRock)
New Capital – Classes of 2013 & 2014
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 20
Who?
• Catastrophe Bonds, Industry Loss Warranties, Sidecars, Offshore Collateralized
Reinsurance Vehicles (e.g. Greenlight Re)
• Targeted class of business was initially Property Cat, now spreading to low-
severity Casualty, and Specialty Lines
What?
• Results appear to have been good
• Perception of insurance risk as a means of non-correlated diversification
• Superior nominal rates of return relative to other interest-bearing investments
• For fund managers:
‐ Reserves as a source of “permanent” capital
‐ Tax-free growth of capital while offshore
‐ Profits receive preferential capital gains treatment regardless of whether eventually
repatriated or IPO
Why?
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Catastrophe Bonds – Issuance and Outstanding, 1997-2014:Q2*
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 21
Risk Capital Amount ($ Millions)
63
3.0
84
6.1
98
4.8
1,1
30
.0
96
6.9 2,7
29
.2
3,3
91
.7
4,6
00
.3
4,1
08
.8
5,8
52
.9
7,0
83
.0
5,7
00
.0
1,219.5
4,6
93
.4 6,9
96
.3
1,729.81,142.8
1,991.1
$3
,45
0.0
$4
,04
0.4
$4
,90
4.2 $
8,5
41
.6
$1
4,0
24
.2
$1
2,0
43
.6
$1
2,5
08
.8
$1
2,1
85
.0
$1
2,1
39
.1
$2
,95
0.0
$1
8,5
16
.7
$1
4,8
35
.7
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14:H1
Risk Capital Issued
Risk Capital Outstandng at Year End
Catastrophe Bond Issuance Is Approaching Pre-Crisis Levels While Risk Capital Outstanding Stands at an All-Time Record
CAT bond issuance reached a record high in 2013 and could
set a new record in 2014
Risk capital outstanding reached a record high in 2013
Financial crisis depressed issuance
*Through June 30, 2014.
Source: Guy Carpenter; Insurance Information Institute.
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Alternative Capital Growing as % of Industry Total
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 22
Global Reinsurer Capital
Source: Company reports, Aon Benfield Analytics
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• ILS complexity, uncertainty, basis risk
• No relationship = willingness to pay is
untested
• No expertise to add or local presence to
understand client’s business
• Longevity at current volumes
questionable
‐ When interest rates rise
‐ When losses inevitably occur
‐ When managers can cash out
• Diversifies away from reliance on
traditional reinsurers
• Fully collateralized
• Abundant capital (for now)
• Recent launches have easily raised
$500m - $1B
• It’s cheap
‐ “Lower cost of capital”
‐ Lower return expectations
(12% ROE vs. 3.5% over LIBOR)
For Buyers – Alternative Capital
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 23
The Case Against The Case For
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Making Sense of the Headlines
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Results
New Capital
Market Impact
Emerging Strategies
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 24
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• Declining premium volumes in some cases and
• Rising ceding commissions on proportional business
Market Impact
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 25
Reinsurance rates down consistently around the world with just a few exceptions
Loss Ratios are up despite BELOW AVERAGE Natural Catastrophe activity
Expense Ratios
also up due to
• Traditional reinsurers vs. CAT specialists (e.g. Renaissance Re and Montpelier)
• Narrow focus of specialists puts all the power in the hands of buyers
and brokers
Extent depends
on each
company’s
business model
• Client expectations increasing
• Not immune and frequently need to cut brokerage and throw in services to
avoid or win RFPs
• Influence over reinsurers grows as they become more desperate
Reinsurance
Brokers
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Contract erosion is the Pandora’s Box of a soft reinsurance market
Market Impact – Terms and Conditions
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 26
• Event hours clause extension
• Terrorism & Cyber exclusions missing
• Sole judge language added
• Coverage for risks below retention
• Missing standard industry contract clauses
Examples
• Are more difficult to track and quantify
• Take time to show up in results
• Will definitely have an effect on reinsurers loss ratios over the next
few years
• Are difficult to fix and will lead to disputes
All of these
amount to a
form of a rate
decrease,
but they:
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Soft Market Cycle or New Normal?
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 27
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• Depends on size and health of balance sheets at the time of the
event
• Over $100 Billion in CAT losses in 2011 only temporarily slowed
market softening
• Likely that some capital providers would “double down” based on
expectations for future profits
Theories on What’s Next?
