Solutions from ship to shore Aldis Underwriting Managers Inc. Solutions from ship to shore.

Solutions from ship to shore

Aldis Underwriting Managers Inc.



The

Rotterdam Rules


CIFFA AGM – 13 May 2009


Armageddon?

• Insurance prices going up

• Crazy Limits

• Bullied by the big guys

• Untested law

• Partners that don’t have a clue

• Promises that can’t be kept………

YOU’VE BEEN HERE BEFORE


This Weeks News• Kuehne + Nagel has published its results

for the first quarter of 2010 showing that it has returned to growth,

• Panalpina saw strong volume growth in the first quarter of this year

• Deutsche Post DHL, has published its first quarter results, showing a sustained improvement in its profitability as the economy rebounds.


Market Turner?• Piper Alpha was a North Sea Rig

• An explosion and resulting fire destroyed it on July 6, 1988, killing 167 men, with only 59 survivors.

• Total insured loss was about £1.7 billion (US$ 3.4 billion).


Deepwater Horizon


Insurance, Reinsurance Markets to Play Key Role in Covering Oil

Spill Related Claims in Gulf


Rates Going Up?

• Insurance Cycles

• Investment income

• Cat Losses


-10%

-5%

0%

5%

10%

15%

20%

25%71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Strength of Recent Hard Markets by NWP Growth

1975-78 1984-87 2000-03

Shaded areas denote “hard market” periods. Sources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.

Per

cen

t

Net written premiums fell 0.7% in 2007 (first decline since 1943) by 2.0% in 2008, and 4.2% in

2009, the first 3-year decline since 1930-33 during the Great Depression. Expected decline of 1.6%

in 2010.


A 100 Combined Ratio Isn’t What ItOnce Was: 90-95 is Where It’s At Now

Combined Ratio / ROE

* 2009/2008 figures are return on average statutory surplus. 2008 and 2009 figures exclude mortgage and financial guaranty insurersSource: Insurance Information Institute from A.M. Best and ISO data

97.5

100.6 100.1 100.7

92.6

99.3101.0

7.3%

9.6%

15.9%

14.3%

12.7%

4.4%

8.9%

80

85

90

95

100

105

110

1978 1979 2003 2005 2006 2008* 2009*0%

3%

6%

9%

12%

15%

18%

Combined Ratio ROE*

Combined Ratios Must Be Lower in Today’s DepressedInvestment Environment to Generate Risk Appropriate ROEs

Combined ratio of about 100 generated a 6% ROE in 2009, 10% in 2005 and16% in 1979


ROE: P/C vs. All Industries 1987–2009:Q3*

-5%

0%

5%

10%

15%

20%

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09:Q3

US P/C Insurers All US Industries

P/C profitability iscyclical and volatile

Hugo

Andrew

Northridge

Lowest CAT Losses in 15 Years

Sept. 11

Katrina, Rita, Wilma

4 Hurricanes

Financial Crisis*

* Excludes Mortgage & Financial Guarantee in 2008 and 2009 through Q3. Sources: ISO, Fortune; Insurance Information Institute.

Per

cen

t


Do freight forwarders fall within the definition of "maritime performing party" so……………….that they are subject to the Rotterdam Rules?

Freight forwarders play various roles in connection with the contract of carriage. TheRotterdam Rules apply to some of these and not to others. The application of theRotterdam Rules is decided depending on how they are involved in a specific contractof carriage. If, for instance, a freight forwarder undertakes to carry the goods to its customer, it is acarrier under the Rotterdam Rules. If a freight forwarder enters into a contract with asub-carrier in its own name, it is a shipper under the Rotterdam Rules. If a freightforwarder enters into a contract with a carrier on behalf of a customer (as an agent), it isnot the carrier or the shipper under the Rotterdam Rules and is not liable as such. It isalso not a “maritime performing party” unless it performs or undertakes to perform anyof the carrier’s obligations during the period between the arrival of the goods at the portof loading of a ship and their departure from the port of discharge of a ship, and, inrespect of freight forwarders acting as inland carriers, only if the services performed aredone exclusively within the port area.When a freight forwarder provides services as a stevedore, for instance, one should becareful which relationship one focuses on. As regards the contractual relationshipbetween the freight forwarders (acting as stevedores) and the carrier, the contractualrelationship is not affected by the Rotterdam Rules because they do not apply to thecontract between the carrier and the maritime performing party, unless that contractsatisfies the definition of “contract of carriage” (article 1(1)) (this is apparently not thecase here). As regards the forwarder’s relationship with the shipper or consignee, theRotterdam Rules make the carrier and the maritime performing party jointly liabletowards the shipper and consignee. The fact that the freight forwarder, acting as amaritime performing party, is subject to the Rotterdam Rules would probably constitutean advantage rather than a disadvantage, because it guarantees that the freightforwarders enjoy defences including the short time-bar and the right of limitation of itsliability. At present, irrespective of the contractual terms, in cases where it may be sued

