Growth at Steamship in 2021/22, but CR remains above 100%, and investment return goes negative

A combined ratio of 113% and a negative investment return of $2.8m meant that Steamship Mutual’s free reserves declined by $37m to $474m in 2021/22, following a $4m decline the previous year.

Owned tonnage rose to 110.2m gt, from 95.7m gt the year before, and gross premiums written rose to $308m, from $284m. The combined ratio improved to 113%, from 125% in 2020/21.

CEO Stephen Martin said in the Club’s Management highlights that, “despite the challenges of the pandemic, which has not disappeared, and the continuing high levels of Pool claims, Steamship Mutual remains in a strong position, with substantial free reserves and a growing membership”.

Chairman Armand Pohan noted that during 2021/22 the Club continued to experience the effect of the worldwide pandemic. However, claims attributable to Covid were significantly lower than in the preceding year. This reflected in part improved management and experience of such cases and continuing reduced activity in some sectors such as passenger vessel operations.

Pohan said that, following the invasion of Ukraine by Russia and the subsequent sanctions imposed, that “the identification of sanctioned vessels, and trades, presents particular challenges to both Members and Club. We expect there to be increasing focus upon the enforcement of such measures”.

Steamship said that its GT by vessel type was now:

Bulk carrier 34%
Tanker 22%
Container 26%
Cruise & Ferry 10%
General cargo 5%
Other 3%

Head of Underwriting Gary Field noted that, following Steamship’s implementation of a 12.5% general increase for 2022/23, the club achieved bout 11.8% on renewing business. The effect of increased deductibles and changes in conditions amounted to a value equivalent to 3.25% of premium.

“While the Club did not manage to reach renewal agreement with a small number of Members, more than 99% of the Club’s membership renewed”, said Field, noting that numerous new business enquiries were considered but that “the Club declined to offer terms for the vast majority of the new business it was shown and ultimately 5m GT and $9m of premium on a net basis joined the Club on the owned side”.

On the large claims side, Steamship said that large crew claims saw a 55% year on year reduction by value. In the cruise sector no reported claims were in excess of $1. Below this threshold, claim numbers and values were generally aligned with 2020.

In cargo there was a slight increase over the previous year, with eight large claims in cargo valued at $8.24m in total. One of these claims was caused by an engine room fire and made up about 58% of this total. There were three incidents linked with mechanical breakdowns that represented a further 20% by value of large cargo claims in 2021. In two instances the breakdowns led to power outage on reefer units, resulting in cargo deterioration. Another reefer cargo large claim was linked with the ongoing issue of delays due to container port congestion. The remaining incidents involved poor cargo ventilation, container stack collapse during heavy weather and, in common with last year, a further instance of hold flooding due to the failure to properly resecure a ballast tank manhole cover.

On the chartered side there were five large claims in 2021, all below $1m in value. The largest, making up 40% of the $2.4m total, concerned cargo deterioration due to a combination of inherent high moisture content and inadequate ventilation during carriage. The next significant claim concerned hull damage after a vessel mistakenly overloaded at its berth grounded shortly after departure. The final three cases all involved fires – one in the engine room, one involving self-combustion of a coal cargo and the final incident was caused when on-deck welding inadvertently ignited a nearby timber cargo.

For FFOs, there were seven large claims in the fixed and floating objects category, and one in “other” which also concerned damage to third party property. FFO claims in excess of $250,000 totalled $10m and represented 18% of the total large claim exposure by value and 13% by number. This compares with four large claims in 2020 (but eight in the 2019 policy year). Only one fixed and floating object claim was estimated in excess of $1m. At $7.5m it represented 13% of the overall large claim exposure by value. That claim concerned damage to a subsea cable as a result of the vessel dragging anchor. “With one exception, all claims in the category in excess of $250,000 involved one or a combination of poor handling, excessive speed and positioning errors”, said Steamship.

On the crewing side, the number of large crew claims fell slightly compared with 2020. In terms of severity there were no claims in excess of $1m, compared with six such claims the previous year. Nonetheless, the large crew claims for 2021 still made up nearly 15% of the overall total, with a combined value of $8.37m. The broad categories were:

  • 27% of claim by number and severity arising from line handling and lifting injuries
  • A further 25% of claims by value were illnesses that could have been identified had a more comprehensive PEME been performed.
  • Finally, there were four claims that concerned COVID outbreaks and three arising from crewmembers sustaining injury following a slip and/or fall..

There was one large injury claim, for $335,000. This involved alleged wash damage from the entered vessel alleged to have caused the capsize of a small fishing boat, with injury to a number of the occupants, although the instability of the other vessel seemed to be the primary cause, said Head of Claims Charles Brown.

There were two large pollution claims, making up 2% of overall claim exposure for the year. Both concerned tank overflows during loading, one where the wrong valve had been opened allowing diversion of bunkers into the wrong tank. In both cases there was evidence of poor monitoring by the crew of the rising tank levels.

There were nine large collision claims, with a total value of $21.5m, representing 38% of the total large claim exposure by value and 17% in number. This compares with only one large collision claim, valued at $500,000, the previous year (which represented only 2% in number and 7% in value of large claims that policy year). Five claims were estimated in excess of $1m. At $19m these five claims represented 89% of the total value of large collision claims, but only 56% in number. Large collision claims were higher in frequency and severity than previous years, illustrating volatility in this claim category. It was noted that two incidents recorded in these figures, and one estimated at excess $1m, involved crew and third-party injury elements as a result of the collision. Three of those claims in the category of excess $1m involved collisions in traffic separation schemes or restricted waterways, and in two of those cases the collision was caused or contributed to by mechanical failures. “As is too often the case navigational errors and poor lookout and communication did contribute to the majority of incidents giving rise to claims in excess of $250,000, in two of these instances pilots were on board,” Brown observed.

Finally, as in the previous policy year, 2021 saw a further large wreck removal claim following a container stack collapse. The required salvage operation to recover the lost boxes from the seabed was valued at $3.35m. There was one further incident of lesser severity after the grounding of a dumb barge during bad weather. Brown observed that wreck was another volatile category. These two incidents made up just over 6% of the 2021 large claim exposure by value.

Sanctions

The Club observed that the sanctions landscape had continued to evolve, notably in relation to Russia, Venezuela and new measures targeting activities such as election interference and cyber-related crimes. There had also been an escalation of sanctions as between the US and China, affecting in particular activities involving Chinese State-owned companies. During the course of 2021, China implemented a number of legislative instruments, the purpose of which is to “block” or counteract the effect of US secondary sanctions.

Steamship warned that this raised “the possibility in the future of circumstances arising under which Members and/or the Club are faced with conflicting US and Chinese laws, and an unavoidable exposure to sanctions or other adverse penalties”.

This scenario already exists in relation to the differing approach to trade with Iran by the EU/UK on one hand and the US on the other. However, Steamship said that “given the significant economic and political influence of the US and China, and the number of recent trade and other conflicts between the two, the Chinese version of Blocking could have a much greater effect on global shipping activities”.

https://www.steamshipmutual.com/sites/default/files/medialibrary/files/Steamship%20Mutual%20Management%20Highlights%202022-23.pdf