Simon Stonehouse Hull Underwriter Brit Insurance plc
Issues IUMI Facts & Figures Shipping Climate Shipbuilding Fleet Crew Maintenance and Repair A few issues to watch out for!
Report of the Facts an Figures Committee Committee members Angelo Ansaldo Paul Buyl Cédric Charpentier Darren Farr Pamela Frood Patrizia Kern Henry Newman Astrid Seltmann Italy Belgium, replaced by Michel Van hoorickx France, Chairman UK Lloyd s UK IUA Switzerland USA, replaced by James Craig Norway / Secretary and Vice Chairman Simon Stonehouse UK Lloyd s, replaced by Philip Graham 3
2002-2007: strongest growth of GDP for the last 20 years, BRIC countries biggest contributors 700 600 EVOLUTION OF GDP FOR THE PERIOD 92-2007 FOR SELECTED COUNTRIES (index 100 in 92) China 658 500 Index 400 300 291 India 389 Russia 262 200 173 100 133 World 2 71 0 92 93 Source: ISL, UNCTAD, LMIU 94 95 96 97 98 99 2000 2001 2002 2003 2004 2005 2006 2007 4
which has led to a booming global trade in volumes 3 900 WORLD SEABORNE TRADE VOLUME Development 97-2007 (in million tonnes) - Growth rate 97-2007 Total World Trade 8 000 3 400 + 55% Major trades (mtonnes) 2 900 2 400 1 900 Other Cargoes Crude oil + 67% + 30 % + 77 % 7 000 6 000 Total World Trade (m Tonnes) 5 000 1 400 The 4 main Dry Bulk Cargoes* 900 4 000 97 98 99 2000 2001 2002 2003 2004 2005 2006 2007 *Iron ore, coal, grain, alumina Source: ISL, UNCTAD, LMIU 5
Demand for commodities reached sky high levels and led to strong rise in prices. 600 500 Index 2000 = 100 WORLD MARKET PRICE INDICES FOR SELECTED COMMODITIES Annual Average (93-2008) - Average in 2008 as at end of May 497 461 400 320 300 IRON ORE 250,1 200 COAL 161,3 100 CRUDE NON FER.MET AGRI RAW 0 93 94 95 96 97 98 99 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: ISL, UNCTAD, LMIU 6
Difficulties for the shipping market to absorb the booming global trade has led to massive increase in freight rates. 1400 Index 72 = 100 FREIGHT MARKET (indices by month) - YEARS 97 to 2008 (to May 2008) 1275 1200 1000 800 600 Time Charter Index (1 to 2 months) General Freight Index Grain Freight Index Miscellaneous Freight Index 842 791 677 400 200 0 97 98 99 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: ISL, UNCTAD, LMIU 7
The shipping market did react and increased massively transport capacity 80% 70% 60% 50% WORLD MERCHANT FLEET of ships of 300gt and over Evolution of the growth rates (GT, DWT and Number of ships) between 95 and 2008 mgt + 68% mdwt + 58% 40% 30% 20% mgt + 18.8% Nb ships + 23% 10% 0% mdwt + 14.2% Nb ships + 7.6% 95 96 97 98 99 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: ISL, UNCTAD, LMIU 8
thanks to new buildings delivery and postponing scrap. 100 000 World Tonnage Additions and Reductions 98-2007 (in mdwt) 90 000 80 000 70 000 Additions Reductions 60 000 mdwt 50 000 40 000 30 000 20 000 10 000 0 98 99 2000 2001 2002 2003 2004 2005 2006 2007 Source: ISL, UNCTAD, LMIU 9
Despite pressure on shipping, total losses show a positive trend 0,40% % of World Fleet 0,35% 0,30% 0,25% Total Losses in Nb versus Fleet 0,20% 0,15% 0,10% 0,05% Total Losses in GT versus Fleet 0,00% 94 95 96 97 98 99 2000 2001 2002 2003 2004 2005 2006 2007 Source: ISL, UNCTAD, LMIU 10
But serious losses show a very steep increase in number, well above fleet growth 1200 Number of incidents 1000 Total 800 600 400 Serious ex TL 200 Total Loss 0 94 95 96 97 98 99 2000 2001 2002 2003 2004 2005 2006 2007 Source: ISL, UNCTAD, LMIU 11
Prices of raw materials going down World trade of goods down in volumes and even more in values New buildings orders delayed or cancelled Freight rates sliding Possible increase of ships being laid up Uncertainties on future quality of world fleet Increase in number of attritional claims declared What change in our environment shall we expect and even started to notice? We must prepare for difficult times! Source: ISL, UNCTAD, LMIU 12
Global premiums reported 2003 to 2007 (accounting years) Reported change 2006->2007 Rough estimate of change 2006->2007 without exchange rate impact Global Hull Transport / Cargo Marine Liability Offshore / Energy 12.0% 11.7% 2.8% 2.5% 9% 5% 0% 0% 2007 2006 2005 2004 2003 Total 9.8% 5% 0 5000 10000 15000 20000 25000 USD (millions) Increase 01-04 & 05-07 partly due to weakening of USD against European and Asian currencies. Stagnation 05 due to strengthening of USD against major European and Asian currencies.
