GIRO Conference and Exhibition 2012

Juggling uncertainty the actuarys part to play

Wednesday 19th September 2012

2012 The Actuarial Profession www.actuaries.org.uk

GIRO Conference and Exhibition 2012

Global Statistics from the International

Union of Marine Insurance Facts and
Figures Committee

Darren Farr, R&Q / Skuld 1897

2011 The Actuarial Profession
www.actuaries.org.uk

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This is about Marine Insurance, so there will be none of this .

those these gals are okay!

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AGENDA

IUMI and the Facts and Figures Committee

Report on World Merchant Fleet and World Trade
Global Marine Insurance Report

International Union of Marine Insurance (IUMI)

o Founded in 1874.
o A professional NGO run by and for its members.
o Members are:
national insurance associations;
marine insurance associations; and
marine professionals.
o Provides an important forum to discuss and exchange ideas of
common interest to marine (re)insurers.
o Enables views and ideas on matters of marine (re)insurance to be
disseminated to all interested parties including NGOs, IGOs, and the
shipping industry.
o Dedicated to maintain and expand international trade. 6

3
 IUMI Facts & Figures Committee
o Created in 2002.
o Provides IUMI with
updated shipping and marine insurance key data and statistics;
and an overview of trends in these industries.
o Provide marine insurers with risk data to improve the decision making
processes in risk pricing and risk transfer.
o Industry reports are presented twice a year:
In September (at the annual IUMI Conference) and in March.
o As well as Casualty and Exposure statistics produce:
Global Marine Insurance Report
Global Shipping Market Trends
7
Ship Repair Cost Index

The following presentations are abridged versions

presented yesterday at the IUMI Conference in San Diego.

where its 30oC and

but they dont have

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 Report on World
Merchant Fleet and World
Trade

(abridged)

Facts & Figures

Country data collection 2012 2011 Premium

Premium volume of all countries covered in 2011:

31.9 billion USD
10

5
Macroeconomic environment

Emerging economies
Recessionary forces generally faring
in Europe have better than
intensified developed

Economic recovery in
US continues

Global economy has slowed; policy easing underway and

more stimulus may be required to kick-start growth.

11

Macroeconomic environment

Industrial Production Index

Weakness in Europe impacting on economic activity in emerging economies.

Source: Datastream

12

6
Macroeconomic environment

Real GDP growth rates by region (forecasts)

Real GDP growth

12%
10%
United States
8%
Euroland
6%
United Kingdom
4%
Japan
2%
South & East Asia
0%
2009 2010 2011 2012 2013 2014 World
-2%
Brazil
-4%
China
-6%
India
-8%

Pace of recovery likely to remain modest and significant near-term downside

risks.
Source: Swiss Re Economic Research & Consulting

13

Macroeconomic environment

Inflation (CPI) forecasts

CPI inflation
14%
12%
10%
United States
8%
Euroland
6% United Kingdom
4% Japan
2% Brazil

0% China
2009 2010 2011 2012 2013 2014 India
-2%
-4%

Inflation likely to remain well contained (despite recent food price rises).
Source: Swiss Re Economic Research & Consulting

14

7
Macroeconomic environment

Export Volume Index

Gradually showing up in moderating export volume growth

Source: CPB (Netherland Bureau for Economic policy analysis

15

Macroeconomic environment

Volume of world merchandise exports

1990=100 Export volumes

400

350
Export volume Trend (1990-2007)
300

250

200

150

100

50

0
1990 1993 1996 1999 2002 2005 2008 2011

GDP is to slow further which will keep the level of world exports well below pre-
crisis trend
Source: WTO Secretariat

9/17/2012 16

8
Shipping market

Fleet Capacity
Tanker Fleet Bulkcarrier Fleet Containership/MPPs Fleets Deliveries Scrapping
36'000 2'250

32'000 2'000

28'000 1'750

24'000 1'500

No. of Vessels
20'000 1'250
DWT

16'000 1'000

12'000 750

8'000 500

4'000 250

0 0

2012*
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011
*2012 data is year-to-date.
Source: Clarkson Research, August 2012

