Join our crew and become one of the 110,527 members that receive our newsletter.

maersk honam fire damage

Concerns Remain for Global Marine Underwriting, Says IUMI

gCaptain
Total Views: 32
April 26, 2019

Maersk Honam fire in the Arabian Sea.

The number of total losses among vessels over 500GT hit at a 20-year low in 2018 despite growth in the global fleet, according to the International Union of Marine Insurance.

Even so, the increased risk of large, more complex and costly claims has the potential to impact all marine underwriting sectors in 2019.

The insights were revealed by the IUMI at its Spring Conference in Hamburg earlier this month, which focussed on the current state of the hull, cargo and offshore energy insurance markets. The IUMI says that while, in general, major losses remain stable, the continued erosion of the global premium base means that attritional losses are becoming much more significant.

Although the global fleet continued to grow at around 3% last year, the number of total losses stood at a 20-year low. Only 21 total losses were recorded in 2018, continuing a general downward trend in total losses since 2010. The reduction was seen across all vessel classes, the IUMI data shows.

Serious casualties, excluding total losses, have stabilized over the past three years but are still higher on average than in 2014. The IUMI said there is likely to be a spike in Q1 2019 when numbers have been finalized. The IUMI defines serious casualties sinkings, groundings where hull damage has been reported, structural damage rendering the vessel unseaworthy, i.e. penetration of hull under the waterline, significant spillage of oil, severe fires causing damage, vessels towed into port, collisions where damage is reported, incident causing any significant delay.

A total of 900 incidents were recorded in 2018, representing 1.6% of the global fleet (or 1.2% in GT).

“We are pleased to see a stabilization in total losses and serious casualties and this is a clear indication of an enhanced safety culture, improved vessel design and more effective regulation across the industry,” said Rama Chandran, Chairman of IUMI’s Ocean Hull Committee. “Statistics show total losses of younger tonnage (<15 years) are dramatically lower in 2014-2018 than in 2009-2013. Underwriters welcome the industry’s overall improvement in safety but also recognise that increasing size, scale and complexity of new tonnage is affecting the current risk profile.”

“There is the potential for severe volatility in a conventional hull portfolio influenced by the continuing erosion of the premium base. Reduced asset values and reduced activity (in some sectors) has driven down premiums. As a result, the increased impact of attritional losses has become significant. This, coupled with occasional spike losses, is seriously affecting international underwriting results.”

“Going forward, our main concerns continue to be the accumulation of risks associated with large container vessels and, in particular, the risk of onboard fires. We are also focused on advances in digital technology – both in naval architecture and in vessel operations – and the ability of seafarers to effectively manage cutting edge technology and growing amounts of data. We are also likely to see increased machinery claims resulting from the 2020 sulphur limit”, said Chandran.

Cargo insurance

On the back of a slowdown in global economic growth, the WTO is expecting growth in global trade to scale back to 3.7% this year. As a result, the outlook for shipping is mixed, the IUMI says.

Container trade is expected to grow by 4.8% in 2019 against a fleet growth of just 2.6%, indicating a modest recovery in rates. However, factors such as a downturn in the economy, increased tariffs and rising fuel costs have the potential to put the brakes on any future upturn, according to the IUMI.

Dry bulk trades are forecast to grow on average by 3.2% against a fleet growth of 2.7% which bodes well for a modest uptick in rates this year, albeit from a low base, the union said.

Conversely, while demand for crude oil is positive, the amount being transported by sea is only expected to grow by 1.4% against a fleet growth of 4.7%. This, together with the current order-book and the impact of the impending environmental regulations, makes the outlook for tanker freight rates uncertain.

Cargo losses

Natural catastrophe losses in 2018 were lower than in 2017, but were still significant and included hurricanes Florence, Michael and typhoon Jebi. The fire on Maersk Honam in March 2018 is likely to be the largest General Average loss in history, the IUMI said.

The IUMI highlighted a growing concern in the recent spate of shipboard fires including Sincerity Ace, Yantian Express, APL Vancouver, ER Kobe and Grimaldi Grande America.

“Whilst IUMI cannot speculate on the causes of these fires, past issues such as cargo mis-declaration, improper packing, loading, labelling and shipping of hazardous cargoes are likely to be factors,” the IUMI stated.

Other significant issues have included loss of containers overboard, notably the more than 300 boxes lost from MSC Zoe in the North Sea.

Offshore Energy

Higher oil prices have encouraged a general upturn in offshore activity levels during the early part of 2019. According to Clarkson Research, rig utilization increased by 3% in 2018; jack-up use rose by 7% but floater activity dropped by 5% despite nearly 40% of the floater fleet having been retired since 2014.

The IUMI says this increase in rates and consequent activity has had an accretive effect on the insurance sector as there are now more projects to insure. However, much of the capex has been directed at US shale projects where insured values are considerably lower than those seen offshore.

“Day rates for offshore assets such as floaters and jack-ups remain significantly below their peaks due to an ongoing supply/demand imbalance,” said Chair of IUMI’s Offshore Energy Committee, James McDonald. “This affects our sector as premiums are linked with asset values which are influenced by day rates. Scrappage and an uptick in usage should help ease this situation going forward, however.”

“Many of the world’s fixed platforms are operating well beyond their original design life and, although many have benefitted from life-extending work, there is no real data available to help us assess the level of risk. This is a concern for underwriters. That said, the projected high level of decommissioning for old, fixed platforms could present us with future opportunities,” McDonald added.

Offshore losses

Low activity and improved safety working practices continue to drive down attritional losses. This trend might reverse as activity picks up. 2018 was one of the quietest in recent times for large losses. There were nine serious incidents involving MODUs in 2018 and 61 reported outages in offshore fields – the majority of these incidents were in the North Sea and the amounts involved are thought to be manageable.

Unlock Exclusive Insights Today!

Join the gCaptain Club for curated content, insider opinions, and vibrant community discussions.

Sign Up
Back to Main
polygon icon polygon icon

Why Join the gCaptain Club?

Access exclusive insights, engage in vibrant discussions, and gain perspectives from our CEO.

Sign Up
close

JOIN OUR CREW

Maritime and offshore news trusted by our 110,527 members delivered daily straight to your inbox.