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Skuld: Low oil price could lead to more accidents

Norwegian marine insurer and P&I club Skuld registered a higher number of collisions in 2014. The number of accidents could grow over the coming year due to increased shipping activity in the wake of the sliding oil price, future CEO Ståle Hansen tells ShippingWatch.

Photo: Skuld

The number of claims caused by ship collisions is rising and could risk rising even further. This will happen, for instance, if carriers - as some observers expect - increase their activity in the coming year due to the low bunker price, says the future CEO of Norwegian marine insurer Skuld, Ståle Hansen, when talking about the coming year in the maritime business and the soon-to-be finished year 2014 in an interview with ShippingWatch.

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Even though the amount of claims was not exceptionally huge last year, the number of medium-sized damages, for instance, helped add pressure to the Skuld's result for the third quarter, which finished at a consolidated profit of USD five million.

"This was somewhat lower than expected. The result was caused by the fact that we had quite a few collision claims, crew claims and groundings. This is a volatile business and we live in a volatile world, and perhaps we've been a bit more unfortunate than what we'd normally expect," he says of the quarter, before commenting on the cliams:

"We're unfortunately seeing a rise in collision claims. The dramatic decline in the oil price could also lead to increased shipping activity, and on a general basis, increased activity could lead to a bigger risk of claims, so it'll be interesting to see what happens in the coming year."

“The CEO position came a bit earlier than expected”

Ståle Hansen stresses that there is still some time left of the fourth quarter, but he is not afraid to comment on the year as a whole. Uncertain financial markets had a positive effect on the bottom line, he says, as Skuld has a diverse investment portfolio.

"This resulted in positive returns that will contribute to us likely presenting a solid positive result on the bottom line, even though the insurance technical result is somewhat more uncertain," he says.

More expensive to remove ships

According to Ståle Hansen, Skuld has not yet experienced any major claims in the pool where Skuld collaborates with the other 12 P&I clubs. The company therefore does not hold claims for more than USD nine million, but Skuld has seen a rise in medium-sized claims in 2014, at a level reaching USD 1-3 million. There has for example been a development in claims to crew members, where costs have increased. This could be anything from sickness to more serious incidents that are more expensive to cover as an insurance company, and which are covered by the P&I coverage.

"And then we're seeing a rise in costs when a ship first collides or is grounded. Wreck removal costs more today than it has in the past, there are higher environmental requirements, and this means that the P&I coverage must contribute more than in the past. We'd like to contribute to this, but it results in higher costs that could in turn lead to higher premiums," says Ståle Hansen.

Skuld hit by more claims from carriers

Higher premiums

This means that the average premium level also looks set to rise. Skuld does not perform general premium increases, rather the company evaluates each individual shipowner on the basis of quality and risk in relation to ship type, route and potential claim history. Some carriers could thus see premiums rise while others could get a reduction.

Another trend characterizing 2014 concerned the so-called 'churn effect,' which became even more apparent last year than in the past. When Skuld takes on new ships, this mostly happens at a low insurance premium because, as Ståle Hansen explains, the P&I clubs are competing fiercely to get the ships, and because new ships are better quality.

"Other ships with good premiums are being scrapped or sold and thus leave Skuld's portfolio, and this means we lose income. So we're calling this the 'churn effect' because it reduces the margin on our carrier product. We've compensated for this in the sense that new ships coming in will see their premiums rise over time," he explains.

More customers in 2014

Even though Skuld registered more claims in the 3rd quarter 2014 things have generally gone well for the marine insurer. Skuld noted growth across all areas and took on new customers under the mutual coverage for shipowners as well as commercial products. Skuld has, for instance, been investing in Lloyd's Syndikat Skuld 1897 since 2011, in which the company offers a series of products for the marine and energy markets, including comprehensive insurance, loss of hire, cargo insurance, etc., and this commercial venture is now delivering a positive result, says Ståle Hansen.

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"We're also noting growing volumes on Commercial P&I, which deals with the non-mutual coverages that we can offer to the offshore and chartering market," he says.

Skuld recently announced that Gregory Thomas has been appointed new head of Commercial P&I, where he as Executive Vice President will become responsible for operations in the offshore, fixed premium, and yacht markets.

"This is a very exciting development that I look forward to following in 2015. The purpose of all our commercial products is to generate profits that can contribute to our mutual members, who are also the owners of the P&I club," says Ståle Hansen.

Skuld completes management shuffle

Furthermore, Skuld will have to focus on being ready for the EU directive Solvency II, which all insurance companies in the EU and EEC (European Economic Community) will have to comply with, starting 2016, a directive that introduces new requirements for the industry's capital due to the fact that the companies are facing major risks - a risk that the company expects to grow over the next five years:

"The ambition is still for Skuld to reach USD one billion by 2020, and Skuld and I feel that it's important to reach a volume that's big enough in terms of handling the volatility we're seeing in our industry," he says, adding:

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"But we would never go so far as to say that we have to grow to USD one billion if the result doesn't defend this ambition. If we don't have the capital to handle the risk it would be to grow to USD one billion, then we'd have to set a lower target. We can't do it through organic growth alone with our current owners and customers, but one has to be open to partners and other potential collaborators to reach this level."

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