WATERCRAFT

Rough Notes, Feb 2005 by France, Larry G

Insuring boats, personal and recreational watercraft, and yachts

"Four words for 2004: hurricanes, hurricanes, hurricanes ... hurricanes," said Gary Breese, ACAS, president of Trafalgar Marine Insurances Services, Inc. Breese explained that, put in the parlance of a catastrophe modeler, this was a "150-year event. In other words, statistically the odds of four significant hurricanes making landfall in one year are expected to occur only once in every 150 years. The impact to the yacht and boat insurance industry has been estimated to be approximately $680 million. This caused many marine insurers to reach their retention limits on their reinsurance treaties, thereby triggering their reinsurance coverage. Some of the larger companies hit their retentions several times due to the severity of this year's storm season."

After Breese made the above comments, the Midwest was hit with an unusual amount of snow in late December-in some cases approaching three feet. Several covered marinas in southern Indiana and western Kentucky collapsed. Initial damage is estimated in the millions. To paraphrase the late Everett Dirksen, senator from Illinois: "A million here, a million there, pretty soon you're talking about real dollars."

"As was true in the last hard market," Breese points out, "the reinsurers are expected to drive price increase going forward. The market may expect a drastic reduction of underwriting appetite and, ultimately, capacity for risks in the Southeast. An interesting development to watch as the reinsurance contracts are renewed will be the West Coast rates. Marine underwriters and actuaries will have to make a business decision as to whether they fully reflect the reinsurance cost increases in the Southeast and only raise rates there, or spread the increases nationally."

Breese notes that some markets may decide to become more competitive on the West Coast than before 2004 and may reduce rates, putting more pressure on the East and Southeast.

"The key to placing business in 2005 will be having the expertise to know exactly which companies offer the most competitive and appropriate coverage for each risk, wherever the risk is located."

"The envelope please"-what will the 2005 reinsurance treaties bring? Markets have suffered great losses and some have already discontinued writing new business. "The watercraft market has been severely impacted by Florida hurricanes. Several major watercraft carriers suffered serious losses which significantly affected their reinsurance cover," according to Joe Cecchini, CEO of Western Maritime Insurance Services. Cecchini agrees that the first-of-the year reinsurance decisions will give us an indication as to how the Florida hurricanes will affect rates on a national basis.

"The market currently is stable with no significant price increase anticipated, but only time will tell," says Cecchini. Two factors that may impact future watercraft sales are the economy and fuel prices. Cecchini says that the watercraft industry is anticipating a 15% increase in sales for 2005.

"The marine insurance industry is still absorbing the impact of the storms and the reactions are slow in becoming apparent," observes Timberlee Tamraz Grove, CPCU, president/COO of Markel American Insurance Company. "The response will likely range from a 'no change' to the most dramatic change, a withdrawal from the marketplace. Those with a status quo response are the well-positioned companies that have managed their exposures well and have reinsurance programs that support their strategy. They are looking at this as highly unlikely to happen again and are comfortable with their risk-reward positions historically. There is clearly justification and opportunity to take additional rate in any and perhaps all catastrophe-prone areas, and as the reinsurance industry will be taking increases, the primary carriers would be shortsighted not to ensure that the pricing makes sense going forward."

According to Grove, taking more rate, increasing the storm deductibles and limiting new business will likely be the most common response. "There are a few carriers who have already taken measures to reduce exposures or completely withdraw from the marketplace," she says. "Not too many will be interested in increasing their exposures accordingly, so unfortunately, there will be boat owners and yacht owners who will find themselves unable to meet their insurance needs."

It will most likely be well into 2005 before the unclear picture comes into focus.

Upcoming specialty lines subjects include specialty lines annual focus in March; the hospitality industry-hotels, bars and restaurants in April; and special events-insuring promotions, contests, tourneys and prize indemnification in May.

The following have responded to our survey and indicated that they are a market for watercraft. Please note the target classes and classes not written for each entity.

Agency Marketing Services, Inc.

P.O. Box 67218

St. Pete Beach, FL 33736

Contact: John Coe, Michelle Horak, Jayne McKeehan