Marine Insurance
Building resilience and defining a sustainable Future
London 15-18 September 2013
Marine Insurance in the Middle East
Arab Spring, Suez canal, Opportunities
Max Zaccar
Chairman – Commercial Insurance Co.
Is the word “Arab Spring” still adequate? Maybe we should call it
the “ Arab All Seasons Uprisings”
It all began on the 18th of December 2010 and were instigated by
the people’s dissatisfaction with the ruling of local governments,
dictatorship, absolute monarchy, human rights violations, political
corruption, economic decline, unemployment, extreme poverty
and lack of freedom.
Tunisia and Egypt were the first to witness major uprisings.
Libya followed and ended the rule of Colonel Muammar Gaddafi
Yemen’s revolution was terminated with the resignation of
President Abdullah Saleh
Syria still has no predictable solution.
Did you guess in which country this video was filmed?
Although it looks as in one country the scenes were from
TUNISIA, EGYPT, BAHRAIN, YEMEN, LIBYA AND SYRIA
We also witnessed clashes and protests with varying degrees in the
Mena region. The map hereafter illustrates it well.(Wikipedia).
Algeria
Jordan
Oman
Djibouti
Somalia
Sudan
Iraq
Kuwait
Morocco
Mauritania
Saudi Arabia
Iran
Bahrain which is now under the protection of a GCC force Saudi,
Kuwait and the UAE
Resilience of Insurance companies of the region
Despite these events, in 2012 AM Best maintained the ratings of
the 96% of insurance companies of the region. Only 4% witnessed a
downgrade in their AM BEST ratings. Thus this is a clear sign that
the insurance market was not only resilient, but able to absorb the
consequences of these events.
Property Insurance
What definition could be given to these uprisings? Were they
Political violence? Or revolutions? All governments were quick to
decree that the damages were the consequence of Strikes, Riots
and Civil Commotion.
As such property insurers/reinsurers had to pay about $1billion of
damages to all clients insured under SRCC. As a result, it will take
insurers/reinsurers an average of 7 years with the new terms and
conditions to recover their losses. New terms and conditions are
limiting amounts insured, as well as introducing claims
participation, with lower commissions.
Marine insurance during the Arab Spring
I will limit myself to cargo insurance which represents 90% of the
premium income in the Mena region.
Premium Income
Whilst I gathered the information from 5 different sources to check
accuracy, they were all different. I thus chose to establish the
following table which should be the closest to the realty.
In Millions of Dollars
It is to be noted that the premium income remained practically the
same over the years despite the Arab Spring disruptions in 2010,
2011.
Claims in ports and airports
In Millions of Dollars
As you can gather there was no particular increase in claims during
this period for the following reasons:
1. Security was enhanced at all ports and airports
2. Cargo marine insurance clauses provide a limited duration
after discharge.
3. Traders took their utmost care to receive their cargo
In fact this was no different to what we experienced during the
troubles in Lebanon and Iraq.
For War & SRCC we have approached the Arab War Risk Insurance
Syndicate AWRIS which is a pool of 169 Arab insurance companies
writing business in the different countries of the Arab Spring. They
have provided us with the following table.
On the left hand side you have the percentage increase on the
WAR&SRCC rates by sea and air
On the right hand side you can find the claims percentage showing
no claims paid under WAR and SRCC
*Cover was not available because of sanctions.
In fairness, we have to report a mysterious disappearance of some
military radar equipment which was discharged in Libya. But we
believe that no compensation will be payable in this instance.
Land shipments
Again there were no special claims reported except for Egypt. As a
result the Egyptian Insurance Federation asked insurance
companies to add on their insurance policies the following
warrantees:
 Trucks must be equipped with a GPS
 Trucks should move only during the day.
 There should be at least one driver and one assistant on the
truck
 Trucks should not be left alone without the presence of the
driver or his assistant
These were the right measures to take as all claims which occurred
in Iraq on land transport were the consequence of collusions
between the drivers and the thieves during the night.
For WAR &SRCC coverage on land we have again approached
AWRIS who has provided us with the following table.
Again on the left hand side you have the percentage increase for
WAR&SRCC on land.
On the right hand side the claims percentage showing no claims
except for Syria where some claims were settled on an Ex Greatia
basis
*Cover was not available because of sanctions.
Sanctions on Syria
Sanctions on Syria are a great concern to insurers. What can be
covered and what cannot.
To avoid any misunderstandings, most western international
insurers/reinsurers decided to avoid insuring cargo bound to Syria.
As a result local insurance companies were quick to find alternative
solutions among themselves and with the contribution of
reinsurers from countries which did not put Syria under sanction.
It has to be mentioned that:
1. Syria being an important transit route between all Arab
countries and the Gulf countries, cargo transiting through the
country remains covered under treaties. To this date no claim
was reported for these transit shipments.
2. Alternative routes for these transits have now been
developed by sea to Turkey and then by Truck although the
voyage is longer
What if the Suez Canal was Closed by a War or Terrorist Act
The Suez Canal is the Sea Level waterway connecting the
Mediterranean Sea to the Red Sea. It separates the African
continent from Asia. It provides the shortest route between the
East and the West. It is also the world’s most important waterway.
