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Generali's London hull account hits the rocks

August 17, 2017

Italian insurance giant, Generali is ceasing to write marine hull insurance in London, in a powerful signal about the alarming state of the current market.

Generali is one of the world’s top underwriters but has found profitable business a challenge to come by in the heart of the global hull and machinery market.

Generali has not made any comments on the actions however multiple sources have confirmed to TradeWinds that the company has made a strategic decision to quit the UK hull market and is ­reassigning staff, so the withdrawal appears permanent.

Hull cover will continue to be written in Italy but seems likely to be scaled back as Generali appears sufficiently disillusioned with the sector to quit the London market.

The move comes as the Lloyd’s of London market reports updated statistics on the development of hull business began ringing alarm bells.

The ‘T’ risk code triangulation shows that there has been a very large increase in loss ratios for the 2016 underwriting year and through the first half of 2017.

The incurred loss ratio has leapt from below 50 percent at the turn of the year to 65 percent at the end of the first quarter and 82 percent at the half-year.

This is the most severe deterioration that underwriters can recall, apart from 2011, the policy year of the Costa Concordia cruise ship disaster, when the loss ratio stood at 89 percent at 18 months development and a current figure of more than 112 percent.

“A 17 percent deterioration over a quarter is pretty well unprecedented,” a leading underwriter told TradeWinds. “You might expect 8 percent or 10 percent. Managements will be getting their microscopes out to take a close look at what’s happening.”

Hull business takes up to four years to develop fully, so there are plenty of incurred but not reported claims yet to be added to the 2016 account. It will be no surprise if the loss ratio ends above 100 percent.

A loss ratio of about 85 percent amounts to break-even, so it is clear that Lloyd’s is due to experience a big loss on hull business in 2016, after earlier losses on the 2015 and 2014 underwriting years, for which the loss ratios currently stand at more than 90 percent.

However, the 2013 year is looking profitable, with a loss ratio of just over 76 percent at the 18th quarter.

The ‘T’ risk code covers marine hull business written at Lloyd’s and is regarded as possibly the best indicator of how the hull market is performing.

Trieste-based Generali, which has been active in the London market for more than half a cen­tury, has written a share of the hull insurance on some of the most high-profile shipping losses of ­recent years.

It had a 3.34 percent share of the hull and increased value cover on the 114,000-gross-ton (gt) Costa Concordia (built 2006) which became a total loss after capsizing in January 2012, so would have paid out about $17mn on this loss.

Generali also had more than a 30 percent share of the hull risk on the 26,900-gt passenger ferry Norman Atlantic (built 2009), devastated by fire in 2014. It had a share of the ­insurance on the 171,000-dwt bulker Alexandros T (built 1989), which broke up off South Africa, and was part of the war-risks ­insurance consortium that covered the 319,000-dwt tanker Samho Dream (built 2002), hijacked in 2010 by Somali pirates and held for six months until ­released after payment of a hefty ransom.

Generali ranks as among the world’s top 10 insurance groups and by some measures is the third-largest. Italy has about a 4 percent share of the world hull market — well behind the UK with up to one-quarter and the Nordic countries with about 10 percent, three-­quarters of which is Norwegian.