The Facts and Figures Committee - Chairman’s Report 2005

President, Members of the Executive Committee, Ladies and Gentlemen – Good morning.

On behalf of the Facts and Figures Committee, it is once again my pleasure to present the Chairman’s Report and the IUMI Report on Marine Insurance 2004.

The objective of the IUMI Facts and Figures Committee is to provide the IUMI Conference with updated shipping industry key data as well as an overview of trends in the marine insurance market. We trust that the statistics that I will present to you shortly are increasingly meeting this objective. The committee is also responsible for planning and implementing the first Open Forum (or Workshop) of the Conference.

During the past year, the Facts and Figures Committee met in Rome on March 7th in order to prepare for this year’s Conference and to analyse the feedback and lessons learned from Singapore.

The Facts and Figures Committee are: Jens Schildknecht (Germany), Andrea Cupido (Italy), Jim Craig (USA), Cédric Charpentier (France), Pamela Frood (UK/IUA), Simon Stonehouse (UK/Lloyd’s), Astrid Seltmann (Norway) and yours truly, who also have the pleasure of chairing the committee. I’d like to express my sincere thanks to each and every one of my colleagues on the committee for a job well done.

The presentation you are about to see follows the same general pattern as previous years. We have included a couple of new slides and we had hoped to also present statistics related to building risk claims in addition to large H&M claims and total losses. Unfortunately, we’re not quite there yet and are still looking at relevant sources of data and format of presentation.

A couple of notes before we move on to the details:

The general state of the shipping market is considerably down compared to last year. Day rates (according to Bassøe) for a VLCC are now as low as USD 30.000, dropping from a peak at USD 220.000 less than a year ago. A handysize (DWT 45.000) bulk carrier can now be secured at between USD 15 and 20.000 a day. Just a couple of years ago, the day rate was about three times as high.

Shipping is in other words on a lower gear than last year, will underwriters now increasingly pick up the claims after the boom? It remains to be seen, but we’ll keep a close look on the developments. What marine underwriters should be concerned with is the undercapacity of qualified deck- and machinery officers in today’s ocean going fleet. Claims from collisions, contacts and groundings are on the rise. A segment such as the LNG is still booming and quality is on average good. But the ships are in general old, they’re susceptive to fire and explosions and they suffer a blatant shortage of qualified seagoing personnel. Should marine underwriters be concerned? I think so.


We should also bear in mind that congestion in repair capacity and a significant increase in the price of steel leaves underwriters with a substantial increase in the costs of claims. The costs of steel repairs in China have tripled compared to just a year ago.

Last year when I presented the report of the Facts and Figures Committee, crude oil was trading at approximately USD 40 per barrel in the spot market. Today we are looking at oil prices in the region of USD 70 per barrel and going (it seems) for the 100 dollar milestone. For oil- and petroleum products, it seems the elasticity in demand is close to 0, but it isn’t 0. At a certain stage at a certain time, demand will begin to drop and the price of oil with it. When the world finds out that it can’t sustain the increasingly high cost of oil, demand and prices will begin to drop and so will the the need for transport of oil. We will face an overcapacity of oil, chemical and product tankers. Maybe we should bear this in mind when we plan and balance our portfolios.

Now a few comments on marine insurance rates.

Up until now we are increasingly seeing price differentiation or selective pricing in both the cargo, the H&M and the P&I markets and more prudent and careful underwriting by the decision makers. Leading players are selective with how and to whom they offer their capacity. A shipowner with a dubious record or a spotted claims sheet will in the present market have difficulties in placing his insurances. This will be further accentuated by the effects of Hurricane Katrina (and you will no doubt hear more about her later in this conference).

Although we’re still not in a situation to accurately assess her impact, the insured losses of Katrina have been estimated anywhere from USD 25 billion to USD 50 billion (and even above). This would make Katrina the costliest hurricane ever to hit the US, surpassing even hurricane Andrew which caused an adjusted USD 21 billion in insured losses in 1992. At least twenty offshore oil platforms have gone missing, sunk or gone adrift according to the US Coast Guard. One oil rig, in dock for repairs before the storm, broke loose and hit a road bridge over the Mobile River in Mobile, Alabama. Two others went adrift in the Gulf of Mexico, but were rescued. One platform, originally located 20 km off the Louisiana coast, washed up onshore at Dauphin Island, Alabama.

The Royal Dutch Shell MARS platform, producing around 147,000 barrels a day was severely damaged.

The direct effects of Katrina will thus naturally be in the energy- and offshore segment of the marine market. The Joint Rig Committee in London have stated that Katrina is likely to have such a dramatic effect that London underwriters may stop writing business in that area all together and that rates will certainly increase substantially.

We’re already seeing the catastrophe retrocession market hardening and property reinsurance, direct US property and energy will follow.

Preliminary and early estimates by Swiss Re expect their share of claims in the region of USD 1 billion. Thus, any signs of a general softening in the direct marine market are now gone with the wind, i.e. Katrina.

Before we move to the IUMI Report on Marine Insurance Premium 2004, I’d just like to mention that the Committee has also been working quite hard in putting together an Open Forum with invited guest speakers. Following my presentation, we will hear Dale Andrew of the OECD addressing the driving forces in world trade. We will then have Michael Parker of Citicorp at the rostrum, speaking on management of financial risk by shipping capital providers. And finally, Rolf Tolle of Lloyd’s will address the management of insurance risk for the shipping market.

But for now, on to the statistics!