DAVID CAWDEARY: Welcome to the Q3 marketplace update from Willis Marine. I'm David Cawdeary, the marketing director for Global Marine, and I am today joined by James Reason, Head of Hull for Marine GB. Patrick Wilson, head of Special Risks, Marine GB. Alex MacInnes-Poole, director and Head of Broking for Cargo GB. Alberto Cavallo, head of placement for Specie GB, and James Ryan, Director of P&I. James, could I start with you, and could you give us some insight into the Hull market.
JAMES REASON: So I think it's fair to say the Marine Hull market remains overcapitalized globally, with strong competition still present in the London market. We're seeing clients continue to achieve good premium reductions from their incumbent insurers, and that's on all but pretty much the most claims impacted business. Of course, there's the possibility to achieve greater premium savings if clients are willing to re-market some or all of their placement.
However, what I would say is that at this point, as the market works through the soft underwriting cycle, it's clear that capacity and pricing are both readily available and competitive. But we are talking to clients and saying the importance now for buyers to consider their underwriting and claims partnerships as service underwriting expertise, and especially willingness to pay claims promptly still remain, in our view, key factors for clients when considering market selection. And I think that's irrespective of the phase of the market.
So looking forward, I think whilst established insurers and the new entrants come into the market, and these new entrants take the form of, yes MGAs are prevalent, but I think there's also this continuing to see established insurers branching out and coming into Marine Hull with new underwriting platforms. And these will continue to compete for market share.
In addition to that, of course, there's the auto follow capacity sector and the broker quota share facilities. And this space continues to develop and will add additional capacity. One of the benefits of the broker quota share facility sector, we are now seeing this bringing additional efficiency and discounting for clients during the placement process, which is a benefit.
So looking forward, what can we say? I think the market conditions that they're probably here to stay for at least the next 18 to 24 months. We do, however, that Lloyds has previously shown it will take action if certain specialty lines start to impact the financial stability of the brand, and Lloyds also has a focus across all lines of business on delegated authority underwriting platforms such as MGA. And these are particularly prevalent within Marine. However, I think there's still insurers looking to grow their account and underwrite through this cycle.
I genuinely believe at the moment, outside of a significant market event, I personally don't believe there's a Marine Hull event that can change the market. We see the Marine Hull underwritting cycle continuing in its current form, and that will be present for the cyber future.
DAVID CAWDEARY: Fantastic. Thank you, James. And over to you, Patrick. Could you give us an insight into the climate in Special Risks currently.
PATRICK WILSON: Thank you, David. So if we think about Special Risks as being threefold, firstly, Marine Liability, then Ports and Terminals, and finally Builders Risk. We'll start with Marine Liability. And after years of compound rate increases, the market is finally beginning to show signs of softening.
Rates have flattened for clean business that's presenting expiring renewal information or as expiring renewal information, with some clients beginning to see low single digit reductions, especially those with long term relationships with their carriers. Another avenue to reductions is a re-marketing activity, which are likely to see greater reductions.
It's worth noting that is at the expense of long term relationships which brings other possible benefits. The shift in the marketing environment really is driven by an increased capacity. There's new carriers that have come into the market and beginning to shake things up, but also favorable reinsurance renewals earlier this year that meant there wasn't a reaction on the front end for our direct clients.
The MV Dali bridge incident in Baltimore last year saw a small handful of markets presenting knee-jerk reactions in the form of hiking up rates, but it's going to take a number of years to settle and it's fair to say we have not yet seen the impact of this incident in the marketing environment and won't for quite some time.
US risks do remain slightly more challenging. Social inflation, nuclear verdicts being the hot topics, and we are still seeing nominal price increases for some of these accounts. Moving to the Ports and Terminals sector, slightly more dramatic shift here. Rates have fallen away quite significantly.
Really that's been driven by low catastrophe activity last year, but also a wave of new capacity, both in the form of syndicates and indeed MGAs. Similar to Marine Liability, re-marketing of accounts is delivering reductions and insurers are under significant pressure to defend their books with ever more competitive terms.
It's worth noting that with the cat season underway, the market is watching closely. Whilst it has been quiet at the time of recording, we are merely halfway through and there could still be a significant change should there be a large or a number of large windstorms. Finally, for the builder's risks sector, appetite remains exceptionally strong.
There is ample capacity. New MGAs entering the marketplace in the last 12 months have been a significant driver of this competition. Rates have continually softened and are quite possibly reaching an inflection point. Or put another way, some carriers are suggesting we may be reaching the bottom of the soft market.
