Mixed outlook for marine sector
15 September 2008
Low inflation, huge rises in commodity prices and the growth of import-export activity of emerging economies has boosted the marine and energy sectors over recent years, but the outlook is mixed.
That was the warning from Rolf Tolle, Lloyd’s Franchise Performance Director, speaking at the International Union of Marine Insurers’ Conference, Vancouver.
While calling for prudence he expressed optimism that the sector will continue to perform well as long as insurers maintain underwriting discipline and write for profit rather than market share.
While the good times are not yet over – the number of vessels is expected to increase by as much as 40% in the next five years, freight rates are rocketing and average day hire rates have risen by 170% – there are significant challenges ahead for insurers, led predominantly by the global economic slowdown.
Tolle explained: “The thirst for raw materials from emerging countries has abated and the once healthy Asia-to-Europe route, buoyed by the fast-growing Eastern Europe economies and strong Euro, has suffered a decline in confidence, problems of over-capacity and a deceleration of Chinese exports.”
Tolle said financial difficulties were likely to cause the potentially massive fleet growth to be curtailed by new building cancellation or delays: “The current liquidity problems in the financial markets and the reluctance of banks to lend money will have a major impact on the affordability and feasibility of the new build programme.”
Ship owners are also dealing with the dual difficulty of not being able to pay for the ships they have ordered and rising steel costs.
So what does this mean for insurers?
Tolle told conference attendees: “The performance of the shipping sector is closely linked to the health of the global economy and we all know that it is in the sick bay at the moment. The erratic rise of oil and the threat of a global recession may lead to a slow down in consumer spending, a general economic slowdown and a reduction in demand for tonnage.
“The insurance cycle is not working in our favour and we are seeing significant softening across all lines of business. Almost without exception, terms and conditions are under increasing pressure and rates are either falling or are already at very soft levels.”
But, he said, “At Lloyd’s our mantra has been the same for the last few years: focus on underwriting discipline and write for profit not market share. My simple message is stop, look, listen and change. There is still money to be made for marine insurers as long as they are prudent and calculate risks effectively.”
Last updated on 15 Sep 2008
