The strong profitability of the Marine sector, with a combined ratio sub–90%, reflects the excellent terms which have been available in many of the sub–sectors such as Marine War, Cargo and Liability. A release from prior year reserves has also improved the combined ratio.

Not much has changed in the Marine market since we reported a year ago. In the marine hull account, the burgeoning economies of the Far East, particularly China, have such a high demand for raw materials that the world’s merchant shipping fleet can barely keep pace. Similarly, the world’s shipyards are so busy with new construction work that many have waiting lists extending to 2008. While this may look like a vibrant and healthy market which should provide good opportunities for underwriters, the reality is more complex. The worldwide availability of underwriting capacity is undermining efforts to push pricing and terms and conditions to levels which deliver acceptable returns on the capital employed.

Marine hull margins remain depressed

Pricing in this line is continuing to improve, but too slowly in the eyes of some underwriters in order to stay ahead of claims inflation. Underwriters are concerned that the activity in the Far East is unlikely to continue indefinitely, and that when the Asian economies begin to cool, the demand for merchant shipping will follow suit. It is typically at this point that large numbers of claims for repairs are lodged, having been postponed while the ships were in great demand.

Marine cargo premiums reach peak

Lloyd’s Marine Cargo account has been growing in recent years as pricing has improved substantially and income is expected to peak in 2004. Underwriting terms and conditions are generally felt to have peaked during 2004 with the loss ratios on the years 2002–2004 tracking favourably. However, a degree of competitive pressure is beginning to reassert itself once more. Underwriters are concerned not so much with the actual price charged on each risk as with the breadth and type of coverage offered.

Marine liability performing strongly

The last large component of the Marine book is the Liability account. This book has had a good track record in recent years, although it is important to bear in mind that this is a long tail class of business and a seemingly benign loss record can always change as late claims advices are lodged.

The Marine War book has had an exceptional run in the 2002– 2004 period with loss ratios tracking below 25%. Naturally, however, such a benign loss record brings increased competition and Lloyd’s income is dropping as a consequence.