For well-managed yards and a demonstrably strong loss experience, we continue to see very competitive client solutions and expect this to continue.
DAVID CAWDEARY: Patrick, thank you for that. Moving on to Cargo. Alex, Cargo, distinct within Marine has its own unique set of challenges. How is the market for you guys right now?
ALEX MACINNES-POOLE: Thank you, David. The London cargo insurance market continues to soften, extending the trend observed over the past two quarters. Average rate reductions hover around the -10% mark for well-performing accounts, but risks considered core or target appetite by underwriters are on occasions seeing significant multiples of this.
The drivers for this market softening, surging capacity, market capacity has ballooned to over two billion. A sharp rise from the 7 to 8 million observed over a few years ago. Lloyd's expansion, Lloyd's continues to approve new syndicates to enter the cargo market whilst allowing existing carriers to increase their line sizes, some nearly doubling their capacity.
MGA growth, an influx of MGAs is offering alternative placement options through a tiered leader versus follow structure is emerging amongst them. Competitive pressure also, insurers are chasing aggressive growth targets, spurred by strong profitability in the Marine Cargo sector over the past three years.
So what impact is this having for clients? Clients are benefiting from pricing relief after, in most cases, consecutive years of increases. This competitive landscape is giving assured's leverage in renegotiating terms amongst the backdrop of a real threat of replacing their incumbent panel members due to this surge in capacity in a relatively short space of time.
So what is the outlook going forward? This downward pricing trend is expected to persist and potentially intensify in Q4 as insurer top line budget pressures mount. Another benign East Coast US wind season will no doubt accelerate this.
As of yet, however, underwriter discipline and minimum rates and coverage remain intact for now, but this will be closely monitored by us brokers. This is all within the ever-changing and volatile political backdrop, where further flare ups may slow proceedings. But as we have seen, where global markets shy away, London continues to provide solutions.
DAVID CAWDEARY: Great. Thank you, Alex. Coming to you now, Alberto, how stable is the Specie market as we head towards Q4?
ALBERTO CAVALLO: Hi David, and thank you. The Specie market has seen a significant increase in market capacity over the past 12 months, and this is driven mainly by the launch of new MGAs and supported by notable turnover of underwriters, many of whom are starting in the next four months. We do expect this trend to continue into 2026.
In terms of coverage, the appetite is very strong. Coverage terms are broadening, with markets now offering conditions that weren't previously offered reflect a clear shift towards increased competition. When pricing alone is not enough to win business, markets are enhancing coverage to differentiate themselves.
We have seen a growing number of requests to include long term agreements within the policies. 2 or 3-year deals, often associated discounts if specific conditions are met, are included as well in the policy. In terms of pricing, renewal are generally flat, but where competition is present, we have observed premium reduction ranging between 10, 20%, occasionally even more.
In conclusion, we do expect the current trends to persist throughout Q3, Q4, and well into 2026. The market is becoming increasingly competitive, with new markets eager to build portfolios and establish syndicates focused on defending and consolidating their existing book. All these circumstances will likely benefit clients by intensifying competition across the market.
DAVID CAWDEARY: Thanks, Alberto. And last, but by no means least, James, coming to you. Could you let us a bit about how the P&I market is right now.
JAMES RYAN: Yeah, absolutely. Thank you, David. So as we touched on when we did our previous P&I podcast, there was a real resurgence in large claims in the 2024 policy, and we've seen that continue into 2025. As a result of these large claims, the overall P&I market have reported a combined ratio of 111%, which is deteriorated from 96% in the prior year. So you can see the impact of those claims.
Interestingly, there was a huge divergence in club underwriting results, implying that those that were hit by big claims had adverse underwriting results, while those clubs that missed the claims have reported more positive results.
Although despite the adverse underwriting results, the market has been somewhat saved by the positive investment returns, and the average market investment return was 5.9%, and this has led to an overall increase in free reserves of 3.2%, despite the adverse underwriting results.
So challenging results overall and in the lead up to the 2026 renewal, we're anticipating general increases ranging from 5% to just over 7.5%. From an international group reinsurance perspective, the Dali seems to be progressing positively.
We don't expect any nasty surprises, but you might have seen the recent X-Press Pearl ruling in Sri Lanka, where the authorities have ordered the owner to pay $1 billion in pollution compensation. So that has created some uncertainty around international reinsurance going into next year. But that's being closely watched and we'll see where that goes.
DAVID CAWDEARY: Thank you, James. Guys, thank you. We'll leave things there. So thanks again to James Reason, James Ryan, Patrick Wilson, Alberto Cavallo and Alex MacInnes-Poole. We will see you next time.
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