AIMU Reports On Hull Insurance Market At Annual Conference

The effects of a continued worldwide s h i p p i n g depression, rising ship repair costs, and the instability in international currency relationships have all played a part in stalling the long-awaited recovery of the world hull insurance markets.

This was the view of William J. Bradford Jr., chairman of the Ocean Hull C o m m i t t e e of the American Institute of Marine Underwriters (AIMU), expressed in his report to the Ocean Hull Committee of the International Union of Marine I n s u r a n c e (IUMI), which held its annual conference in Vienna last month.

Mr. Bradford reported that one of the root causes for the difficulty facing all marine underwriters is the breadth and depth of the shipping depression, now in its fifth year.

"The financial plight of the worldwide s h i p p i n g community has been well publicized, and the past year has seen several instances of reorganization, consolidation or disposition of fleets.

This state of affairs has resulted in ever-increasing pressure for reduced insurance costs. Unquestionably, the restructuring of the world merchant fleets will continue." Cost of Repairs At the same time, Mr. Bradford noted that hull repair costs have risen to a point where routine maritime accidents are now regarded as major casualties.

Commenting generally in this area, Mr. Bradford reported that the United States Salvage Association (USSA) sees the world ship repair market as disorderly and unpredictable. USSA points out that shipbuilding programs have dropped precipitately during 1977. Further, ship repair volume is off considerably, as well. On the other side, new ship repair facilities have come on line, and some building yards have sought to convert t h e i r f a c i l i t i e s for repair work. The interaction of these conditions produces the confused market.

Mr. Bradford reported, however, that further observations from the USSA give cause for some hope, in select cases. He noted that income from ship repairs is becoming increasingly important to every country with sizable facilities. Bidding and prenegotiation can often result in drastically reduced prices, particularly for owners of large fleets.

The occasional large bottom damage which has been bid has been seen to result in very significant savings to underwriters.

Still focusing on the cost of repairs as c o n c e r n s American marine insurers, Mr. Bradford offered data supplied by United States Salvage. Using 1968 United States Atlantic Coast (excluding New York and Boston) levels as base 100, the following increases were developed (1977 increases followed in parentheses by accumulated e i g h t - y e a r increases): Atlantic Coast — 8 percent (244 percent) ; New York/Boston—8.5 percent (296 percent) ; Pacific Coast—8 percent (294 percent); Gulf Coast—8.5 percent (250 percent), and Great Lakes—6 percent (305 percent).

Currency Problems Another concern for U.S. Marine Underwriters, according to Mr. Bradford's report, is the instability in international currency relationships, especially with respect to vessels which repair abroad and claim under dollar policies.

"The matter is being watched," he reported, "though our underwriters are not as yet convinced that the dislocations are sufficiently fixed as to warrant action, if indeed any real c o r r e c t i o n s could be accomplished in the face of present world insurance market conditions." Although worldwide ocean hull insurance experience continued to be less that satisfactory in 1978, Mr. Bradford noted that the run off of domestic underwriting results continues generally satisfactory, due largely to the claims reserving procedures advocated in this market.

If properly employed, he maintained, these procedures virtually assure adequacy of reserves from the outset. The foreign-flag fleets, however, continue to run off very poorly with substantially heavier payments as claims are settled.

Claims Experience Regarding U.S. hull claims experience during the past 12 months, the largest casualty involved the collision of the sister vessels Venoil and Venpet, off the coast of South Africa near Capetown.

Other major casualties included two LASH vessels — the Robert E. Lee and the Delta Norte, both hit with equipment failure. Another involved the dry cargo vessel Pioneer Commander stranded during a thick fog in the eastern end of Pentland Firth, North Scotland.

In summing up the U.S. marine hull insurance market's experience during the past 12 months, Mr. Bradford saw American underwriters as continuing their efforts to rebuild and maintain an orderly market. In this effort, he concluded, these u n d e r w r i t e rs recognize that pressures would be exerted against their hull books, and that the loss of some accounts would follow their decisions not to accept business offered at levels below the margin of their underwriting judgment. This loss of business has indeed been felt, but underwriters are satisfied that it will be recovered in time.

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