In his introduction to the ocean hull workshop yesterday September 16th, Rama Chandran, chair of the Ocean Hull Committee and Head of Marine for QBE Singapore, said that the ocean hull market had been “operating unsustainably for many years and is now at a level where premiums will cover attritional losses only”. However, he also said that, “although Covid-19 has introduced additional uncertainty into our sector we are observing signs of a market recovery.”
Chandran began by welcoming three new members to the committee – Edmund Kan from Hong Kong, Lone Scheuer Larsen from Denmark, and David Kim from South Korea. He also thanked the departing members, singling out Mark Edmondson for particular thanks.
Chandran noted that a number of international markets were reporting a stronger underwriting environment moving through 2019, but he said that pricing remained inadequate. The increase of 0.2% in 2019 to $6.9bn, was “somewhat disappointing”. Referring to the most recent numbers from the Facts And Figures Committee and early indications for 2019 (many of these events take several years to mature), Chandran said that an opening year gross loss ratio of 70% was not sustainable.
He noted that gross premiums had failed to keep pace with increases in gross tonnage, average age, and number of vessels. “We still have a long way to go”, he said, adding that “however, there have been indications of a more significant market development recently and I am confident that the ocean hull sector is now on an upward trajectory – although the current gradient of the recovery remains shallow”.
There had been an increase in inter-market competition and the Nordic sector had bucked the trend. Premium levels at Lloyd’s, meanwhile, reflected the closure of a number of syndicates, with gross premiums in the sector now third behind Singapore and Nordic, although all were now revolving around the $1bn a year figure.
Chandran said that the impact of Covid-19 needed to be monitored. Although claims activity this year was low, due to a decrease in vessel utilization in some vessel sectors, he warned that this sweet spot could be short-lived.
“The coronavirus situation has made it difficult for owners to commission on-board inspections, secure spare parts and perform routine maintenance. Once the situation normalizes, we are likely to see a sharp increase in attritional claims”, he warned, citing delayed inspections, more difficulty in effecting repairs, delays in putting vessels in for repair, postponements of maintenance, and the increasing danger of crew fatigue.
Chandran noted that “in general, total losses have reduced across all vessel types and this is extremely good news, but we are still seeing a worryingly high number of major on-board fires”.
Problems related to IMO 2020 compliance might have dropped out of the headlines, but they had not gone away. Chandran said that, while damage caused by fuel switching had largely been eliminated, there was significant cause for concern over an increased amount of engine damage as a result of accepting off-spec low-sulphur bunkers.
Of particular concern was a report from FOBAS of low flash points for gas oil. Chandran had already noted that fire danger was something of an outlier, because its frequency was not falling. From 2015 to 2019, fire was the cause of 14% of total cost claims, second after only machinery & grounding.