in tort, it would be liable without limitation. YES VERY OFTEN!


How many do you have?What Limits do you need?

15200 TEU @ Est. $35,000 each?15200 TEU @ Est. $35,000 each?


Cargo Limitation of LiabilityCargo Limitation of Liability

• Carrier remains entitled to limit its liability to a pre-set amount.Carrier remains entitled to limit its liability to a pre-set amount.

• Does not apply to intentional damage or damage caused Does not apply to intentional damage or damage caused recklessly and with knowledge that such loss would probably recklessly and with knowledge that such loss would probably occur.occur.

• Rotterdam increases the limits.Rotterdam increases the limits.

• Hague-Visby: Hague-Visby: 2 SDR’s per kilogram or2 SDR’s per kilogram or

666.67 SDR’s per package666.67 SDR’s per package

• Rotterdam:Rotterdam: 3 SDR’s per kilogram or3 SDR’s per kilogram or

875 SDR’s per package875 SDR’s per package


Cargo Limitation of LiabilityCargo Limitation of Liability

• Assume total loss of 20,000 Metric tonnes Assume total loss of 20,000 Metric tonnes of cargo shipped in bulk.of cargo shipped in bulk.

• Hague-Visby:Hague-Visby: $ 68,800,000$ 68,800,000

• NVOCC Rotterdam:NVOCC Rotterdam: $103,200,000$103,200,000

• CN RAILCN RAIL

• HTAHTA

• You?You?


(BACK TO BACK)For How Much?

1 X 20 FT FCL STC 1000 pkgs video games WGT 10,000 kgs

NVOCC / Rotterdam $1,505,000 HTA $44,100 CN Rail $20,000? Carmack $?


Volume ContractsVolume Contracts

• Carrier & Shipper can have customized agreement and Carrier & Shipper can have customized agreement and independently negotiated liability and compensation independently negotiated liability and compensation regime. ANY SHIPMENT!regime. ANY SHIPMENT!

• Volume Contract: Carriage of a specified quantity of Volume Contract: Carriage of a specified quantity of goods in a series of shipments during an agreed period goods in a series of shipments during an agreed period of time. The specification of the quantity many include a of time. The specification of the quantity many include a minimum, a maximum or a certain range.minimum, a maximum or a certain range.– i.e. Not less than 100,000 M.T. of wheat and not more i.e. Not less than 100,000 M.T. of wheat and not more

than 200,000 M.T. of wheat over a six month period.than 200,000 M.T. of wheat over a six month period.


Volume Contracts

Walmart sets shipment arrival deadlines (Volume Contract)

Lloyd’s List Roger Hailey - Friday 7 May 2010

At a time when slow steaming requires costly inventory to spend more time at sea, major shippers are looking to tighten their supply chains, writes Roger Hailey. In February, US retail giant Walmart, with an estimated 750,000 teu a year at its command, announced a four-day delivery window leading up to a must arrive by date.


Volume ContractsVolume Contracts

• Will allow Carrier and Customer/Shipper to Will allow Carrier and Customer/Shipper to tailor shipping arrangements to own tailor shipping arrangements to own needs, preferences and pricing.needs, preferences and pricing.

• Will effect pricing and insurance Will effect pricing and insurance depending on how much risk each side depending on how much risk each side prepared to bear.prepared to bear.


Get your house in Order Now

What do consider….

• Sub contractor relationships• Your overseas agents – What are they

signing• Their insurance • Your insurance• Your Risk Partners


CARRIER REPRESENTS AND WARRANTS THAT IT

• INSURANCE: CARRIER shall furnish BROKER with Certificate(s) of Insurance, or insurance policies providing thirty (30) days advance written notice of cancellation or termination, and unless otherwise agreed, subject to the following minimum limits

• Is this insurance going to respond to your customers loss?


