“U. L. C. S.” Cargo Workshop Presentation 20 September 2006

Matthew O’Sullivan Munich Reinsurance U. L. C. S.

Ultra Large Container Ship?

Ultra Large Claim Scenario?

or

“U. L. C. S.” – Matthew O’Sullivan 2 20 Sept 2006 Agenda

Setting the Scene – What is the environment we are in?

The outlook for the shipping and insurance industries.

What is the worst case scenario for cargo?

What risk factors could lead to this worst case scenario?

Lets consider the ship...

… and the cargo.

What is the result of the combination of these risks?

A reinsurers opinion…

“U. L. C. S.” – Matthew O’Sullivan 3 20 Sept 2006 Setting the Scene Past and Forecast Global Container Volumes (1980-2015)

Year Container Volumes shown in the figure are full origin- destination containers only, empty Vol (m TEU) 200 containers are not included and each 1980 13.5 container is counted only once during its 180 entire journey. 160 1990 28.7

140 2000 68.7

120 2010 138.9

100 2015 177.6

80 Million TEU

60

40

20

United Nations EconomicSocial and Commission for Asia and Pacific (UNESCAP) 0

0 8 2 4 6 9 8 8 8 8 0 1 9 9 9 8 9 2 4 6 Source: Source: 1 9 1 1 9 9 9 9 9 8 0 2 1 1 1 9 9 9 0 0 4 6 1 1 9 0 0 0 0 8 0 2 1 2 2 0 0 0 Global1 Container1 4 Volumes 2 2 0 0 0 1 2 2 2 0 “U. L. C. S.” – Matthew O’Sullivan 4 2 20 Sept 2006 Setting the Scene ISL Monthly Container Port Monitor December 2005, www.Isl.org 2005, December Monitor Port Container Monthly ISL Source: Source:

“U. L. C. S.” – Matthew O’Sullivan 5 20 Sept 2006 Setting the Scene - Ship Development

1st 2nd 3rd 4th 5th 6th Generation Generation Generation Generation Generation Generation

19601988 1997 2006

Small Post- Post-Suezmax Feeder Panamax Suezmax Feeder Panamax (Malaccamax)

Draught <9m 10m max.12m 12-13m max.16.4/14.4m max.21m

Propulsion Trends in ContainerVessels; MAN B&W Diesel A/S, www.manbw.com Breadth <23m 23-30m max.32.25m >32.25m max.50/57m max.60m

Source: Source: TEU <1,000 <2,500 2,500-5,000 5,000-10,000 10,000-12,000 12,000-18,000

“U. L. C. S.” – Matthew O’Sullivan 6 20 Sept 2006 Setting the Scene –“Emma Maersk”

Longer than the Emma Maersk Tokyo Tower is Length: 397m tall Draft: 15m Width: 56m Wider than the Height: 63m width of a football Capacity: 11,000 container field Cost: $145m Crew size: 13 people Hold 11,000 Speed: 27 knots 20-foot-long

www.hamptonroads.com (Aug/2006) Route: Asia-to-Europe Service containers or (63 days) even more Source: Source: Start Service: Sept 2006 … and it floats!

“U. L. C. S.” – Matthew O’Sullivan 7 20 Sept 2006 Outlook: Industry vs (Re-)Insurance

These dynamic developments for the shipping and trade industry present a very positive outlook.

What about the outlook for the (re-)insurance industry?

“U. L. C. S.” – Matthew O’Sullivan 8 20 Sept 2006 Global Market Development – World Seaborne Trade Volume

“U. L. C. S.” – Matthew O’Sullivan 9 20 Sept 2006 Global Market Development – World Seaborne Trade Volume and Global Cargo Premium

“U. L. C. S.” – Matthew O’Sullivan 10 20 Sept 2006 Global Market Development – Premium Volume Marine Worldwide (US $ mio.)

Quelle: IUMI

“U. L. C. S.” – Matthew O’Sullivan 11 20 Sept 2006 Worst Case Scenario

The maximum loss that might be expected, at a cautious estimate, to occur as a single loss event, taking into

consideration all the circumstances of the risk.

Our Assumption:

The worst case scenario we need to consider as marine cargo Underwriters is the total loss of an ultra large container carrier… What could cause such an event?