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 28
Interest rates rise
Mega
Catastrophe
turns the market
“It is only a question of time before (re)insurers have to shoulder the
consequences of their underwriting policies”
Nikolaus Vom Bomhard, Munich Re CEO
Death by a
Thousand Cuts
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“Came up a lot more frequently than we’d anticipated”
Keefe, Bruyette and Woods
at Monte Carlo Rendez-Vous
Some (re)insurers may “come to the conclusion that their business model
is no longer appropriate given the current market circumstances”
David Cole, CFO Swiss Re
Theories on What’s Next?
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 29
Mergers and
Acquisitions
“Over time, if the alternative capital that has come into the market stays
in a meaningful way, the expectation is that we would see a permanent
erosion of profit margins.”
Martyn Street, Senior Director, Fitch
New Normal
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Making Sense of the Headlines
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Results
New Capital
Market Impact
Emerging Strategies
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 30
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• Opportunistic purchases to lower net during period of deteriorating
results
• Volatility is still there despite lull in CATs
Soft Market Strategies – Buyers
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Underwriting Insights – Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | September 2014 31
Take advantage
of the buying
power
Be wary of strategic changes to pricing models
“The use of reinsurance at the bottom end of a cycle is a critical factor in
managing the portfolios. And anybody who thinks that they can retain
larger amounts of their business unprotected at this stage of the cycle, I
think you should suggest they need some medical attention”
John Charman, Endurance CEO
However, “there is no winning [long term] strategy through arbitrage”
Stefan Holzberger, A.M. Best Europe
Maintain long-
term reinsurer
relationships
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Soft Market Strategies – Sellers (not recommended)
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 32
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Embrace 3rd party capital model to deliver scale
Increase retrocession purchase to lower net effect
Soft Market Strategies – Sellers
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 33
Pursuing reinsurance growth in this market is a “fool’s game”
Bronek Masojada, Hiscox CEO
Pull Back from
commoditized
lines
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• Casualty and Long-Tail Business
• Specialty Lines including Marine
• Accident and Health
• Emerging markets
Soft Market Strategies – Sellers
Today’s Reinsurance Market – Economic Forces at Play in the Industry
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 34
Replacing lost
business with
more emphasis
on
Expand existing or get into primary insurance operations
Focus on markets with low insurance penetration and high growth rates
Strengthen
resolve toward
value-added
relationship model
This market “will divide the market between those who focus on the client
and those who focus on the product.” – Charles Franks, Kiln CEO
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Marine In Today’s Market
Impact on Marine Specifically
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• Relative absence of large losses in 2013
• Rising non-CAT loss ratios
• Abundant capacity from new underwriting markets
• Decent 2013 result fueling unhealthy sense of complacency
How Marine Stacks Up in this Environment
Today’s Reinsurance Market – Impact on Marine Specifically
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 36
Parallels with
rest of P&C
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U.S. Ocean Marine Combined Ratio 2004-2013
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 37
97
.2
11
8.4
98
.7
11
3.7
10
9.3
97
.710
0.8
10
3.6
91
.0
96
.4
80
85
90
95
100
105
110
115
120
125
130
04 05 06 07 08 09 10 11 12 13
Ocean Marine results have improved markedly in 2013
Ocean Marine Results Have Been Quite Volatile Over the Past Decade, with the Combined Ratio Ranging by More than 20 Points Sources: A.M. Best; Insurance Information Institute.