Is it Covered?

Your Subs; Are they Covered?

The words securely parked shall mean:

i) Garaged in a locked and/or garaged building, or parked in a fully enclosed yard which is securely closed and locked, or under constant surveillance or on a lot which is guarded by a security guard at all times,

AND

ii) The truck has all it’s openings closed and securely locked and all keys removed, in so far as local regulations permit.


Is it Covered?Your Subs; Are they Covered?

The word garments shall mean:

All items of clothing including but not limiting to innerwear and outerwear, footwear, shoes, boots, gloves and hats.


Your Subs; Are they Covered?The words unattended truck shall mean:

A truck which has been left without a responsible person whose duty is to drive, guard, or attend the truck being either on, in, or within ten (10) yards of the truck at all times.

The words critical violation(s) shall mean:

i) Driving while intoxicated (DWI), implied consent, any suspension of the drivers license for failure to submit to alcohol testing,

ii) Driving under the influence (DUI), implied consent, any drug related violation or any suspension of the drivers license for failure to submit to drug testing.

That has/have occurred within the three (3) years prior to the inception date of this policy or to the date of the hire of the driver, whichever is the later.



EXCLUSIONS

The insurance shall not indemnify the Insured for:

a) i) Loss or damage to accounts, bills, debts, evidence of debt, letters of credit, passports, documents, railroad or other tickets, notes, money, securities, currency, bullion, precious stones, jewelry and/or other similar valuable articles, paintings, statuary and other works of art, manuscripts, mechanical drawings.

ii) Loss or damage to tobacco, cigars, cigarettes, pharmaceuticals, perfume, eau de toilette, non-ferrous metal in scrap and/or ingot form, furs, garments, electronics, all forms of alcohol intended for human consumption other than beer, seafood unless canned.

iii) Loss or damage to household goods and/or personal effects, when forming part of a residential move or office relocation.



Loss or damage to cargo carried in and/or on an unattended truck unless the truck:

i) Has all its openings closed and securely locked AND

ii) All keys removed AND

iii) The theft was a result of forcible and/or violent entry of which there are visible signs.

iv) Loss or damage to cargo carried in and/or on a trailer or semi-trailer, which is detached from a power unit unless such trailer or semi-trailer is securely parked.



For Example: Loss USD 20,000.00$ Truck limit USD 100,000.00$ Total Vaule of all cargo USD 200,000.00$ Deductible USD 1,000.00$

So Truck limit USD 100,000.00$ Total Vaule of all cargo USD 200,000.00$

Therefore USD $20,000 Loss x 50% = USD 10,000.00$ Less Deductible USD 1,000.00$ Underwriters will pay USD 9,000.00$

= 50%

CO-INSURANCE – The Underwriters shall not be liable for a greater portion of any loss or damage to the total cargo than the amount of the applicable insurance bears to the total value of all cargo at the time and place of the loss.



Coverage under this endorsement is contingent on the failure of the Motor Truck Cargo legal liability insurance policy(ies) of the subcontractor or respond to a claim because:

i) The policy(ies) has/have been avoided, cancelled or suspended without the knowledge of the Insured,

ii) The policy(ies) is/are bogus or illegal, or

iii) The insurer(s) of the policy(ies) is/are insolvent.


Your Subs; Are they Covered?The word electronics shall mean:

All items of assembled consumer and commercial electrical appliances/equipment and unassembled electron components, including but not limited to;

Radios, televisions, computers (including peripherals), consoles, computer and/or gaming software, hard drives, chips, microchips, printed circuit boards and their components, modems, monitors, cameras, facsimile machines, telephones (including cellular), pagers, photocopiers printers scanners batteries PDS’s, VCR’s, HI-FI’s or stereos (including speakers/components), compact discs, MP3’s, DVD’s minidisks, digital players and/or recorders.

Batter operated or electrically operated toys with a unit value greater than USD 75 shall be deemed to be electronics.

Heavy electrical items such as switchgear, turbines, and generators, or kitchen appliances such as washing machines, dishwashers, microwave ovens, toasters, and irons shall not be considered electronics.


