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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