The President of the International Union of Marine Insurance (IUMI) has warned the marine insurance market faces a potential crisis if the combination of softening rates and economic uncertainty continues.
Deirdre Littlefield warned the insurance industry’s seemingly robust performance throughout the financial, meltdown may still be threatened by the ongoing economic woes and none more so then the marine and energy markets.
Speaking at the IUMI annual conference in Zurich earlier this week she said: “While only 9 months old the new decade is indeed off to a challenging start. For the first half of the year we focused on the burgeoning economic recovery, the stronger than expected tick up in world trade projections and significant increases in global commodity prices.
“Now however the optimism that spread earlier this year seems to have slipped as the still fragile global economy has been battered by financial shocks and some leading global indicators have fallen.
“To borrow a phrase from the U.S. Federal Reserve Chairman the current global economic outlook can only be described as “unusually uncertain” and this uncertainty has the potential to ripple through the marine insurance industry as it is inextricably linked to the state of the global economy.”
She warned soft market conditions are now expected to impact P&C non life results throughout the year although some improvement is expected in 2011.
“It means the industry will continue to struggle with the combined impact of deeply depressed rates at the same time written premiums have declined as a result of the global recession,” she added.
Citing the United States Ms Littlefield said: “The property/.casualty industry has reported a statutory rates of return of 6.7% for the first quarter of 2010, which is up sharply from a negative 1.2% in the same quarter if 2009 according to ISO published results.
“However the cost of capital for the same period was approximately 10.5%, resulting in a significant gap between the actual rate of return generated by the industry and the rate of return that investors expect to earn. Unless this trend is reverse capital could leave the industry in search of adequate returns and insurance companies would find it difficult to raise capital following another major catastrophic event.”