Recent Hull Claim Trends The cause of recent

Recent Hull Claim Trends The cause of recent claim trends: Crew, congestion and harder trade, or purely a matter of inflation? Astrid Seltmann CEFOR Analyst/Actuary Central Union of Marine Underwriters, Oslo, Norway

CEFOR – A Nordic Marine Insurance Association Members: Marine Lines: • • • Industriforsikring AS ocean hull & machinery (H&M) coastal H&M protection and indemnity (P&I) transport / cargo freight, defence & demurrage (FD&D) war risk

CEFOR Mission Statement: CEFOR shall secure the interest of our Nordic members by promoting quality marine insurance 4 Core Activities: - Product Development & Clauses - Statistics & Analysis - Industry Policy & Framework Conditions - Education

CEFOR Statistics & Analysis • Nordic Marine Insurance Statistics (No. MIS) – database for Hull & Machinery insurance – claims and premiums linked with ship details from LMIU and LR/Fairplay – data from underwriting years 1985 to 2008 – 122, 000 vessel years – 37, 000 claims – 25% of world fleet (by numbers) – 50% of world fleet (by tonnage)

IMSF 2008 - Recent claim trends Contents: 0. CEFOR overview & fleet 1. General claim trends 2. Special claim trends (including nautical, engine) 3. Cost-driving factors

0. The CEFOR Marine Insurance Market

0. CEFOR in the global context – Global Marine Hull Premium 2006 World CEFOR

0. CEFOR fleet - Number of vessels per type Total number of vessels 2002 -2006: 47, 171 2007: 11, 412

0. CEFOR fleet – Number of vessels per classification society Total number of vessels 2002 -2006: 47, 171 2007: 11, 412

0. CEFOR fleet – Evolution of average SI and Gross ton per vessel, by underwriting year

CEFOR General Claim Trends

1. General claim trends – Claim frequency, by underwriting year

1. General trends - Deductibles, by underwriting year

1. General claim trends – Cost per claim

1. General claim trends – Claim per vessel ?

1. General claim trends - Partial claim per vessel

1. Maximum individual claim

1. General claim trends – Claim bands by underwriting year

1. Claim per vessel – Quarterly development per underwriting year 20 07 ? New underwriting year = new record?

1. Partial claim per SI as per 4 th quarter against average SI development

Summing up general claim trends • • • Claim per vessel doubled since 2003 (both overall and PA claim alone) Increase in maximum individual claim 2007 worse than any previous year Increase in PA claim per Sum Insured Increase in claims of all sizes but stable frequency

CEFOR Special Claim Trends

3. a. General claim trends – Claims by type

3. a. General claim trends – Claims by type Good luck?

3. b. Nautical related claims – Frequency by type of claim, by date of loss

3. b. Cost per claim by type of claim – Nautical & Engine, by underwriting year Cost of grounding claims rocketing Change 2000 ->2007: +148% +123% + 89% + 15%

3. b. Cost per claim by type of claim – Weather -related, by underwriting year Change 2000 ->2007: +551% +528%

3. b. Nautical-related claims – Max. single claim

3. b. Claim per vessel by type of claim, by underwriting year Bad luck? Good luck?

3. b. Nautical-related claims – Frequency by vessel type No overall increase in frequency. Individual sectors with increase in number of groundings: Chem. /Product, OBO, Passenger

3. b. Nautical-related claims – Cost per vessel

3. b. Nautical-related claims – Av. claim cost Average claim up for all vessel types except Car/Ro.

3. b. Engine claims – Max. Individual claim

3. b. Engine claims Average engine claim up for all vessel types except tank.

Summing up special claim trends • • • Sharp cost increase of all claim types No frequency increase for any claim types Overall increase in claim per vessel for nearly all vessel types and claim types Congested waters, shortage of qualified crew, harder trade, etc. … => Should have had less homogenous effects and effected the frequency?

