If a flat hull market is a harbinger of a recovery in premium pricing, this need not be bad news for good shipowners.
“The real shame of a soft market is that quality owners are not able to achieve significant price differentiation to properly reflect their higher standards,” David Bellamy said.
“The softer the market, the more underwriters you have willing to write the risk and therefore pricing is more uniformly low. The same could be said of a hard market, but obviously at the other end of the scale, with a higher price and fewer carriers, maybe.
"There will always be differences in pricing of fleets, that's how a well-functioning market should be. Underwriters have different appetites and methods of risk evaluation at any given time.”
The chairman of London’s Joint Hull Committee has said over the past couple of years that only exceptional fleets should qualify for a hull premium below 0.1% of the value of a vessel. So what does Bellamy regard as a sensible floor premium?
“It’s impossible to say whether a specific rate is good or not good," he said. "We know that kind of rate is out there and that’s surely down to market forces and how underwriters position themselves. They might be looking at protecting their position on a big fleet or trying to get on a big fleet.”
There has been a trend towards verticalised placements in recent years. This began with different markets agreeing various rates for participating in the cover for a particular fleet. Underwriters in London and Norway typically received a higher rate than those in the Far East or eastern Europe. Verticalisation within markets has also become more prevalent, so different underwriters in London or Norway might be on varying terms.
But Bellamy notes that there is less room for such discrepancies in a soft market and there has also been a move by some big fleets to insist on a flat rating level — so, if you are going to participate, it has to be at that rate.
But does that now create further “race to the bottom” rating pressure?
“You could say that, but some people would maintain that the correct market price is the cheapest price,” he said. “Underwriters need to have their own opinions and if they’re asked to do something where the rate is thinner than they would like, they’ve got to balance it with the longer term. If you lose a share of a fleet, it can take quite a while to get back on that fleet.
“And the irony of it is sometimes when you lose a fleet for whatever reason — and let's say price is that reason, because you couldn’t be competitive or you weren’t willing to be competitive — very often the fleet that you’ve lost automatically then goes on to your target list for the next year.”