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Cargo Loss Ratios Have Deteriorated
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 38
Sources: IUMI Facts and Figures Committee
Cargo – Gross* Ultimate Loss Ratio Europe/USA**, Underwriting Year 1996-2013
* Technical breakeven: gross loss ratio does not
exceed 100% minus the expense ratio (usually
20%-30% acquisition cost, capital cost,
management expenses)
** Data: Belgium, France, Germany, Netherlands,
Italy, Spain (until 2007), UK, USA
Since 2007:
• Deterioration of good
2002-2006 results
2009-2013:
• 2011-2013 start at
about 72%
• 2012 Sandy affects
mainly US
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Hull Loss Ratios Continue to Be Terrible
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 39
Hull – Gross* Ultimate Loss Ratio Europe/USA**, Underwriting Year 1996-2013
* Technical breakeven: gross loss ratio does not
exceed 100% minus the expense ratio (usually
20%-30% acquisition cost, capital cost,
management expenses)
** Data: Belgium, France, Germany, Netherlands,
Italy, Spain (until 2007), UK, USA
2011:
• Strong major loss impact
(Costa Concordia and
others)
2012/2013:
• Less major loss impact as
in 2011
2013
• Improvement, but
technical result still at
loss (18th year)
Sources: IUMI Facts and Figures Committee
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While Declining Loss Frequency Tells One Story
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 40
Sources: Cefor Statistics Forum, IUMI Facts and Figures Committee, Lloyds List Intelligence, Clarkson Research, August 2014
Note: Total Losses as Percentage of World Fleet, Vessels > 500 GT
Total Losses Claim Frequency by Size of Claims
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We Know It’s Only A Matter of Time
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 41
Sources: Cefor Statistics Forum, IUMI Facts and Figures Committee
Vessels with Values xs 100 USD Million as % of Total Insured Portfolio:
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• Relative absence of large losses in 2013
• Rising non-CAT loss ratios
• Abundant capacity from new underwriting markets
• Decent 2013 result fueling unhealthy sense of complacency
How Marine Stacks Up in this Environment
Today’s Reinsurance Market – Impact on Marine Specifically
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 42
Parallels with
rest of P&C
• Historically superior profit margins
• Perception as a non-correlated line
• Lower default capital requirements under Solvency II
• Hard to model CAT exposures
• Smaller pool of qualified experts
Differences
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• The Deepwater Horizon and Costa
Concordia losses have highlighted
the need for limits exceeding
traditional (re)insurance appetite
• Marine is just one of many attractive
Specialty lines likely to feel the
spillover effects as reinsurers diversify
• Marine Industry Loss Warranties
already in use with growing interest
• Marine is different
‐ Yes, a low correlation with some events
‐ But, limited data for CAT modeling and
relatively low demand
• “Markets such as marine and aviation
are tiny, and there isn’t a crying need
for capital.”
Tony Tettino, CEO Elementum
Is Marine Immune from the Influence of New Capital?
Today’s Reinsurance Market – Impact on Marine Specifically
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 43
No Yes
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• Marine is small line (relatively) and P&C senior management
‐ Doesn't understand it and pays next to no attention
‐ Is over reliant on benchmarking reports but ignorant of limitations of
marine data
‐ I.e. ERC available on renewals but not enough data for adequately assessing new
business
‐ Holds naïve assumptions regarding mobility and absence of static
exposures and will be unpleasantly surprised
Reasons Why This Marine Market Will Be Ugly
Today’s Reinsurance Market – Impact on Marine Specifically
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 44
Lack of industry
loss statistics for
most classes
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• Limited depth, awareness of risks/discipline varies by company
• Two decades of under investment in talent leaves little depth
Reasons Why This Marine Market Will Be Ugly
Today’s Reinsurance Market – Impact on Marine Specifically
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 45
Experienced
underwriters,
brokers, claims
adjusters spread
thin across the
growing
multitude of
shops
For example:
• “Winning” stock throughput accounts from property markets based
on low price and loose T&Cs
• Outsourcing CAT modeling for static exposures = HUGE
miscommunication risks in the hand-offs
• Leading to culture of model reliance, shared responsibility / no
accountability and foreseeable results
Too many
non-experts
writing business
they don’t fully
understand
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Emerging Underwriting Issues
Trends We Are Watching Closely
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Emerging Marine Underwriting Issues
Emerging Underwriting Issues
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 47
Larger
Vessels
Removal
of Wreck
Salvage
Expenses
Arctic
Shipping
Port
Congestion
Panama
Canal
Climate
Change
Piracy
Cyber Risk
Trade
Sanctions
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• Cargo + Hull quickly approaching $1-2B at risk on
larger vessels
• Many concerns about loss scenarios
The Wide Wake of Larger Vessels
Emerging Underwriting Issues
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 48
Concentration
of Risk
Salvage and
Wreck Removal
Port Congestion
• Occurring more frequently, each with higher costs
• Size, Environmental Sensitivity, Politics, Limited
Infrastructure contribute
Economies of Scale Risk:
• Less predictable arrivals due to slow steaming
• Once in port, larger vessels tie up facilities for longer,
with potential to overwhelm
• Resulting increase in average daily port values could
be multiples of vessel size increase
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Large Partial Losses Are Increasing in Frequency
Blue Water Hull
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 49
Serious and Total Losses Claims in Excess of USD 30M
Sources: Cefor Statistics Forum, IUMI Facts and Figures Committee, Lloyds List Intelligence, Clarkson Research,, August 2014
Note: Total Losses as Percentage of World Fleet, Vessels > 500 GT
0
1
2
3
4
5
6
7
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
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Partial claim per sum insured, by sum insured layer, 2008-2013, by date of loss
Larger Hulls and Total Losses
Emerging Underwriting Issues
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 50
Source: Cefor Annual Report 2013
Cefor analysis shows a flattening of partial claims by Sum
Insured, and possible increase for the largest vessels
• Greater complexity and
exposure
• Significant claims handling
uncertainty
Underwriting Challenges
and Dilemma
Will the Total Loss rate eventually exhibit a similar pattern?
