Recession, Piracy Top the Agenda at Bruges Marine Insurance Conference

Marine insurers will wrestle with the devastating effects of the global recession and piracy when they gather in the picturesque Belgian city of Bruges through Sept. 16 for the 2009 annual conference of the International Union of Marine Insurance.

Foremost on the wide-ranging agenda will be the impact of the recession. According to Richard Close-Smith, executive director at Willis Marine, the recession has had a substantial impact on the shipping industry. "The first thing to consider is that the shipping markets have changed more in the past 12 months than in any other comparable period, thanks to the recession," he said. "We had a super-boom that lasted about four or five years, when shipowners enjoyed some exceptionally good times. Then last autumn things changed very rapidly and we've seen a huge fall in demand for shipping that has led to slow steaming or the laying up [mothballing] of ships like bulk carriers and container vessels. And I don't think that we've seen the worst of it yet."

Close-Smith said the shipping industry is also overhung by a record order book stretching out until 2012, as the boom times of recent years led to a rush to expand shipbuilding capacity. At present, many shipyards are involved in contract renegotiations with those who ordered these ships, as the latter try to reduce their commitments in the face of of the recession.

The recession has had another effect, according to Close-Smith. "Values have fallen dramatically. The value of a ship tends to reflect what it earns, and if this goes down then there should be a reduction in premium. Ships with lower values or which are in lay-up generate less premiums so the marine insurance industry has therefore been hit by the recession here, in addition to tougher capital markets and reduced investment returns."

The state of rating is another area that will be discussed by delegates at the conference. "At the start of this year the reinsurance market started to harden and it was expected that the primary insurance market would follow," Close-Smith said. "This did happen in the P&I market, but has proved less sustainable in the commercial and hull market.

"The price of insurance is not much different from the price of guns and butter--it comes down to supply and demand," he said. "Demand is down right now but there's been no contraction in supply. Because there's been no sign of a contraction in capacity rates are not really going up, although they have stopped going down. The majority of marine insurers, despite their attempts to talk up rates, are making some form of profit at the moment, so they're sticking in there."

Piracy will be another topic that will be discussed with some urgency. The rise of piracy as a major threat to ships and their crews has been a major topic of discussion for the past few years.

The geographical hub of the piracy worries is currently off the east coast of Africa, mainly near Somalia, where the government there effectively lost control of the country 20 years ago, resulting in political instability and economic uncertainty that has driven many fishermen to piracy. The rise in the number of attacks, along with their increasing sophistication, has caused many of the major navies of the world to start patrolling the area, although this could be likened to addressing the symptoms and not the disease.

Ships passing through this area now have to inform their insurance companies before doing so, and kidnap and ransom policies are increasingly being used in case a ship is taken. Insurance rates for this region have been going up steadily, according to Close-Smith.

One of the largest workshops scheduled to take place at IUMI will indeed be on piracy. This will take place on the Tuesday of the conference and will look at the latest events, the best way to assess the piracy threat and how to protect ships, and other related issues.