2012 Global Marine  Insurance Report Astrid Seltmann

Vice chairman IUMI Facts and Figures Committee 1 Analyst/Actuary @ Cefor, The Nordic Association of Marine Insurers

Global Marine Insurance Report 2012 • Global Marine Insurance – Overview • Cargo – market & results • Hull – market & results (with some words on major losses...) 

• Offshore Energy – market & results ____________________________________________________________

• Underlying Data – for download   (Premium by country, Loss ratio triangulations)

Global Marine Insurance Report 2012

• Global Marine Insurance – Overview • Cargo – market & results • Hull – market & results (with some words on major losses...) 

• Offshore Energy market/results

New this year (1):

• Latin America – fully covered via ALSUM (Latin American Marine Underwriters Association)

• Middle East – improved data via GAIF  (General Arab Insurance Federation)

• Asia – data of non‐IUMI countries included  (research from official sources)

New this year (2): Further premium increase due to:

• UK/Lloyds – Gross premiums (previously net) • UK/IUA – 2011 premiums reflect market better (more realistic market coverage, based on recent income study)

Global Premiums: «complete» world income (?)  (some estimates & parts of central Africa missing) __________________________________________________________________

• Offshore Energy Loss ratios – include liability 

Marine Premium 2011 – by region Total: 31.9 USD billion  Actual increase 2010 to 2011:  +7%

New countries New countries

New countries

Check download for marine premiums by country. 

Marine Premium 2011 – by line of business Total:  31.9 USD billion

P&I Clubs International Group Gross Calls (premium) 2011 – Operational location Source: International Group of P&I Clubs

stable up 8% up 9% up 6%                    up 4%

Global Marine Insurance Report 2012 • Global Marine Insurance – Overview • Cargo – market & results • Hull – market & results (with some words on major losses...) 

• Offshore Energy market/results

Cargo Premium 2011 – by region

Total: 17.2 USD billion Actual increase 2010 to 2011: +9%

Cargo Premium 2011 – by markets Total: 17.2 USD billion

** ** includes proportional

and facultative reinsurance

Cargo Premium  World Trade Volume & Trade Values  400%

Index of evolution, 1995 = 100% 350%

World Trade Values

300% 250%

World Export Volume

200%

Global Cargo Premium

150% 100% 50%

After 2009 upswing in trade, but still unstable market conditions.

Some cycle irregularities due to exchange rates.

Source: World Trade Values: IMF

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

0%

USD Exchange rate index against selected currencies  180%

Index, 2000 = 100% 160%

140% EUR 120%

GBP JPY

100%

NOK

80% Since Financial crisis less correlation between rates

60% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Norges Bank Exchange Rates Statistics,  Exchange rates as of December each year, 2012 as of June 2012

Cargo – Gross*  Ultimate Loss Ratio  Underwriting  years 1996 to 2011 140% 120%

2011:  Starts high at 72%,  may end at 74%.  No technical profit.

Data from:  Belgium, France, Germany, NL, Italy, Spain (no update 2011), UK, USA (2010 Japan tsunami affected mainly Japanese market)     

100%

..and 2012?

80%

Since 2007:  Deterioration of  results .

60%

2002 to 2006:  Gross loss ratios  stayed below 60% ‐ technical profit.

40% 20%

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

0%

* Technical break even: gross loss  ratio does not exceed 100% minus  the expense ratio (usually 20%‐30%  acquisition cost, capital cost, management expenses) 

Cargo – Gross reported Loss Ratios Underwriting years 2004–11, as reported after 1, 2, 3, 4, 5 years     2011: Starts high at new maximum of 72%.

80%

2011

Recent loss ratio level

2004

70% 2005

2010: follows 2007/2008 pattern; passed 70%

2006

60%

Previous loss ratio level 50%

2007 2008 2009 2010 2011

40% 1

2

3

4

5

2007/2008: improved, but still at high levels > 70% Since 2007: Market changes demand adjustment of claims reserves => Change in typical pattern

Summing up Cargo  2011 Premium growth reflects upswing in trade  Commodity prices rising, stock througput programs expanding  (US), but economical environment remains unstable.

 Increase in claims reserves – change in pattern 2007/2008 improved later, but loss ratios stay high.

