September Presentation at Pacific Countries Ports Conference. Structuring An Effective Ports Insurance Programme.

Transcription

1 September 2010 Presentation at Pacific Countries Ports Conference Structuring An Effective Ports Insurance Programme Presented by: David Wardle National Manager Due Diligence Pty Ltd

2 Presentation Contents Yacht Delivery Welcome to Insurance Market Cycles 4 Risk Assessment Approach to Insurance 5 Port Authority Insurance 1

3 1 Yacht Delivery 65' custom - built Motor Yacht complete with four staterooms, a stateof-the-art galley, GPS System and radar or navigation, twin supercharged diesel engines, etc: $2,474, Champagne, chocolate covered strawberries with cream and music dockside for the excited 'soon to be owners' and a small group of friends: $

4 1 Yacht Delivery Two corporate representatives, crane, and rigging complete with faulty Ubolt: $2,500/hour 3

5 1 Yacht Delivery (Note the owner in the stern / back of the yacht) Watching your dreamboat nose dive into the harbor, accompanied by two corporate Representatives just prior to 'inking' the final paperwork 4

6 1 Yacht Delivery So, how was your day?... So, Is Insurance the solution or risk management? 5

7 Welcome to

8 2 & McLennan Companies (MMC) MMC is a publicly-held company with approximately 50,000 employees worldwide and annual revenue exceeding US$10 billion, MMC provides analysis, advice and transactional capabilities to clients in more than 100 countries. 7

9 2 Global Footprint is the world's leading insurance broker and risk advisor. has more than 26,000 employees in approximately 400 offices in over 70 countries worldwide. was established in Australia in With over 1000 staff, Australia operates from offices in every State and Territory producing annual revenues in excess of $220 million and placing close to $2 billion in premium volumes into the local and international insurance markets. provides insurance broking and/or risk advisory services to more than 60% of Australia s top 100 companies. 8

10 Insurance Market Cycles

11 Financial Year 2009/10 in Review 3 Internationally, the Global Financial Crisis had a significant negative impact on industry investment returns. In Australia, bushfires, storms and floods curtailed underwriting profitability, particularly in personal lines. Key events Global/European Financial Crisis US Government bailed out AIG to the tune of $US180b Equity markets tumbled Local cash rates fall and government introduced a $42b stimulus package Credit spreads widened considerably, driving much lower investment returns for insurers Weather Events Victorian Bushfires Storms, floods and hail NSW, Qld, Melbourne, Perth Swine Flu Epidemic Icelandic Volcano New Capital Market Pricing Insurer Consolidation 10

12 Market Profitability 3 In the 5 years to 2007 the Australian market produced record returns at levels equating to twice the long-term average, in stark contrast to the 25 year period prior ( ) where there were just two years that delivered ROE s above 15%. The market ROE dropped significantly in 2008 as the effect of the Global Financial Crisis hit the equity markets, significantly curtailing investment returns. 25% 20% 15% 10% Historical Return on Equity for Australian P&C Insurers 30 year average ~ 10% Average ROE ~ 19% 5% 0% -5% FY78 FY80 FY82 FY84 FY86 FY88 FY90 FY92 FY94 FY96 FY98 FY00 FY02 FY ROE ~8% FY06 FY08-10% Source: APRA (and predecessors regulators), Finity Consulting, Deutsche Bank. Data is for year ending December. June 09 ROE was 9.4%. 11

13 3 Natural Perils In Australia, the impact of severe weather events on the industry continues to be significant, and the severity of weather related events is increasing due to concentration of risks in areas more susceptible to weather related events. Source: CSFB Australian P&C Industry Report

14 3 Market Cycle 2010 Liability 2010 Property 13

15 Risk Assessment Approach to Risk Assessment Approach to Insurance

16 4 Structuring an effective Port Insurance Programme Physical Assets Revenue sources Liabilities of the business Workforce benefits 15

17 4 Considerations Valuation of Assets (usually replacement value) Ensuring survival of the business (catastrophic risks and adequate limits) Security of Insurer ( a promise to pay!) Breach of coverage Experienced Insurer (knowledge of marine law and liabilities) Use an experienced Insurance broker 16

18 4 Risk Tolerance What do we mean by this? Do you purchase insurance based on lowest deductible? Have you considered your pain threshold in a financial year? Risk not just Insurance deductibles 17

19 4 Risk Tolerance Model Note: NPAT = Net Profit After Tax. Earnings Before Interest and Tax may also be used. 18

20 4 Insurer Expectations Good Property Loss Control Appropriate fire protection and detection Security Contractor controls Hot work permits/controls Training and ERT Adequate repairs and maintenance Cyclone preparedness Disaster recovery planning Lightning protection 19

21 4 What type of Port Landlord Port Authority, or Operational Port Full disclose of activities What other activities? - Dredging/Tugs/Pilotage - Aircraft landing - Marinas - Fuel supply - Computer software - Ships Agency - Other? 20

22 Port Authority Insurance

23 5 Port Authority Insurance Bundled versus specific Insurance Benchmarking suggests few Ports take full bundled package TT Club offers bundled solution Summary review of what is insurable 22

24 5 Port Authority Insurance Standard Risks Customer liabilities (ships and cargo) Errors and Omissions liabilities (customers financial loss) Third party liabilities (injury, damage and compensation under conventions ) Fines and Duty (due to breach of regulations) Costs Clause (legal costs, wreck removal, pollution clean-up) Loss or damage to handling equipment. 23

25 5 Port Authority Insurance Additional Risks Building, Plant and Infrastructure Business Interruption Can include Berth Blockage (NB not Port Blockage) Carrying Equipment (containers etc) Ship Repairers liability Marina Operators liability Advice (financial loss by third parties) Property (liability for leased buildings) 24

26 5 Port Authority Insurance Port Ships Risks Hull and Machinery (your ships) Collision liabilities Other third party liabilities Fines and costs Pollution liability 25

27 5 Conclusion Investment in loss control can improve insurance pricing Consider the insurers financial strength Use your financial strength wisely with your insurance purchasing Bundled insurance is not always the total solution Work with an experienced risk insurance adviser 26

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