Insurance broker Miller says the marine insurance sector is finally “off the naughty step” at Lloyd’s of London after returning to profitability.

Marine insurance was one of eight unprofitable sectors warned by Lloyd’s management to shape up or ship out when it launched its Decile 10 programme in 2018.

A series of natural catastrophe claims had brought a deterioration in Lloyd’s underwriting results and its managers were keen to reduce capacity in unprofitable sectors.

Miller, in its latest report on the marine market — authored by marine specialist consultant and former underwriter Peter Townsend — said that 22 quarters of rate rises have now brought the marine hull market “into some degree of profitability”.

The recovery has been evidenced by new capital returning to the marine hull market.

“The hull market is now officially off the naughty step as far as Lloyd’s is concerned, although it is still under scrutiny,” the broker said.

“The green shoots of new hull capacity are evident in some of Lloyd’s syndicates business plans, as is an increase in capacity for those syndicates already with a hull account in focus.”

The concern in the market is that an increase in capacity will inevitably lead to a fall in hull rates.

Fragile equilibrium

But Miller points out that capacity providers will quickly switch to more profitable sectors if they cannot get adequate returns from the marine hull market.

Miller described the marine hull market as in a state of “fragile equilibrium” that makes it difficult to make any long-term forecasts.

“With the freight markets now on a downward trend, owners will be looking for savings in all areas of their business, including insurance premiums,” it said.

“Will the insurance market buckle and agree reductions, or will it stand firm? It’s too soon to say, however, we still stand by our belief that a fragile equilibrium had been reached.”

The issue in 2023 will be coverage and wording of insurance policies that will be affected by sanctions and limits on coverage brought about by the war in Ukraine.