 2011 Loss ratio starts at new maximum of 72%

Impact of Natural catastrophes (Thailand floods), more general  average claims, increasing acquisition costs.

 Claim cost unlikely to decrease

Increased accumulation risk, moral hazard, theft frequency,  natural catastrophes. Sanctions and piracy still a concern.

Global Marine Insurance Report 2012 • Global Marine Insurance – Overview • Cargo – market & results • Hull – market & results (with some words on major losses...) 

• Offshore Energy market/results

Hull Premium 2011 – by region

Total: 8.3 USD billion Actual increase 2010 to 2011: +1%

Hull Premium 2011 – by markets Total: 8.3 USD billion

** ** includes proportional

and facultative reinsurance

* * Norway, Denmark,  Finland, Sweden  

Hull Premium World Merchant Fleet 250%

Index of evolution, 1995 = 100%

Gross tonnage (> 300 GT)

225% 200% 175% 150%

and  2012?

Average insured vessel value (Cefor ‐ renewals & newbuilds) Global Marine Hull Premium

125% 100% 75%

No. Ships (> 300 GT)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

50%

Sources:  Insured vessel values: Cefor – Nordic Marine Insurance Statistics as of 30 June 2012;         No. Ships & tonnage: ISL Bremen

Change in insured values on renewed vessels by year of renewal (= insured value on renewal / insured value previous year)

Average annual change in insured values on renewed vessels

15.0%

10.0%

Decrease in insured  values continues

8.3%

7.0%

5.4%

5.4% 5.0%

2.4%

2012

-3.2%

-5.0%

-7.3%

-10.0%

-15.0%

2011

2010

2009

2008

2007

2006

2005

2004

0.0%

-9.2%

-14.5%

-20.0% Source: Cefor - Nordic Marine Insurance Statistics as of 30 June 2012

Hull – Gross* Ultimate Loss Ratio Underwriting years 1996 to 2011

“Actuarial nonsense”, based on pre‐Costa Concordia data…: 140%

Data from:  Belgium, Germany, France, Italy, NL, Nordic, Spain (no update 2011) ,UK, USA  

120% 100%

Hull – 2009 to 2011:  Some improvement  compared to peak  years 2006‐2008. But: Claim cost and  loss ratios stay at  high levels, some  increase since 2009.

80% 60%

2011: Similar to 2010.

40%

No technical profit. 20%

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

0%

* Technical break even: gross loss  ratio does not exceed  100% minus  the expense ratio (usually 20%‐30%  acquisition cost, capital cost, management expenses) 

Hull – Gross Ultimate Loss Ratio Underwriting years 1996 to 2011

… and real life: with total losses 1 Q 2012 – the true picture? 140% 120%

Data from:  Belgium, Germany, France, Italy, NL, Nordic, Spain (no update 2011) ,UK, USA  

100%

2012: strong total loss  impact (on uw  years 2011 & 2012) Costa Concordia: Carnival Corporation  & PLC website:  508+17 MUSD from  H&M insurance. (2Q financial report,  issued 02.07.2012)

80% 60% 40% 20%

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

0%

...and more total  losses in excess of  30 MUSD did incur  1st half 2012  (partly attaching to  uw year 2011).

Hull – Gross* Reported Loss Ratio  Underwriting years 2003‐2011, as reported after 1, 2, 3, 4, 5 years 90%

Recent loss ratio level

2003

2011: starts at normal level.

80% 2004 2005

70%

Previous loss ratio level

2006

2007

60%

2008 2009

50%

2011

2010 2011

40% 1

2

3

4

5

2009-2010: Price-driving factors return to ”normal” levels, but no stable environment. 2010 strong increase. 2006-2008: Repair cost driven up by changing frame conditions => Change in claims pattern

Hull – Gross* Ultimate Loss Ratios  Underwriting  years 2003‐2011 – estimated development towards ultimate 110%

2011 – new heights?

100%

2003 2004

90%

2005

80%

2006

2007

70%

2008

60%

2009

50%

2010 2011

40% 1

2

3

4

5

2011: Unprecedented total loss impact – loss ratio may reach new heights. 1st half 2012: Increase in no. of losses xs 30 MUSD. Impact on underwriting years 2011 and 1012.

