IMO Sulphur Cap May Generate a Spike in H&M Claims

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WMN… There is a concern that the incoming IMO sulphur cap may generate a spike in hull and machinery (H&M) claims, especially linked to machinery breakdowns, the International Union of Marine Insurance (IUMI) said in its 2019 statistical report.
The report, launched last year, aims at presenting a range of statistical data to help define the situation in the marine insurance market.
The warning comes in less than a month before the regulation mandating the current maximum fuel oil sulphur limit of 3.5 weight percent (wt%) be cut to 0.5 wt%, enters into force.
The regulation will see the largest reduction in the sulphur content of a transportation fuel undertaken at one time.
Even though the IMO is standing its ground on the implementation date, there is a veil of uncertainty with regard to the availability of compliant fuels, their reliability and numerous other issues regarding enforcement of the regulation.
In particular, fears have been raised that new fuel blends are likely to cause mechanical failures in ships jeopardizing the overall safety in the industry and causing disruptions to the global trade.
In addition, both operating costs and CAPEX are expected to rise with the implementation of the new regulation depending on whether shippers opt for more expensive low-sulphur fuel or installation of scrubbers or purchasing of LNG-fuelled vessels.
Major claims making a comeback
According to IUMI’s report, in 2019 major claims appear to be making a come back after three years of little impact in the hull sector.
The first quarter of 2019 was characterized by a renewed impact of major losses and especially a high number of fires on container vessels, the union said.
There is also an increasing risk of major losses occurring with unprecedented high single-loss costs due to larger vessel sizes, accumulation risk and new trading areas such as arctic sailings.
Global marine insurance premiums reached USD 28.9 billion for 2018 which represented a 1% increase on the 2017 number, marking a modest growth year-on-year, the report said.
IUMI, which represents 43 national and marine market insurance and reinsurance associations, said that the growth originated solely from the cargo sector, while the other sectors stagnated or were reduced further.
Changes to frame conditions are the most likely reason for the modest increase.
At the same time, the global premium base, particularly in the hull market, is showing signs of a modest recovery.
“It remains to be seen how the combination of a modest uplift in premium income in combination with a renewed impact of expensive single losses on the cost side will impact the results going forward. In short, the marine underwriting sector is characterized by uncertainty. At a macro-level this is created by political, economic and environmental factors; and at an industry level it is due to accumulations, a worrying and increasing incidence of major losses; and through a reactivation of the offshore sector.”
“The 2.5% increase in cargo premium appears to have been driven solely by growth in global trade. But even with this uplift, premium growth lagged behind the increase in transported values and an increasing exposure covered in terms of high-value single risks, value aggregation on single sites and extended coverages,” IUMI said.
“With significant challenges facing the market, this single percentage point rise does not demonstrate any real market improvement.”
An increasing share of the global marine business is being written from Asia, reducing the dominance of the European and, in particular, the London marine insurance markets.
Going forward, IUMI paints a gloomy picture for the future due to the continued downward adjusting of global trade growth.
Ongoing global uncertainties, including the current tensions in trade, will continue to impact all sectors but specifically cargo and offshore energy, the report continues.
“High levels of technical losses are likely to blight all sectors, particularly hull and cargo. Cargo is already suffering from the high impact of large event losses in recent years, and a normalization of the frequency of major hull losses after several relatively benign years is likely to make its presence felt. The underwriting markets continue to be characterised by high loss ratios,” IUMI said in a report, reports World Maritime News.

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