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Shipping Market

Average Age of the World Fleet 2000-2012

Total Tanker Bulkcarrier Containership/MPP Gas Others
26

24

22
Average Age

20

18

16

14

12

10
Jan 00
Jul 00
Jan 01
Jul 01
Jan 02
Jul 02
Jan 03
Jul 03
Jan 04
Jul 04
Jan 05
Jul 05
Jan 06
Jul 06
Jan 07
Jul 07
Jan 08
Jul 08
Jan 09
Jul 09
Jan 10
Jul 10
Jan 11
Jul 11
Jan 12
Jul 12

Source: Clarkson Research, August 2012

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9
Shipping Market

Freight Rates
20000

15000

10000

5000

0
Jan 2008 Jul 2008 Jan 2009 Jul 2009 Jan 2010 Jul 2010 Jan 2011 Jul 2011 Jan 2012 Jul 2012

Baltic Panama Index Baltic Supramax Index Capesize

... and freight rates remain low.

Source: Bloomberg

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Shipping Market

Freight rates are still suffering and are slightly below historical average rate due to
the higher cost basis for shipowners

Current newbuildings orderbook still suggests significant capacity to come on

stream in the future even if there's a considerable uncertainty (possible
cancellations and delays)

Bulkcarriers average age dropped from approximately 14 years on January 2010 to

10.5 years on July 2012

Vessels' demolition rate is still high compared to 2011 for both tankers and bulk
carriers

Shipping market uncertainty remains

linked to macro-economic scenario

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10
Outlook for the marine insurance industry

weak and often negative growth

risk of inflation

low interest rate environment

further instability in the Euro zone

21

Conclusion

22

11
 2012 Global Marine
Insurance Report

(abridged)

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Global Marine Insurance Report 2012

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)

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Marine Premium 2011 by line of business

2011
Total: 31.9 USD billion
14.2%
26.2%
5.7%

Global Hull

Transport/Cargo

Marine Liability

Offshore/Energy
54.0%

Cargo Premium 2011 by region

Middle East 6.1% Africa

3.1% 2011
North America
5.1%
Latin America Europe
10.5% 42.3%

Asia/Pacific
32.9%

Total: 17.2 USD billion

Actual increase 2010 to 2011: +9%

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 Cargo Premium 2011 by markets
Total: 17.2 USD billion Belgium Brasil China
2011 2.1% 4.2%
9.0%
Other markets France
33.1% 5.0%

Germany
7.0%

Italy
2.9%

USA
4.5% Japan
UK (Lloyds) ** 11.4%
Mexico
6.8% UK (IUA) Spain Russia Nordic Netherlands 2.0%
** includes proportional 1.6% 2.9% 2.2% 3.0%
and facultative reinsurance 2.3%

Cargo Gross* Ultimate Loss Ratio

Underwriting years 1996 to 2011

140% 2011:
Data from: Starts high at 72%,
Belgium, France, Germany, NL, Italy, Spain (no update 2011), UK, USA may end at 74%.
120%
(2010 Japan tsunami affected mainly Japanese market) No technical profit.
100%

..and 2012?
80%
Since 2007:
60% Deterioration of
results .
40% 2002 to 2006:
Gross loss ratios
stayed below 60% -
20% technical profit.

* Technical break even: gross loss

0% ratio does not exceed 100% minus
1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

the expense ratio (usually 20%-30%

acquisition cost, capital cost,
management expenses)

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Cargo Gross reported Loss Ratios
Underwriting years 200411, as reported after 1, 2, 3, 4, 5 years

80% 2011:
Starts high at new
2011 maximum of 72%.
Recent loss ratio level
2004
70% 2010:
2005 follows 2007/2008
pattern; passed 70%
2006
60% 2007/2008:
2007 improved, but still at
Previous loss ratio level high levels > 70%
2008
50% Since 2007:
2009 Market changes
demand adjustment
2010
of claims reserves
2011 => Change in typical
40%
pattern
1 2 3 4 5

Summing up Cargo

2011 Premium growth reflects upswing in trade

Commodity prices rising, stock throughput 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.

