A pending claim valued at close to $700m for the loss of a luxury yacht in a fire at Lurssen Shipyard in Germany represents a significant setback for Lloyd’s of London marine insurers’ faltering attempts to recover profitability.
The fire broke out at a floating dock last Friday and is likely to leave the unidentified 100-metre vessel under construction a constructive total loss.
It is the largest hull claim ever for the marine insurance market.
The shipyard contract was brokered by Marsh in October 2014.
'Up in smoke'
“It’s 15 years of premium gone up in smoke,” one underwriter said.
TradeWinds understands that Lloyd’s syndicates make up around 30 of a line of 35 underwriters sharing the risk.
Lancashire has the biggest exposure among the five non-Lloyd’s syndicates with 9%, followed by Royal Sun Alliance (6%), Swiss Re (4%), the Norwegian Hull Club (2%) and Liberty Mutual (1%).
The exposure of individual Lloyd’s syndicates is less but, nonetheless, involves nearly all of the market's marine cover providers.
The Lloyd’s line is led by Beasley syndicate 2623 with 5.4%, followed by ASC 1414 (5.3%), Catlin 2003 (4.6%), QBE syndicate 1036 (4.6%)and Aspen 4711 (2%).
The consensus among underwriters is that the main line insurers will now attempt to offset the massive loss and keep it off the bottom line by including it in their reinsurance cover.
“This is going straight to the reinsurance market,” said one underwriter.
However, other observers believe this will just delay the impact of the claim.
“This will just mean that they [main line insurers] will have to pay more for their reinsurance next year in a market that will already be hardening by then,” said another underwriter.
Lloyd's ultimatum
Lloyd’s syndicates have been told by management to improve their profitability or face expulsion from the market. The marine sector has been identified as one of the poorest performing sectors and the profit drive has forced many syndicates to reduce their marine exposure.
“This could not have come at a worse time for the market,” one broker said.
The loss also fits in with a pattern of increasing insured values and risk at a time when premiums are in decline, which was the main topic of discussion at the International Union of Marine Insurers annual meeting in Cape Town this week.
The luxury yacht newbuilding sector, in particular, involves values that dwarf some of the those in the merchant shipping segment.
The incident will also concern underwriters as it is the first major passengership newbuilding fire since its shipyard warranty, known as JH143, was introduced in 2004.
The warranty was developed to improve fire safety at shipyards after a blaze at Mitsubishi Heavy Industries’ Nagasaki shipyard nearly destroyed the cruiseship Diamond Princess, ringing up a massive $280m claim for underwriters.
Lurssen Shipyard has a reputation as being modern, well run and with exacting safety standards.
