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Today’s Business Context

Today’s Business Context

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Today’s Business Context

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  1. Today’s Business Context Nic Wilmot The Nordic Association of Marine Insurers 1

  2. Zooming in – where in the galaxy will we be exploring • Business context is a very large galaxy • We cannot look at all of it so we need to know where we are and • We need perspective

  3. A question of perspective Cefor Hansteens gt 2, Oslo

  4. Business context is a very broad subject: • We have looked at: • Global trade history and present • History of marine insurance • Later we will look at: • Marine insurance markets • Legal and regulatory framework • Business context could include much more e.g.: • Shipping markets not forgetting the cruise industry • Transport and logistics – the basic value chain • Ship technical - Ship management • Flag state and ship registration • Ship finance, International Law of the Sea, etc. etc.

  5. Our perspective is insurance and as we have already seen we cannot talk about insurance without talking about risk

  6. Contents • The concept of risk • Risk in the shipping industry • Rocknes – a major casualty • Insurance as a risk management tool

  7. Risk is the potential for: • loss or failure to meet business objectives • as a consequence of • internal or external events • Something, in fact lots of things, might go wrong

  8. Why the concept of risk is so fundamental • Where there is life there is risk • The future is uncertain – the best laid plans …. • The defining characteristic of a capitalist economy is the way it handles risk • Capital markets should more correctly be called risk markets • The most important strategic decision for any business is how it should manage risk in its broadest sense

  9. Risk distribution UNACCEPTABLE SEVERITY TRANSFER RETAIN & CONTROL ACCEPTABLE PROBABILITY/FREQUENCY

  10. Risk – Threat and Opportunity Equity, loan and insurance capital • have different functions • accept different risks • expect different rewards Risk and reward are correlated Key to your success Understanding and managing your chosen areas of risk

  11. Content • The concept of risk • Risk in the shipping industry • Rocknes – a major casualty • Insurance as a risk management tool

  12. Shipowner’s risks Market risk Strategic risk Credit risk Risk management Financial risk Event risks Organisational risk Operational risk Legal risk Source: Drewry Shipping Consultants Ltd

  13. Shipowners’ risks BACK-UP Risk Type Examples Strategic risk Market risk Credit risk Financial risk Operational risk Legal risk Organisational risk Sovereign risk Loss of key partners Company reputation risk Loss of competitiveness Uninsurable/unhedgeable risks Freight market Liquidity risk, market depth, basis risk Clearing Income stream/Cash Flow risk Accounting- related risks Capital costs risks Transport chain and customer issues Ship-focused operational areas of risk Insurance IMO and ”Global” issues Developing issues in IMO Other regulatory issues Personnel Systems risk War and terrorism risk Political risk Business culture risk Flag states Charterers, customers, suppliers Derivatives, S&P Norwegian Futures and Option Clearing House (NOS) Charterers, customers Currency risk, interest rates Mark-to-market, tonnage tax regimes Orderbook, loans, mortgages Manning, criminalisation, R&M, victualling H&M, P&I, US Oil Poll., FD&D, War SOLAS (ISM and ISPS), STCW, Marpol Ballast water, demolition, PSSAs, arrest, flag states Anti-money laundering, FSA rules, corruption Loss of key personnel, manning IT Trade, human trafficking, drug issues, piracy Source: Drewry Shipping Consultants Ltd

  14. VLCC, high last 12 m, 75 000 Difference: 50 000 VLCC, low last 12 m, 25 000 Source: Platou Spot rate risk is significant for a shipping company…

  15. …and huge compared to claims risk:Payback time for a claim if spot rate is at median level • Shipowner with 1 ship 100 ships • Median claim: 32 000 USD 15 hours 10 min. • 90 % Percentile: 200 000 USD 4 days 1 hour • 99 % Percentile: 2 000 000 USD 40 days 10 hours • 99.9 % Percentile: 11 000 000 USD 7 months 2 day

  16. Why then should shipowners choose to transfer casualty risks? • Because: • they don’t want to compound the market risks they have accepted - market and casualty risks can cumulate • casualty risks compromise much more than just damage to their vessel • vessels in a large fleet may have different ownership and financing arrangements

  17. Contents • The concept of risk • Risk in the shipping industry • Rocknes – a major casualty • Insurance as a risk management tool

  18. Even the best can be hit by the worst Need for effective claims handling to manage and mitigate losses

  19. The moments of a maritime casualty Relationship to authorities Death and personal injury Loss or damage to vessel Media handling Loss of income Reputation Maritime casualty Environmental damage Care of next of kin and survivors Damage to third party property General average and salvage Emergency response Wreck removal Normalisation of situation

  20. Illustrative example - Rocknes • Capsized off Vatlestraumen after hitting a submerged rock • 18 people lost their lives • Massive pollution • Vessel and special purpose equipment severely damaged • Cargo lost • Losses in total excess of USD 170 million

  21. The first 45 minutes • 16:30 Rocknes capsizes in Vatlestraumen. • 17:00 Jebsen in contact with H&M claims leader, Norwegian Hull Club and P&I Club, Gard. • 17:00 onwards emergency procedures activated • by all parties concerned. • Red alert!!

  22. The next 2 hours • 17:15 Red alert!! – Gard Mobilisation • 17:55 12 staff in contingency room. In operation. • 18:45 Liaison from Gard at Jebsen’s office. • 18:50 Liaison from Gard at Bergen Police Office. • 19:30 3 staff despatched to Bergen by chartered airplane. Arrive Jebsen’s office at 23:30. • Contingency room manned at all times next 48 hours • Corresponding procedures activated at Norwegian Hull • Club

  23. Liaison our member and handle media Priorities Pri 1 Human Pri 2 Pollution Pri 3 Property

  24. When the alarm bell sounds…The human element

  25. Situation on 19th January • 3 Dutch, 8 Filipino and 1 Norwegian survived • 3 crew members immediately found dead • 15 crew members missing • It is estimated that on 19th January, 600 persons were involved in the rescue operation

  26. Missing/Dead Survivors Relatives Emotional Practical Strategic

  27. When the alarm bell sounds …ROCKNES - Pollution response

  28. Emergency pollution response Fisheries Dept. Coastal Directorate HQ Horten Coastal Directorates Operations Centre, Bergen (Haakonsvern) Harbour Master in Bergen Local operation centre: Harbour Masters office (Bergen) Suppliers Oil protection equipm. / Tugs / Specialist vessels Site leaders Local councils Bergen Fjell Askøy Øygarden

  29. Division of labour between public and private sectors • Shipping industry provides • Finance through insurance and fund conventions • Organisation of own responsibilities, salvage agreements • On site participation • Command structures for its sphere • Public sector provides • Funding of resources and equipment • Rescue and pollution clean up services • Command structures