Whilst this first man made canal goes back to 1310 B.C, Ferdinad de
Lesseps the builder of the Eiffel Tower dredged what is the present
Canal for 10 years with forced labor. Amid celebrations which
lasted weeks (and not Days), the canal was inaugurated in 1869 as
the longest in the world (km 193) without any locks, opened day
and night
The Suez Canal can accommodate vessels of 17000 containers as
well as 82% of oil carrying vessels. It can still be widened and
deepened when required.
10% of the worldwide Seaborn trade in Metric Tons cross the Canal
every year. It represents 17000 vessels mostly container vessels for
37% and tankers for 21%.
The savings in distance is between 23% to 66% depending on the
point of loading and unloading and is the cheapest mean of
worldwide transport.
The revenue of $5billions from the Suez Canal represents about 10
% of the Egyptian revenues. It is also the third source of foreign
currency.
“The Safety of Traffic and Navigational Support” has been
enhanced to the International Regulations stipulated by the IMO
(International Maritime Organization) reducing accidents to the
minimum compared to other waterways. Nevertheless the risk of
grounding, stranding, and failure from ships can cause many
disruptions.
Under Article 1 of the Constantinople Convention of the 29th
October 1888 from the Ottoman Empire:
“The Suez Maritime Canal shall always be free and open, in time of
war as in time of peace to every vessel of commerce or war ,
without distinction of flag “
How true was or is this?
Following its nationalization the Suez Canal was closed in 1956 for
few months when President Abdel Nasser intentionally sunk ships
following the tripartite aggression from France, the UK and Israel.
The Suez Canal was again closed for 8 years in 1967 following the
Six Day War with Israel as a result of which 14 vessels known as
“The Yellow Fleet” were trapped during all this period
Who can guarantee that the Suez Canal will not be closed again?
The canal is 193 km long and although the government will do its
utmost to maintain the Canal open we must still envisage a worst
case scenario which will close it for some time as a result of:
1. A new war with Israel
Or
2. A terrorist attack on vessels which could be sunk. Actually it
was reported by the Suez Canal Authority that on Saturday
the 31rst of August 2013 a terrorist attack was made on a
Panamean vessel. Admiral Mohab Mamich declared that there
were no damages reported without providing further details.
With the following consequences:
 An immediate international disruption since vessels will take
the longer route through the Cape of Good hope.
 17% more vessels will be needed to provide the same capacity
if the speed remains the same and voyages will take about 8
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days longer. Presently, there will be no difficulty in finding
extra vessel capacity.
An additional 77,5% increase in fuel costs at current oil prices
If the speed is increased to compensate the additional
number of vessels. As a consequence there will be between
$210 and $500 additional cost on each container less the cost
of $83 charged by the canal i.e. a net additional cost of $127
and $373
Oil prices will certainly increase at a first stage. It is predicted
that the cost of freight will increase by at least 50 cents per
barrel. The Suez Mediterranean pipe line known as the
SUMED pipe line going along the canal could be used, but it
could as well be attacked.
Additional piracy risks must be forecasted and thus additional
insurance premium.
Increased pressure on the already weakened worldwide
economies as it is a fact that a 10% increase in ocean distance
reduces the trade by a minimum of 5%.
Loss of one third of Egypt’s foreign income which will
constitute an additional burden to the present situation.
Increased cost on the shipping industry due to UK and US
courts past rules that shipowners are to perform their existing
contracts without an additional compensation.
Future Opportunities
Professor Dr. Hato Schmeiser from Saint Gallen University
predicted in 2010 during his key note presentation to the IUMI
conference in Zurich that the most developping economies will be
in Africa, Asia/China and the Mena region.
This was in September2010 , just before the first Arab spring
Is this still the case.
Popular Uprisings in the Arab World have produced the most
dramatic changes in the region and the world since the end of the
colonial era in the middle of the 20th Century.
Most countries including the rich GCC countries will make reforms
and shift to a hybrid form of democracy. Observers believe that Al
Qaida will have no future as soon as wealth is better spread among
the people. Iran will remain under sanctions. Although the big
powers want their presence to be felt in the different part of the
world it will be mostly driven by Economy rather than war.
The Gulf oil producing countries will see their oil income remain the
same if not increased. To satisfy their citizens they have embarked
in the largest infrastructure renovations. Their private citizens are
not shying anymore at investing outside their respective countries.
Opportunities are naturally in the Mena region which is next door
to them.
Libya and Iraq with the oil revenues will build/rebuild their
infrastructures.
As a result it is expected that the states yearly expenditure in the
Mena region will be at least $1, 5 trillion for the next 20 years.
And If I quote the Swiss Re Sigma World Insurance report 2012 on
the Mena region “Strong growth is expected in the Middle to long
term …”
Finally since most of the raw and construction material will have to
be imported I will leave it to you to forecast the marine insurance
potential and opportunities.
My thanks go to all who have helped in preparing my presentation.
My Egyptian colleague and friend of the Cargo Committee Mr.
Hosny Michref, Awris, Axco, CCR, GAIF, Swiss Re, and the Sumaria
television for the film extracts.
Thank you