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• Climate Change is a Reality
• Most static Marine exposures are located near the coast
• Marine insurers have to prepare for a higher frequency of larger storms and the
implications for their portfolios
‐ Wind - Flood - Storm Surge
Extreme Weather
Emerging Underwriting Issues
Source: Central Europe Flooding, "Povodně v Praze, 30.jpg" by Jargo/CC BY-SA 3.0.
2012
US
(Sandy) $47B $29B $15B $4B
2005
US
(Katrina)
2011
Thailand
Flooding
2012
Europe
Flooding
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 51
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• Downside to the digitizing of operations
• In addition to data breach potential, some operations exposed to:
‐ Property Damage, Bodily Injury, Business Interruption, & Third Party Liability
• Both Financial & Reputational Costs
Marine Cyber Risk
Emerging Underwriting Issues
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 52
85% of
executives cited
Cyber Risk as a
top concern –
AIG Study
Ports
Cargo
Vessels
• Significant vulnerabilities in essential trade infrastructure - Brookings
Institute
• Shipping and supply chains are the next targets for hackers -
International Maritime Bureau
• Researchers have found significant holes in navigation systems (GPF,
AIS, ECDIS) security
• “Every ship has a back door – communication lines” – Markus Wahler,
marine cyber consultant
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157
321
446
656
498
419447
662619
127.7
16.2
222.5
66.9
19.1
35.7
22.917.3
87.9
100
200
300
400
500
600
700
2005 2006 2007 2008 2009 2010 2011 2012 2013*
0
20
40
60
80
100
120
140
160
180
200
220
# Data Breaches# Records Exposed (Millions)
Data Breaches 2005-2013, by Number of Breaches and Records Exposed
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 53
# Data Breaches/Millions of Records Exposed Millions
The Total Number of Data Breaches (+38%) and Number of Records Exposed (+408%) in 2013 Soared
*2013 figures as of Jan. 1, 2014 from the ITRC updated to
an additional 30 million records breached (Target) as disclosed in Jan. 2014.
Source: Identity Theft Resource Center.
The Home Depot
Target
Neiman Marcus
Snapchat Adobe
Northrop Grumman
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Political Risk and Trade Sanctions
Emerging Underwriting Issues
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 54
“Underwriting"
Risks
Shipping identified as highly important to achieving objectives
Criminal
Charges Fines Reputation
Potential
Breach of
Contract
Marine and Aviation pose the highest risk for insurers
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Closing Points
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• Reinsurance results aren’t as good as they’ve looked and are
deteriorating rapidly.
• Risk is still out there – don’t get lulled into a false sense of security!
• New capital will be disruptive in the short term; in the longer term
some players will leave but others are here to stay.
• Marine reinsurance will feel these effects just like the rest of P&C, but
indirectly rather than through major structural changes.
• For buyers this creates a near term opportunity for arbitrage, but
don’t bet on it as part of your long term business strategy.
• There will continue to be a role for the traditional reinsurance model,
but individual companies’ strategies will vary.
Closing Points
Closing Points
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 56
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Reinsurance Risk Transfer Cycle
Marine Underwriting and Reinsurance Market Trends | Jonathan Ball | October 2014 57
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Visit genre.com for more info.
Thank You
Jonathan Ball
International Marine Manager