Lloyd’s of London Ltd., a syndicate that controls about a fifth of the global marine insurance market, is reviewing a number of loss-making members of its marine unit, a move that could drive up costs for insuring the world’s ocean carriers.
The review comes after a loss of $2.6 billion at Lloyd’s last year and involves a number of Lloyd’s 80-plus insuring groups that have been unprofitable for the past three years, according to people directly involved in the matter. Lloyd’s is an insurance market in London that offers a way for syndicates to pool their risks.
“The [insuring groups] have been asked to come up with a viable plan until the end of the month, or risk closing down,” said a London broker who asked not to be identified.
He said seven syndicates already have trimmed their marine business by a total of about $100 million and “many others are expected to do the same.”
Another broker said the problem comes from the increase in underwriting capital flowing into the market that has pushed premiums down to historically low levels, leaving insurers with unprofitable portfolios.
“Only about 18 syndicates were profitable on hull insurance over the past three years and around 50 were in the red,” another London broker said. “They have been insuring for as low as 0.1% of the vessel’s value, which is unsustainable.”
Brokers say hull premiums may need to double to make them sustainable. War-risk insurance and other high-risk coverage, which is more profitable than hull insurance, has come down from more than 21% of all premiums to around 10% in the past three to four years, brokers said.
“If Lloyd’s moves to raise premiums, all competitors will do the same,” the first broker said. “This will create added problems to shipowners that will have to bear another extra cost.”
Many shipping companies are expected to end the year in the red after a brief respite in losses in 2017. The cost of fuel has gone up by as much as 30% this year and owners are spending billions more to install “scrubbers” for their vessel engines or use cleaner, more expensive fuels to meet lower sulfur-emission limits starting in January.
Lloyd’s Chief Executive Inga Beale, who has been leading the giant insurer since 2014, will step down next year and plans to leave the insurance business. She is the first woman ever to be appointed CEO of the historic marketplace.
Lloyd’s has been slow to adopt digital technology that would cut down its costs. Costs currently make up more than 30% of the insurer’s premiums, making Lloyd’s around 12% more expensive on average than some of its competitors.
Lloyd’s market was established in London more than three centuries ago.