Hellenic Holds its Own Despite Piracy, Unrest and Poor Investment Climate

Performance achieved in the context of a dire global investment climate, a significant increase in piracy attacks off Somalia and violence and unrest in other parts of the world.

A healthy operating surplus, offset by investment losses, resulted in a marginal overall deficit after tax for the Hellenic War Risks Association at 31st December 2008, limiting the fall in its reserves to less than two per cent.

The performance was achieved in the context of a dire global investment climate, a significant increase in piracy attacks off Somalia and violence and unrest in other parts of the world.

Contributions and premiums were $24.7 million, compared with $15.8 million in 2007. After reinsurance premiums and running expenses, there was an operating surplus of $3.87 million, compared with just $87,000 the year before. Investment losses amounted to $3.88 million, compared with a $2.89 million surplus in 2007.

The net outcome for the Hellenic was a deficit of $801,000, leaving reserves standing at $46.3 million.

Rising ship values early in 2008 played a significant part in the growth of both Advance Contribution and annual Additional Premium income----and more than compensated for the 15 per cent cut in Advance Contribution rates at the start of that year. This income increased to $6.48 million (26 per cent of underwriting income), compared with $5.56 million (35 per cent) in 2007.

Rising Additional Premium rates also produced a significant increase in income, totaling $18.17 million (74 per cent of underwriting income), compared to $10.22 million (65 per cent) the year before.

The Association maintained a cautious investment strategy which limited investment loss. Cash holdings were increased through selling bonds and equities. By the end of the year, cash balances comprised 63 per cent of the investment fund.

The results were revealed in a review of the year circulated to members today (June 9th), following a meeting of the Directors of the Association----generally known as the Hellenic War Risks Club.

John Culley, of Hellenic managers Thomas Miller, explains: “The Association was affected in 2008 by extraordinary and adverse developments in world financial markets. However, maintaining a conservative investment strategy, with a strong focus on cash holdings, limited their impact. The deficit after investment income was minimal so the Association was in a sound financial position going into 2009. It continues to offer members financial security and comprehensive cover at competitive rates.”

The number of ships entered with the Hellenic increased very slightly over the year to 2,283 compared with 2,228 twelve months earlier. Some 568 were Greek-flagged, a rise of 91 vessels. Some 48 per cent of vessels were bulk carriers, 29 per cent tankers and 8 per cent dry cargo ships. Containerships, passenger vessels and ro-ros made up most of the balance. Total entered value grew by about 11 per cent.

The war risks market has been affected by unrest and violence around the globe, with the waters off Somalia presenting the greatest concern for insurers. A surge in pirate activity in the Gulf of Aden and in the Indian Ocean saw over 100 attacks in 2008, half of them resulting in seizure, according to the International Maritime Bureau. By the middle of May (2009), there had been a further 114 reported hi-jack attempts, 29 of them successful.

Five vessels covered by the Hellenic were attacked in 2008. Three were repelled but two were seized in the Indian Ocean more than 250 miles out to sea within days of each other. Armed men forced them to sail to the Somali coast, where both were held for over two months. The Hellenic assisted owners with negotiations which eventually resulted in the safe release of ships, crews and cargoes. This year so far, there have been eight attacks and five seizures of Hellenic-entered vessels. Three have been released.

Following international initiatives, more naval forces were deployed in the region during 2008. An Internationally Recommended Transit Corridor (IRTC) was established and an EU naval force, coalition task forces and other navies provided protection to merchant shipping.

The Association has encouraged owners to use the IRTC and to put defensive measures in place on board in Somali waters; to register with the EU Naval Force’s Maritime Security Centre---Horn of Africa (MSC-HOA); and to participate in the Royal Navy’s Maritime Trade Organisation’s voluntary reporting scheme. For details see www.hellenicwarrisks.com.

Responding to developments during 2008, London market underwriters added Gulf of Aden transits to the list of Additional Premium areas and extended the existing Somali AP areas in May. With no prospect of any short-term improvement, the Association started charging members Additional Premiums for ships transiting the Gulf of Aden and parts of the Indian Ocean from 1st January 2009. Economies of scale, however, produced very competitive rates. In April 2009, this area was further extended to 600 miles from the Somalia coast into the Indian Ocean and as far south as the northern coast of Tanzania.

In August 2008, fighting between the Georgian military, separatists and Russian forces led to Georgia becoming an AP area. In September, oil installations in Nigeria again came under attack. In Sri Lanka, fighting between government forces and the Tamil Tigers escalated and two merchant ships were attacked in October. Tensions in and around the Gaza Strip rose, particularly in December when Israel began a ground offensive. AP rates in all four areas increased during the year, although those for Georgia reduced as the situation appeared to ease. These four areas remain subject to Additional premium.

The Hellenic War Risks Association has revised its website to offer a wider range of information on war risks, premium, advice and links to other sites. See www.hellenicwarrisks.com