Marine loss ratios climb, airline losses drop: report

Underwriting performance has improved recently in marine and airline insurance, but those lines are “only marginally profitable,” suggests a new report by Swiss Re.

The Zurich-based reinsurer announced Thursday it published the latest of its Sigma series of reports, titled Navigating Recent Developments in Marine and Airline Insurance.

“Compared with peak loss periods in the late 1980s and late 1990s, marine and airline underwriting performance has gradually improved,” according to the report.

The scope of the report includes marine cargo, but not offshore energy or U.S. inland marine. Within aviation, the scope of the report includes airline hull and liability but not general aviation, aerospace or space.

Recently, marine loss ratios have been rising, while airline losses in 2012 were the lowest since 1995, Swiss Re noted.

“Since 2009 the airline industry has experienced a relatively benign period for major catastrophes,” according to the report. “This has translated into a sharp fall in total losses (relating to events where the aircraft is missing, inaccessible or damaged beyond repair) which has more than offset increased partial losses (those where the insured property is not fully destroyed or rendered useless).”

However, the grounding of the Rena near New Zealand in 2011 and the Costa Concordia near Italy in 2012 – along with Hurricane Sandy last October – led to “significant” marine losses, Swiss Re noted.

“Averaging loss experience and operating expenses over time suggests that both marine and airline insurance remain only marginally profitable on an underwriting basis,” according to the report. “Underlying combined ratios for the key commercial marine and aviation lines have probably been close to or above 100% for the best part of the past two decades.”

Over the long term, premiums in marine and airline insurance “move closely in line with world exports and air passenger volumes,” Swiss Re stated, adding the “central expectation of many forecasters is that once public and private sector balance sheets are repaired the long-run, pre-crisis trends in production, trade and travel will eventually be broadly re-established.”

Marine and airline premiums are projected to increase, on average, by “around 4 to 5.5% per annum” over the next 10 years, provided the world economy continues to recover and “pre-crisis trends in trade and travel are re-established, marine and airline markets.”

Meanwhile, marine and aviation markets “have become more geographically dispersed,” Swiss Re reported, adding the expansion of international carriers has “encouraged the development” of regional centres for specialist insurance in places such as Singapore and Dubai.

While some carriers, such as Zurich, have launched web-based portals, brokers and agents are the “key distribution channel” for marine, aviation and other transit (MAT) insurance, according to Swiss Re.

“In general though, there are few signs of disintermediation,” according to the report. “This reflects the complexity of risks and the need for non-standard insurance which often requires specialized knowledge that brokers and agents provide.”