Marine market exposed as 2020 hurricane season commences

The marine insurance market is on heightened alert as the 2020 North America hurricane season officially starts today, as the Covid-19 lockdown led to vessels being laid up along the US East coast and Caribbean.

A large number of vessels – ranging in size from cruise ships to smaller yachts – have been laid up in the region since the global economy shuddered to a halt with the lockdowns imposed in March.

A vessel is considered to be laid up when it is taken out of service and is anchored at a fixed location for a considerable period of time without undertaking any commercial activities.

Accumulation exposures are understood to be a growing concern for marine insurers, especially in regard to cruise liners, as there is a limited number of ports with capacity or the depth to moor vessels of their size.

As a result there remains a number of vessels in hurricane exposed regions such as the Carribean and Florida.

With the 2020 season officially beginning today, insurers are understood to be consulting with ship-owners to ensure the vessels are ready to move out of harm’s way in case of an approaching hurricane. 

A recent report by Allianz flagged that marine insurers could face “multi-billion dollar” losses if a hurricane were to hit a port in the region.

As previously reported by this publication, last month there was an exodus of high value vessels – from cruise ships to sailing boats – relocating ahead of 1 June.

Despite this, there is understood to still be an unusually high level of tonnage laid up in these exposed regions.

Forecasters agree that the 2020 hurricane season will be above average. The El Niño-Southern Oscillation cycle is expected to transition to neutral or La Niña conditions, which would be more conducive to hurricane formation.

A recent report from Karen Clark & Company concluded that Covid-19 will increase any hurricane losses that occur this season because of hampered mitigation activities, more complicated business interruption claims, remotely settled claims and increased contractor costs.

Any losses for marine insurers as a result of the hurricane season would also add to the roster of sizeable losses experienced by the sector in recent years. 

As previously reported by this publication, despite Lloyd’s focus on improving the marine sector’s results and the withdrawal of capacity from the class, 2019 is expected to ultimately be the worst underwriting year for marine hull insurers for at least twenty years.

One large loss to hit the hull market in 2019 was the Golden Ray which, as previously reported by The Insurer, is expected to cost hull underwriters $87.5mn.

Also, as first reported by this publication, Axis, Swiss Re and RSA all had significant exposure on the Gard-led hull claim for the Star Centurion vessel which collided with a tanker in the South China Sea in January.Other significant losses within the year of account for hull underwriters stemmed from a chemical and oil tanker explosion in South Korea, with Norewigan insurer Gard understood to have led the $70mn hull and machinery loss, while the market also experienced a circa $50mn loss from a collapsing crane crash in a shipyard in the Bahamas.