Reinsurers with marine books have been growing increasingly concerned over the prospects for the year ahead. The fear has not been driven by rising losses but falling business levels amid fears that the global shipping market was in the doldrums and would remain so for some time.

A report by broker Willis has found the fears look to be justified with the expectation the marine insurance market will continue to face choppy seas in the wake of the global economic crisis, with a sharp decline in international trade crippling certain sectors of the shipping community, piracy spreading to new regions, and stalled capital markets and lower investment returns battering underwriters.

Rate increases have been hard to come by for underwriters as falling insured values blight the sector.

 Willis’ annual review, titled “Riding the Waves,” found that, despite a hardening of marine reinsurance rates at the start of 2009, with no contraction in direct marine underwriting capacity, the initial increase in direct rates has largely evaporated.  Willis says that as long as surplus capacity remains in the market, rates are unlikely to rise dramatically. The exception had been the P&I market, where the mutual clubs at the February renewals announced an average increase of 16.5%.

Chief Executive Officer of Willis Marine and Willis Global Energy, Alistair Rivers explained: “Since the five-year shipping boom came to a shuddering halt at the end of last year, we've seen a huge fall in demand for the shipment of goods that has led to the laying up of vessels to an extent not seen since the 1970s. Laid up vessels mean less premium for insurers and sadly, once again, we find marine underwriters hoping to raise prices just as their customers need to cut costs. However, there is still a lot of capacity in the market and far fewer claims due to the reduction in shipping activity, so we are challenging rate increases for clients with good risk management and claims history.”

Singapore has now established itself as the marine insurance hub of Asia, with several new underwriters setting up offices there, added Willis. Within the Asian market, there is now enough capacity to place $80 million of hull and $400 million of cargo risk, with Singapore leading the way.

The recent Singapore International Reinsurance Conference saw many marine reinsurers fearing for the market in the coming year as low business levels and premium prices in the direct market point to primary insurers retaining greater levels of risks in an effort to maximise revenues in a shrinking premium pool.