2016 is fast becoming a year of rich pickings for run-off specialists. Europe’s Solvency II regulation, active from the start of the year, is the catalyst
Enstar announced a $1.1bn run-off deal in late February, to transfer US legacy long-tail liability risk from German re/insurer Allianz Re. Enstar will assume net reinsurance reserves of around $1.1bn, by reinsuring 50% of workers’ compensation, construction defect, and asbestos, pollution and toxic tort business originally held by Fireman’s Fund Insurance Company. Bermuda-domiciled Enstar plans to transfer $110m to a reinsurance collateral trust, offering “a limited parental guarantee”, with total support initially capped at $270m.
That deal adds to the recent build up in legacy activity. German firm
Falling rates have helped persuade some insurers to head for the exits on hitherto live business, adding to the weight of business entering
Marine market sailing into a storm
Marine insurance is a tough business to be in. The market, broadly speaking, is in a bad place. There are a number of major reasons for this.
Weak pricing for a number of years is the first, as marine lines struggle to maintain a profit, amid slim to negative margins. Reinsurers of marine business have been doing their best to maintain their business for years, servicing old client relationships, often bundling marine with other business, and subsidising its poor performance elsewhere on underwriting books, which are under pricing pressure from many sides.
The low price of oil is a major negative factor. Energy firms are taking big losses, and
Nor is the cargo problem restricted to oil. Global trade is slowing more generally, as China and other emerging markets face trouble, amid fears of a new global recession. The result of all this is that fewer new ships will be built, and so the world’s fleet of insured hulls will become older, and its machinery more tired and less well maintained.
Ports are a major source of risk. The terrible Tianjin Port disaster showed the huge concentration risk in the world’s biggest ports. The marine sector could take a $3bn loss from the explosion last August, according to a recent IUMI briefing I attended. An accurate final figure could be years off. That such a major loss can take place without a noticeable effect on marine re/insurance pricing ought to ring alarm bells about the sector’s pricing discipline.
The gigantification of ships adds to the concentration risk. Fewer bigger ships now carry global trade, and so the number of ports capable of handling such vessels declines, concentrating the risk in fewer, bigger shore facilities. In February the CSCL Indian Ocean, a large container vessel, ran around on the River Elbe in Germany, partially blocking access to the major port of Hamburg. Business interruption losses from such events (or scenarios on a larger scale) are difficult to model. Even if the individual ship designs are safer than their smaller predecessors, are re/insurers modelling concentration risk effectively? I don’t know.
Anecdotal evidence suggests that in the case of the big roll-on-roll-off vehicle carriers, vessel designs are indeed flawed. The Modern Express was out of control and listing in the Bay of Biscay in February, eventually dragged into Bilbao. Last year the Hoegh Osaka ran aground in the Solent. These huge ships carry highly priced cars across the globe, representing large insurance risks.
Their extreme height and bulk can make these ships troublesome to