Cost-driving factors

3. c. Cost driving factors – Ship operating costs How Moore Stephens index of ship operating costs has increased. Ship operating costs continued on a relentless upward path through last year with the average increase across all vessel types running to 8. 5%. Tradewinds, 24 th September 2007

3. c. Cost driving factors – Exchange rates r e ak a r ke D US we D S U we - Hull policies / premium payments often in USD. - Repair costs paid in local currency at site of repair yard or affected by spare parts, labor costs etc. paid in other currencies than USD => weaker dollar = higher repair costs in USD

3. c. World Market Price Indices for selected commodities Annual Average (1993 -2006) – Average in 2007 as at end of May (*) Source: « Global Shipping Market Trends » , IUMI Conference 2007

3. c. World Trade Values Development 1996 -2006 (in million USD) – Growth rate in 2006 Total World Trade & Other cargoes Oil & Dry Bulk 2, 000 + 16. 9 % 12, 000 Crude oil and oil products The 4 main Dry Bulk Cargoes (Iron Ore, Coal, Grain, Bauxite/Alumina) + 27. 1 % Other Cargoes 1, 500, 000 Total World Trade + 15. 7 % 10, 000 1, 000 8, 000 500, 000 6, 000 + 14. 5 % 4, 000 1996 1997 1998 1999 2000 2001 2002 Source: « Global Shipping Market Trends » , IUMI Conference 2007 2003 2004 2005 2006 (*)

3. c. World Seaborne Trade Volume Development 1996 -2006 (in million tonnes) - Growth rate in 2006 Major trades Total World Trade 2, 900 +6% Crude oil and oil products 7, 000 +5% The 4 main Dry Bulk Cargoes (Iron Ore, Coal, Grain, Bauxite/Alumina) Other Cargoes Total World Trade 2, 400 +2% 6, 000 1, 900 +7% 43% growth in seaborne trade volume from 1996 -2006 1, 400 5, 000 4, 000 900 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 (*) estimates Source: « Global Shipping Market Trends » , IUMI Conference 2007 (*)

World Merchant Fleet of ships of 300 gt and over Evolution of the growth rates (GT, DWT, and Number of ships) between 1995 and 2007 70% 1, 009, 524 m. DWT 60% (+ 56. 4%) 50% 685, 738 m. GT (+ 48. 1%) 40% 30% 778, 758 m. DWT (+ 18. 8%) 20% 42, 872 ships (+ 18. 3%) 520, 913 m. GT (+ 14. 2%) 10% 39, 008 ships (+ 7. 6%) 0% 1995 1996 1997 1998 1999 2000 2001 2002 Source: « Global Shipping Market Trends » , IUMI Conference 2007 2003 2004 2005 2006 2007

3. c. Cost driving factors inflation index

Summing up cost driving factors ÷ ÷ ÷ ? ? Increase in ship operating costs Increase in steel prices -> repair costs Weakening of USD -> premiums paid in USD, claims affected by other currencies -> increase in repair costs (or reduced repair quality)? Increase in global trade volume and values -> ships driven harder, less time for maintenance – or compensated by a larger and more effective world fleet? Is slack and off-hire good…?

2007 CEFOR Nordic Marine Insurance Statistics – Part 9 As of 31 December 2007 CEFOR marine insurance statistics publications, all at http: //www. cefor. no : • CEFOR Annual Report 2007, p. 18 -25, Nordic Marine Insurance Statistics http: //www. cefor. no/news/CEFOR%20&%20 Annual%20 Report/CEFOR_Annual. Report 2007. pdf • The 2007 CEFOR No. MIS Report http: //www. cefor. no/statistics/documents/2007%20 CEFOR%20 The%20 No. MIS%20 report. ppt • The 2007 CEFOR Report on Hull claim trends http: //www. cefor. no/statistics/documents/2007%20 CEFOR%20 Hull%20 Claim%20 Trends. pdf Links to other marine insurance statistics: • CEFOR website, Statistics section: (CEFOR and IUMI statistics for download, including historical data) http: //www. cefor. no/statistics. htm • IUMI (International Union of Marine Insurance): Statistics issued by IUMI’s Facts & Figures Committee: http: //www. iumi. com/index. cfm? id=7165