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China seen as a challenging marine insurance market

China seen as a challenging marine insurance market
It could be just the typical morose nature of the insurance industry but even China, which once held out great prospects, is seen as a challenging market. The International Union of Marine Insurers (IUMI) 2014 Conference was held for the first time in China in Hong Kong last week presumably due to those prospects for the industry but attendees were warned that it is tough and going to get tougher.

Iris Ip, Munich Re, Hong Kong head of marine underwriting for Greater China, told the conference that while Chinese non-life premiums had hit $100bn in 2013, the marine insurance share of that is miniscule. Cargo premiums make up just under 2% of total non-life premiums, while hull premiums contribute just over 1%. Furthermore, in 2013 premium growth for both cargo and hull actually turned negative.

Even compared to the global market, China has seen sharper declines in premium growth, she added although this is partly due to the higher base that China had to come down from since the highs of 2010 when it benefitted from massive government pump priming. Peaking at over 30% for the cargo market and over 25% for the hull market they have now slid into negative territory.

Looking ahead, Ip said challenges come from a more crowded and competitive marketplace, as more international as well as domestic companies enter the market with a focus on rate cutting. She highlighted figures which showed that in China the number of insurers had grown from 11 foreign and 13 domestic in 2004 to 21 foreign and 41 domestic in 2012.

Ip also pointed out the risk of an increasing incurred loss ratio as both ports in China and the vessels calling them get larger. She showed how while the total number of ports had declined 10% between 2004 and 2013, those that can handle 10,000 dwt ships rose 112% and the container volume more than tripled.

Another worrying infrastructure trend for marine insurers which Ip highlighted, and especially hull underwriters is the move towards road transport. China’s road transport routes grew 133% between 2004 and 2013 while inland waterways grew only 2%. The number of trucks grew 122% and their capacity rose 243% while the number of ships rose only 4% although capacity rose 184%. The most stark figure was the 8.5 times growth in total freight ton per km in the same period compared to a growth of just 109% for waterways.