International Union of Marine Insurance (IUMI) president Deirdre Littlefield opened its annual conference with the warning the market could not ignore the ongoing challenges posed by a fragile global economy.

Littlefield who steps down at the end of the conference warned despite the positive indicators which had emerged and the way in which Insurance seemed to have emerged unscathed from the global economic crisis the ongoing economic uncertainty poses a significant threat to the marine insurance industry. She warned the economic uncertainty low rates and therefore poor returns made insurance less attractive to investors and would impair the ability of the industry to recapitalise in the event of a major global loss.  

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.”

As increased competition for smaller levels of marine and energy business pushed rates ever lower Ms Littlefield said the year ahead would not see a positive trend for the underwriting community although there was a hope that 2011 will bring about greater stability.

 “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  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 rates of return generated by the industry and the rate if 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.”