SOURCE: LLOYD’S LIST
Friday 07 April 2017, 05:14
by Wei Zhe Tan
MARINE insurers and underwriters will continue to face challenges in the days ahead as major vessel casualties ticked higher over 2016, said the International Union of Marine Insurance. It noted that the frequency of major vessel casualties increased for the second straight year.
However, in hull insurance, the number of total vessel losses from 2000 onwards had maintained a downtrend into 2016, except for a slight rise in 2015. The union said that overall, a number of markets had seen a fall in the frequency of claims though the average cost of claims increased.
It noted that the key causes of total losses to 2015 were related to adverse weather conditions, while frequency of losses resulting from vessel groundings or damaged machinery were increasing faster than any other cause.
The next most cited causes of losses were fire and explosion, though those had been relatively stable since 2006.
“It was thought that recent increases in total losses caused by machinery damage may have been a reflection of reduced asset values and the consequent increase in constructive total loss risk following major damage.”
In energy insurance, IUMI said the major declines seen in offshore oil and gas related operations, little in the way of infrastructure expenditure and lower drilling activity ate into the limited premium base.
A silver lining was higher North American land rig usage in the shale basins.
As for the mobile sector, there were concerns that the reactivation of rigs after a long lay-up duration could affect attritional claims.
However, IUMI thinks the increased number of rigs being scrapped could improve the age profile of the mobile rig fleet.
A dearth of activity for the oil platforms sector led to lower than average attritional claims, though the amount of significant losses remained above historical trends.
This is a crucial aspect for the industry as the premium base has shrunk by at least two thirds.
“More worryingly, it was thought that maintenance and [health, safety and environment] budget trimming by oil companies might soon filter through to the claims figures,” said IUMI.
As for cargo insurance, IUMI said accumulation losses on board vessels and in ports were still a cause for concern for underwriters amid ever larger vessels with huge cargo loads.
The latest ultra large container vessels have capacity of up to 20,000 teu with possible cargo values of $985m.
In 2012, the 2001-built, 6,750 teu MSC Flaminia suffered a fire, and it had a cargo value of $115m, the union said making a comparison.
It pointed out that accumulation risk in Chinese ports in particular could be even higher, with estimated values of cargo throughput at Shanghai around $1.6bn per day, $5681m at Shenzhen and $477m at Tianjin.
“The explosion at Tianjin in 2015 also resulted in a significant loss but might have been much worse. The total cargo estimated to be on board the 754 ships in the port on the day of the incident would have amounted to more than $53bn,” IUMI said.
Looking ahead, IUMI said the offshore sector would see a further deterioration before any possible light at the end of the tunnel, with the premium base having fallen drastically.
“Marine risks continue to grow both in size and complexity and it is vital that underwriters fully understand the potential losses that they are being asked to insure. It is gratifying to see the year-on-year decrease in total losses, but we must take particular notice of the recent increase in major casualties and the reasons for this,” said IUMI Facts & Figures committee chairman Donald Harrell.
“The disaster in the port of Tianjin in 2015 serves as a reminder of the growing accumulation risk that continues to dog our sector and one that will only intensify over the coming years. As marine underwriters, we must continue to innovate and provide cost-effective insurance solutions to enable seaborne trade to continue without interruption.”