Vessel Cargo External

“U. L. C. S.” – Matthew O’Sullivan 12 20 Sept 2006 Risk Factors for Large Container Vessels

The new generation of ULCS requires several economic and operational considerations:

Î Service Speed Î Maintenance Î Draft Restrictions

Risks Can

Economic Î Container Configurations these Î Green Water Î Lashing Arrangement vessels Î Vessel Motions (Parametric Roll) sink? Î Vibration Risks Î Machinery YES!

Operational Operational Î Human Error Combination of Risk Factors that will ABS Publication, “GiantsContainer in the Industry; www.eagle.org result in total loss of vessel Source: Source: “U. L. C. S.” – Matthew O’Sullivan 13 20 Sept 2006 Example from our Colleagues in the Space Dpt

“U. L. C. S.” – Matthew O’Sullivan 14 20 Sept 2006 Loss History of Container Ships

Date Ship Cause Nov 1998 APL China Weather conditions (typhoon) July 1999 CMA Djakarta Fire/Explosion due to hazardous cargo Aug 1999 Ever Decent Collision July 2001 Torm Alexandra Incorrect ballast / lifting a heavy container Oct 2002 Alva Star Operating/Navigational error Nov 2002 Hanjin Pennsylvania Fire/Explosion due to dangerous + undeclared cargo (CaHypoCl) Sept 2005 Fowairet Grounding for unknown reasons Dec 2005 APL Panama Human Error – Grounding Mar 2006 Hyundai Fortune Explosion (source unknown) June 2006 Emma Maersk Fire during welding works www.containershipping.nl/casualties.html Aug 2006 YM Green Fire due to containerized Cargo Source: Source: Have we been lucky so far? “U. L. C. S.” – Matthew O’Sullivan 15 20 Sept 2006 Cargo – the Risks

Fire – the largest risk

Carriage of Dangerous goods remains as our biggest threat Only 57% of fireworks met basic quality standards, with banned chemicals and poor packaging Factors, such as .. - Temperature - Packaging (how and when) - Contamination - Manufacture Process - Labeling Need to imbed a concept of professionalism that recognizes that mistakes in loading on dry land can lead to explosions on the high

“U. L. C. S.” – Matthew O’Sullivanseas! 16 20 Sept 2006 Cargo – Voices of Average Values Estimated

European Insurer 117 000

Claims Adjusters 80 000 – 85 000

Container Conference 210 000 Rotterdam

Press Release “Directions 185 000 Magazine”

Recent Loss Consignment 92 000

MR Assumption 80 000 – 100 000

“U. L. C. S.” – Matthew O’Sullivan 17 20 Sept 2006 The Result – Total Loss Scenario

Cargo = 11 000 TEU x USD 80 000 = USD 880 000 000 Hull = USD 145 000 000 Total Potential Loss = USD 1,025bn

“U. L. C. S.” – Matthew O’Sullivan 18 20 Sept 2006 The Result – Worst Case Scenario

Cargo = 14 500 TEU x USD 100 000 = USD 1,450bn Hull = USD 145 000 000 P&I = USD 500 000 000 (or even more) Total Potential loss = USD 2,095bn

“U. L. C. S.” – Matthew O’Sullivan 19 20 Sept 2006 100 Largest Container Ships in the world

100 Container Ships with 875 000 TEU

Source:“U. L. C. S.” http://en.wikipedia.org/wiki/Container_ship – Matthew O’Sullivan 20 20 Sept 2006 A Reinsurers Opinion

Î The accumulation aspect in cargo insurance has long been overlooked... Î We can no longer use our old excuses like: “can’t assess the risk”; “cargo is always moving”; “we are not the same as property” and “it will never happen”. Î As the exposure increases so does the focus on marine increase for the capital providers. Î Are we looking in the right area? Is the loss of a ULCS really the worst case scenario for the cargo market?

Î What about onshore Cargo Accumulation?

“U. L. C. S.” – Matthew O’Sullivan 21 20 Sept 2006 Munich Re – Port Exposure Project In Conjunction with Munich Re Geo Risks Research Dep.

“U. L. C. S.” – Matthew O’Sullivan 22 20 Sept 2006 PML Study on Major Ports Hamburg & Tokyo

“U. L. C. S.” – Matthew O’Sullivan 23 20 Sept 2006 Thank you for your attention. Matthew O‘Sullivan Munich Re

“U. L. C. S.” – Matthew O’Sullivan 24 20 Sept 2006