The Construction mining market sector remains very competitive and soft, with no signs of a significant change going forward.
There were questions over what impact the recent insurer mergers would have on capacity, for example the XL / Catlin and ACE / Chubb deals, but so far there is no reason to believe such deals will reduce capacity enough to affect rates.
Overall capacity continues to increase in the construction market, with some of the larger insurers looking to write larger lines and increase their share.
Interest rates remain low, making insurance an attractive home for capital. Consequently, new insurers continue to enter the construction market, with no sign of a reduction in the appetite of underwriters for construction risks. New markets entrants are competing hard to grow their portfolio whilst established markets are reacting defensively to retain their market share. This has resulted in more market options being available to insure construction mining projects both above and below ground.
London insurers also face competition from overseas domestic markets, including recent changes to insurance regulations in overseas territories, such as West Africa (an area which has seen a rise in the number of new gold mining construction project enquiries), whereby local insurer retention levels are increasing, which can lead to reduced reinsurance orders for London and European markets.
Most of the mining construction projects seen in the London market recently have been in Africa, South America, Eastern Europe and Canada, and these have been quite small (USD 50 to 500 million contract values). Unless projects are in difficult jurisdictions, have sizeable DSU components, or are lender driven on the market financial security required, then the smaller projects can be placed in the local insurance markets, without the need to approach London/European markets.
However, despite this competition, insurers in the London market have maintained underwriting discipline in respect of scope of cover and retentions, compared with previous soft markets. Opportunities for profitable growth are reducing, however, and the pace of rate decreases over the last few months has slowed.
Although some insurers have been affected by large man-made losses, such as the explosions in the Chinese port of Tianjin, there is also a feeling that the absence of natural catastrophic events disguises the underlying inadequacy of premium rates and their sustainability over the longer term.
Despite the fact that large scale multi-billion dollar mining construction projects have been declining, over the last three years the market has enjoyed a sustained period of good underwriting results and has supported the influx of new capacity entering our market. Therefore, the construction market remains a market which is committed to ensuring healthy competition exists, whilst simultaneously providing a high level of service and cover to our mining clients.
Tip for buyers
Think beyond the market cycles. Client engagement with insurers can suffer in a soft market, but try to maintain relationships with insurers because insurers respond more favourably to clients that actively build a long-term relationship.
This market update is part of a 10 part series. A PDF of all 10 articles will be available after publication.
For further information, please contact Hugh McManus, Partner, JLT Construction on +44 207 558 3248 or email firstname.lastname@example.org