Export growth may herald end to soft market, but risks abound. By Peter A. Buxbaum, AJOT The cargo insurance market has always been highly competitive. But the downturn in international trade volumes of the last few years has seen the market go unprecedentedly soft. As a result profit margins for cargo insurers have been shaved right down to the bone. Murmurs of an economic recovery provide some hope for the market, as do increases in export volumes. Recent progress in the settlement of trade disputes also provide encouragement, indicating that free trade may continue to flow in a world seemingly on the brink of acerbic trade wars. But it will require sustained global economic growth before the cargo insurance market makes a comeback. “The trend is not your friend,” said John Gambino, a divisional vice president at Great American Insurance Group, a New York-based insurer. “The state of the insurance market is as soft as soft can be.” Cargo insurance rates have plummeted by 50 percent or more over the last five years. “Five years ago what shippers paid one-hundred thousand dollars for coverage now is going for forty- to fifty-thousand,” said Gambino. “That means an insurance carrier is going from a 40-percent to a 60-percent loss ratio. We’re going from a profitable book of business to just scraping along.” Besides the downturn in international trade volumes, the insurance market has also softened due to a surge in new capital coming into the market looking for risks to insure. “Even before the stock market crashed we saw a lot of capacity in the form of start-up companies form Bermuda looking for an insurance vehicle and they came into the maritime cargo market,” said Gambino. “I don’t know what their financial plan is. They’re going into an overserved market and they’re getting business by cutting prices. I don’t know how they that explain that to their investors.” The growth in United States exports brought about by a weaker dollar may be a good sign for the domestic cargo insurance market but it is by no means a panacea. “Is it an early harbinger of economic recovery? Have we totally turned the corner? I would think there is room for debate on that issue,” said Gambino. “The boys in Washington want to see growth in exports and to reduce the trade deficit. Maybe keeping the dollar weak is a good thing.” The increases in exports have appeared primarily in the area of bulk commodities, according to Ed Wilmot, vice president of the ocean marine division at Great American Insurance Group, but so far it has not impact insurance rates. “We are seeing more bulk commodities being exported, especially to China,” he said. “That translates to more finished products coming back out. “But so far as far as I can see this hasn’t hit the market for cargo insurance,” he added. “It is till extremely competitive, in fact it is so competitive that we don’t touch a lot of it because we feel it is not properly priced, but we are a very conservative company.” Gambino frets about the potential for trade wars between the United States and its European and Latin American trading partners as representing a potential damper on the continued growth in U.S. exports. “There seems to be a real political brouhaha going on between the United States and Europe over tariffs and penalties,” he said. “It almost seems like the early stages of a trade war. There was also the decision by the World Trade Organization finding that the U.S. subsidized cotton exports and leading to retaliation by Brazil.” Brazil won its case over U.S. cotton subsidies before the World Trade Organization last year, giving it the right to impose trade sanctions against U.S. products. Earlier this year, the Brazilian government published a list of over 100 U.S. products that will be subject to increased tariffs totaling $591 million beginning April 7. The products effected include automobiles, wheat, milk powder, cotton, and cotton products. The Brazilians have also proposed suspension of intellectua