Rising shipyard costs push up hull insurance rates, says Gard (source: Lloyd’s List)

Shipowners have seen sharp hike in the price of H&M cover in year to date and further pain is in store, says world’s biggest hull underwriter by David Osler

‘The spare parts, the steel and the yards themselves when doing the work, are asking much higher prices than in the past, so individual claims are more expensive,’ says Bjornar Andresen

HULL insurance rates rose around 9% in the first half of the year and may jump a further 5%-10% by the end of 2021, according to the chief underwriting officer at the world’s biggest hull insurer.

Much of the dramatic increase in outlay for shipowners follows from a general hardening in the hull market, as insurers seek to put things on a firmer footing after decades of losses, said Gard’s Bjornar Andresen.

But there is also a double whammy in the shape of rising costs at repair yards, notably on account of the pandemic and surging steel prices, he added.

“The hull market is still hard, because in average in the market comes from a very much non-performing state,” Mr Andresen said in an interview. “Combined ratios have indicated a loss over a long period, but again there’s a big difference between individual insurers.”

That said, there has been no increase in casualty frequency, and if anything the trend has been benign. What is making the difference is the outlay on putting hull damage right.

“The spare parts, the steel and the yards themselves when doing the work, are asking much higher prices than in the past, so individual claims are more expensive.”

How much more owners pay for H&M will depend on their records. In the soft markets of recent decades, risk differentiation in pricing was insignificant.

“Now we see that when you have a performing account, you actually can limit your increase. If you have losses on a hull account, it will go up much more.”

Gard is also the world’s biggest P&I club, and Mr Andresen also commented on the outlook for marine mutuals at a time when many are losing money on underwriting, thanks to the impact of coronavirus and record pool claims.

“Coronavirus is taking its toll on the underwriting result, but it is not a major event-type incident. It’s lots of work, more a matter of exhaustion on people, and aggregates into lots of claims of lesser amounts that makes an impact on the balance sheet.”

On top of the big casualties of the 2020 policy year — including Wakashio, Hoegh Xiamen and New Diamond — significant deterioration in the 2019 policy year was evident.

This policy year — which commenced on February 20—has already two big incidents in the form of Ever Given and X-Press Pearl, but it is too soon to know the eventual contours of the year as a whole.

“If you look at last year, it was a horrible first half and then the second half year was quite benign, so the end was much mitigated from the first half,” said Mr Andresen.

He pointed to three consecutive years of big hits from the pool, which has sent P&I premiums up after years of zero general increases.

“But it’s too early to talk about trend shift. We’ve had some really unfortunate big claims, but whether this is a trend or not, I wouldn’t comment on that.”

Yet premium per gross tonne remains historically low level, thanks to what remains a secular trend to improved shipping safety overall.

With combined ratios ranging from 104% at Gard to as high as 140%-150% for some other clubs, there seems little doubt that rates will rise for P&I.

Damages, fines and compensation for the Suez Canal Authority set to be the largest items on what is looking like a big bill

But the extent of the increases will differ between clubs, given their portfolios and the composition of their portfolios by vessel type.

Mr Andresen also pointed to a less-often used yardstick, capital ratios, as set down by the EU regulation to which UK clubs still conform.

Data are incomplete; the American and Japan club do not publish the information at all, as they are not EU-regulated, and as it is still early in the year, only half of remaining clubs have divulged figure.

But the range last year was 143%-277%, and this year so far the known range is 184%-257%, so the picture is improving.

Finally, the International Group will also be looking to renew the reinsurance cover on the pool scheme, which is the world’s biggest re contract. This will again hurt owners’ pocket.