Global Marine Premium 2000-2007 (USD Million), as reported 25,000 20,000 Total 15,000 10,000 5,000 0 2000 2001 2002 2003 2004 2005 2006 2007 Accounting Year Cargo Hull Energy Liability
Marine Hull Evolution of Paid and Total Claims, Gross Premiums as reported, U/W Year 2000 to 2007 (USD) 000 SD 2000 underwriting year 3000 USD 2001 underwriting year 3000 USD 2002 underwriting year 3000 USD 2003 underwriting year 500 2500 2500 2500 000 2000 2000 2000 500 1500 1500 1500 000 1000 1000 1000 500 500 500 500 0 end of 2000 2001 2002 2003 2004 2005 2006 2007 2008 0 end of 2001 2002 2002 2004 2005 2006 2007 2008 2009 0 end of 2002 2003 2004 2005 2006 2007 2008 2009 2010 0 end of 2003 2004 2005 2006 2007 2008 2009 2010 2011 3000 SD 2004 underwriting year 3000 USD 2005 underwriting year 3000 USD 2006 underwriting year 3000 USD 2007 underwriting year 2500 2500 2500 2500 2000 2000 2000 2000 1500 1500 1500 1500 1000 1000 1000 1000 500 500 500 500 0 end of 2004 2005 2006 2007 2008 2009 2010 2011 2012 0 end of 2005 2006 2007 2008 2009 2010 2011 2012 2013 0 end of 2006 2007 2008 2009 2010 2011 2012 2013 2014 Blue line = Gross Premium; Red line = Paid Claims, Yellow line = Paid+Outstanding claims 0 end of 2007 2008 2009 2010 2011 2012 2013 2014 2015 Totals of 9 IUMI members Belgium, France, Germany, Italy, Netherlands, Norway, Spain, UK Lloyds, USA
Marine Hull Gross Loss Ratio paid claims, Actual and estimated towards ultimate 140% U/W Year 96 to 2007 120% 99 98 Technical break even is achieved when the gross loss ratio does not exceed 100% minus the expense ratio (between 20% and 30%, acquisition costs, capital costs and management expenses) 100% 80% 60% 40% 2000 2002 2007/2001 2006 2004 2005/2003 96 97 98 99 2000 2001 2002 2003 2004 2005 2006 2007 20% 0% 12 24 36 48 60 72 84 96 108 120 132 144 Ultimate Ultimates based on 10 IUMI members: Belgium, France, Germany, Italy, Netherlands, Norway, Spain, UK Lloyds & IUA, USA
New Construction Critical points for Underwriters Know the Class Society IACS Has class changed during construction or after delivery Know your Insured Was the vessel started on spec Has the owner monitored all phases of construction Know the yard Established or beach yard How many previous vessels of this type has the yard completed. 17
Summing up Hull Marine Hull 2004, 2005: Few major claims, but increase in average repair cost 2006: Increase in number and severity of major claims Trend towards higher attritional claims cost continues Strong impact on result by claims occured in 2007, but attaching to 2006 2007: Starts at high loss ratio level, expected to produce a technical loss again. Premium increases do not sufficiently balance cost inflation.
Issues Crew Social responsibility Repair and maintenance Salvage Credit Crisis Image of Shipping Insurance
Clarksea Index 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 90- Q1 90- Q3 91- Q1 91- Q3 92- Q1 92- Q3 93- Q1 93- Q3 94- Q1 94- Q3 95- Q1 95- Q3 96- Q1 96- Q3 97- Q1 97- Q3 98- Q1 98- Q3 99- Q1 99- Q3 20 00- Q1 20 00- Q3 20 01- Q1 20 01- Q3 20 02- Q1 20 02- Q3 20 03- Q1 20 03- Q3 20 04- Q1 20 04- Q3 20 05- Q1 20 05- Q3 20 06- Q1 20 06- Q3 20 07- Q1 20 07- Q3 20 08- Q1 20 08- Q3 $ Day
Values
Ship Building
Credit Crunch
The Fleet
Increase in Scrapping
Crew
Supply and Demand in 2005 Supply 000 Demand 000 Balance 000 Officers 466 476-10 Ratings 721 586 135
Supply and Demand in 2005 2005 000 % Surplus/d eficit 2015 000 Balance 000 Officers -10,000-2% -27,000-5.9% Ratings 135,000 % 167,000 21.6
Criminalisation Hero Criminal BA Air crash Hebei Spirit
Insurance
Summary Freight rates Ship Values under pressure Shipping at breaking point in every area Enhanced risk Crew Insurance capacity under pressure worldwide
Simon Stonehouse Hull Underwriter Brit Insurance plc