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 Hull Premium 2011 by region

North America Africa

Middle East
0.9% 2011
Latin America 5.3% 1.4%
5.0%

Europe
Asia/Pacific 54.1%
33.2%

Total: 8.3 USD billion

Actual increase 2010 to 2011: +1%

Hull Premium 2011 by markets

Total: 8.3 USD billion
2011 China
Other 10.6% France
25.8%
6.1% Italy
4.5%
Japan
8.3%
USA
4.3%
Korea, Republic
3.5%
UK (Lloyds) ** Netherlands
4.3%
14.8%
** includes proportional UK (IUA) Spain Nordic *
and facultative reinsurance
3.5% 3.1% 11.1% * Finland,
Norway, Denmark,
Sweden

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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%

Decrease in insured
10.0%
7.0%
8.3% values continues
5.4% 5.4%
5.0%
2.4%

0.0%
2004

2005

2006

2007

2008

2009

2010

2011

2012
-5.0% -3.2%

-7.3%
-10.0% -9.2%

-15.0%
-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
140% 2012:
Data from: strong total loss
Belgium, Germany, France, NL, Nordic, Spain (no update 2011) ,UK, USA impact (on uw
120%
years 2011 & 2012)
100%
Costa Concordia:
Carnival Corporation
80% & PLC website:
508+17 MUSD from
H&M insurance.
60% (2Q financial report,
issued 02.07.2012)
40%
...and more total
losses in excess of
20% 30 MUSD did incur
1st half 2012
0% (partly attaching to
1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

uw year 2011).

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Hull Gross* Reported Loss Ratio
Underwriting years 2003-2011, as reported after 1, 2, 3, 4, 5 years

90%
2011:
Recent loss ratio level
2003 starts at normal level.
80%
2004 2009-2010:
Price-driving factors
2005
70% return to normal
Previous loss ratio level 2006 levels, but no stable
environment.
2007 2010 strong increase.
60%
2008 2006-2008:
2009 Repair cost driven up
50% by changing frame
2011 2010 conditions => Change
in claims pattern
40% 2011
1 2 3 4 5

Hull Gross* Ultimate Loss Ratios

Underwriting years 2003-2011 estimated development towards ultimate

110%

2011 new heights? 2003 2011:

100% Unprecedented
2004 total loss impact
90% loss ratio may
2005 reach new heights.

80% 2006
1st half 2012:
2007
70% Increase in no. of
2008 losses xs 30 MUSD.
Impact on
60% 2009 underwriting years
2011 and 1012.
50% 2010
2011
40%
1 2 3 4 5

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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

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Major losses 2012

The Economist June 9th-15th 2012 39

Major Hull losses 2012

40

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 Average insured value
Claim cost in % of total total insured value
Watch your Exposure
Claim per Sum Insured
one Costa Concordia can
& Average
double the Sum
cost relative Insured
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%
10,000,000 0.100%
5,000,000 0.050%
0 0.000%
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012
Average Sum Insured excluding total losses including total losses
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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

21
Offshore Energy Premium 2011 by markets

Japan
Other
Total: 4.5 USD billion
2011
2.8% Actual increase 2010 to 2011: 11%
Nordic (new) Italy 10.0%
3.0% India 2.1%
2.9%
UK (IUA)
3.5%
Malaysia
4.0%
UK (Lloyds)
Nigeria 58.1% *
4.2%
USA Brasil * includes proportional and
facultative reinsurance
4.6% 4.8%
No data: Kazakhstan.

Offshore Energy Gross Reported Loss Ratios

including liability Underwriting years 1996 to 2011
As of December 2011:
350%
2005
300%
Katrina & Rita
outstanding
2009-11 nopaid 12th year
250%
major hurricane
paid 11th year

Soft market 2004 activity, paid

but 10th year
200% paid 9th year
Ivan paid 8th year

150%
2008 paid 7th year
Ike paid 6th year
paid 5th year
100%
paid 4th year
paid 3rd year
50% paid 2nd year
paid 1st year

0%
1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

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 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

Further details at
www.iumi.com
and
http://www.iumi.com/index.php/committees/fa
cts-a-figures-committee/statistics

46

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Questions?

47

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