Summing up Hull (1)  Frame conditions – still unstable

Steel prices / repair yard capacity / exchange rates / commodity  prices / vessel utilization /newbuildings / world trade / Euro crisis... Influence • Income (ship values) • Cost (claim frequency/repair cost).

 Repair cost / Claim frequency – Stabilize

But: catching up of trade/higher utilization rates may cause repair  cost to rise again

 Major claims – strong impact 1st half 2012  Unprecedented costly event  Increase in total loss frequency 1st half 2012   Continuing downturn in insured values creates more  constructive total losses

Summing up Hull (2)  Hull technically at loss for 16 consecutive years!  Future Global Hull Market:  Understand dependencies between macroeconomic  parameters and repair cost  Models to estimate expected claim cost (=risk premium)  Trade / Fleet development   Market discipline / capacity  The impact of major claims Understand the actually covered exposure

Global Marine Insurance Report 2012 • Global Marine Insurance – Overview • Cargo – market & results • Hull – market & results (with some words on major losses...) 

• Offshore Energy market/results

Major losses 2012

« The Economist » June 9th‐15th 2012 

29

Major Hull losses 2012

30

Major claims in % of ship values by calendar year of occurence

Cost of maximum three claims  in % of total insured value 0.20% as of 30 June 2012

0.15% 0.10% 0.05%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

0.00%

Source: Cefor – Nordic Marine Insurance Statistics as of 30 June 2012 Figures reflect 100% of all vessels, not the share written in a specific market.

Average insured value Claim cost in % of total total insured value Claim per Sum Insured Watch your Exposure  – one Costa Concordia can  & Average Sum Insured double the cost relative to the total insured value     40,000,000

0.450%

35,000,000

0.400%

30,000,000

0.350% 0.300%

25,000,000

0.250% 20,000,000 0.200% 15,000,000

0.150%

Average Sum Insured

excluding total losses

2012

2011

2010

2009

2008

2007

2006

2005

0.000%

2004

0

2003

0.050%

2002

5,000,000

2001

0.100%

2000

10,000,000

including total losses 32

Source: Cefor Nordic Marine Insurance Statistics as of 30 June 2012; Figures reflect 100% of all vessels, not the share written in a specific market

Can it get worse...?

Increasing vessel size  Increasing value accumulation per vessel

Global Marine Insurance Report 2012 • Global Marine Insurance – Overview • Cargo – market & results • Hull – market & results (with some words on major losses...) 

• Offshore Energy market/results

Offshore Energy Premium 2011 – by markets Total: 4.5 USD billion Actual increase 2010 to 2011: 11% (new)

* * includes proportional and

facultative reinsurance

No data: Kazakhstan.

Offshore Energy Premium  Energy mobiles, Day rates, Oil Price 500% 450%

Index of evolution, 2000 = 100%

400%

Average Day Rates

350% 300%

Global Offshore Energy Premium

250%

Oil price, Brent Crude

200% No. Contracted Rigs

150% 100% 50% 2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

0% Sources: No. Contracted rigs, day rates: RigZone, Oil price: Energy Information Administration (US), 2011 figures as of 31.07.11

Offshore Energy – Gross Reported Loss Ratios including liability (new!) – Underwriting years 1996 to 2011 As of December 2011: 350%

2005 Katrina & Rita

300%

outstanding

2009-11 no paid 12th year major hurricane paid 11th year 10th year activity, paid but…

250%

Soft market

200%

2004 Ivan

paid 9th year paid 8th year

2008 Ike

150%

paid 7th year paid 6th year paid 5th year

100%

paid 4th year paid 3rd year

50%

paid 2nd year paid 1st year

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

0%

Summing up Offshore Energy  Volatile business, strong hurricane impact – less in recent years.  Long time lag between accident and claims payment (due to technical complexity of the insured objects)

 No regular claims patterns.  (Claims reserves set according to knowledge about individual claims). 

 Recent development:    Reduced hurricane impact (2012 Hurricane Isaac:  first Gulf of Mexico hurricane in four years, little impact on results)

 Increasing frequency of large single loss events  (physical loss and liability)

 Events with high liability cost in 2009 and 2010  2011: two losses xs 300 MUSD (Gryphon Alpha, Banff)  2012: one loss xs 300 MUSD     (KS Endeavour)    

Thank you!

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