3PL Lately

• For the xxx's Claims set forth in (ii) above, FF shall ensure that XXX obtains full compensation for XXX's Claim, whether from the carrier's insurer or otherwise, within sixty (60) days from the incident.

• If XXX's Claim is not paid in its entirety to XXX within the applicable sixty (60)-day delay, FF shall pay XXX’s Claim on the sixty-first (61st) day, whether or not the claim has been accepted or not, partially or in its entirety, by the carrier or its insurer


So You Do What?

• “I just got a new contract”!• “I am cross docking” Packing, Loading etc.• 5 Bays• I issue Bills of Lading• Declared Values• Electronics, computers, Shoes?• The trucker has insurance• “I need this claim paid..holding freight”


How do the winner’s do it?

• Pay to their captive

• Own own Broker

• Sell Insurance

• Get “back to back” contracts

• Do not over expose your loss record!

• Approve all contracts!

• Get the right Risk Management Partners!


Insurance ExposureInsurance Exposure

• We could see a regime where carriers offer 3 We could see a regime where carriers offer 3 types of carriage:types of carriage:

1)1) Rotterdam Limitation – i.e. 3 SDR’s per Rotterdam Limitation – i.e. 3 SDR’s per kilokilo

2)2) No liability – A Volume Contract with no No liability – A Volume Contract with no liability for damage. Freight rate less.liability for damage. Freight rate less.

3)3) Full liability – A Contract where carrier Full liability – A Contract where carrier takes the risk and builds it into the takes the risk and builds it into the price.price.

• Remember DelayRemember Delay


DelayDelay

• Carrier is liable for delay in delivery.Carrier is liable for delay in delivery.

• Delay occurs when the goods are not Delay occurs when the goods are not delivered within the delivered within the time agreedtime agreed..

• Notice for delay must be given to carrier Notice for delay must be given to carrier within 21 consecutive days of delivery.within 21 consecutive days of delivery.

• Economic loss due to delay limited to 2 ½ Economic loss due to delay limited to 2 ½ times freight payable.times freight payable.


When Will We Have the When Will We Have the Rotterdam Rules?Rotterdam Rules?

• US?US?

• Needs 20 countries to ratify it. It then Needs 20 countries to ratify it. It then takes one year from 20takes one year from 20thth country’s country’s ratification to come into force.ratification to come into force.

• Some estimates are 2013 – 2015.Some estimates are 2013 – 2015.

Don’t wait to be ahead of this curve!Don’t wait to be ahead of this curve!


MARINE INSURANCE:

THE CANADIAN TRADE OPPORTUNITY


On the Life Cycle of Businesses: Go Darwin Most Businesses, Like Living Species, Eventually Become Extinct

1. 99.5% of all living species to ever exist on Earth are now extinct; 2. Changes in the natural environment (not external forces like

humans) were responsible for almost all extinctions3. This means that despite millions of years of evolution and

adaptation, virtually every species eventually confronts a change in its environment to which it cannot adapt

4. It is the same in business; Wall Street models likely offer less assurance than millions of years of evolution

Business Cycle Gives Rise to “Creative Destruction”1. Mass extinctions in business are common2. Economy is constantly reinventing itself3. New industries and businesses spring from the ashes of the

previous generation, fill voids and occupy niches


Let’s Make Lemonaid• You Have Options:• Where cargo insurance is readily available, the choice will be based

on economics. • Is it cheaper to buy a more expensive “no fault” (no subrogation)

cargo insurance policy and pay a lower freight rate or • Pay a higher freight rate in addition to buying a cargo policy that has

normal subrogation rights against the carrier and its maritime performing parties?

• Back to Back? We got some work to do!• Where cargo insurance is not readily available or cost-prohibitive,

the carrier, you take the spread and deal with your Liability underwriters.

• “No subrogation” cargo insurance policy meaning an insurance policy

• ONE RISK SOLUTION….SPREAD OF RISK / LAW OF AVERAGES


Thank you

Jerry Giroux

President

Aldis Underwriting Managers Inc

(647)-776-0585

Email: [email protected]

Web: www.aldisunderwriting.com

Solutions from ship to shore Aldis Underwriting Managers Inc. Solutions from ship to shore.

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Transcript of Solutions from ship to shore Aldis Underwriting Managers Inc. Solutions from ship to shore.