The International Union of Marine Insurance (IUMI) has noted an ongoing increase in the frequency of major vessel casualties, while also observing that rising energy claims were coinciding with a reducing premium base. The increased cargo accumulation risk onboard vessels and in port continued to challenge marine insurers.
Statistics released at the International Union of Marine Insurance (IUMI) Annual Spring meeting in Hamburg last week raised “a series of issues that will continue to challenge marine underwriters for the foreseeable future”, according to IUMI.
In the Hull sector, the frequency of major vessel casualties rose again last year for the second year in succession. There had been a year-on-year decline until 2015, but that year saw a sharp upturn, which continued last year.
However, the trend in total vessel losses from 2000 onwards continued its downward trajectory through to 2016, notwithstanding a minor uptick in 2015. Many markets were reporting a reduction in frequency of claims, but an increase in the average cost of the claim.
The main causes of the total losses up to 2015 were weather-related but recently losses caused by grounding or machinery damage were increasing in frequency faster than any other cause. This was followed by fire and explosion, which has remained largely constant since 2006.
IUMI said that the recent increases in total losses caused by machinery damage could have been a reflection of reduced asset values and the consequent increase in constructive total loss risk following major damage.
In the Cargo sector, accumulation losses both on board ship and in port continued to cause concern for cargo underwriters, said IUMI, noting that ULCCs were capable of carrying 20,000 TEU, with a potential cargo value estimated at $985m. Put in context, MSC Flaminia, which suffered a fire in 2012, carried a cargo valued at $115m.
Accumulation risk in ports was also increasing. It was estimated that the value of cargo throughput at Shanghai could reach $1.6bn a day, at Shenzhen $681m and at Tianjin $477m. The total cargo estimated to be onboard the 754 ships in Tianjin port on the day of the 2015 explosion and fire that severely damaged property landside was more than $53bn.
Donald Harrell, Chairman of IUMI’s Facts & Figures committee said:
“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.”
In the Energy sector, a significant drop in offshore activity, with very little infrastructure spending coinciding with reduced drilling activity, “significantly depleted an already limited premium base”, said IUMI. However, a positive factor in energy was an increase in North American land rig utilization in the shale basins.
In the mobile sector, concerns were raised over re-activation of rigs after a prolonged period of lay-up and the potential impact on attritional claims activity. However, IUMI felt that “the current spate of rig scrapping should improve the general age profile of
the mobile fleet.” The low day rate environment reduced asset values, which impacted negatively on insured values.
For platforms, IUMI said that lack of activity had meant that attritional claims costs were below the historical trend, but the number of significant losses were above that trend line. IUMI felt that this was particularly worrying, “given that the premium base had dwindled by at least two-thirds”. Trimming in maintenance and HSE budgets by oil companies might soon filter through to the claims figures, IUMI warned. www.iumi.com (password required for full statistics access)