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HULL & MACHINERY REPORT 2016

MARINE HULL & MACHINERY AND WAR RISKS MARKET UPDATEMAY 2016

MARINE MARKET REPORT


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Founded by Arthur Gallagher in Chicago in 1927, Arthur J. Gallagher & Co has grown to become one of the largest insurance brokerage and risk management companies in the world. With significant reach internationally, the group employs over 20,000 people and its global network provides services in more than 140 countries.

Outside the US, we use the brand name Arthur J. Gallagher.

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CONTENTSINTRODUCTION 2

MARKET MOVES 2

CASUALTY REPORTS 3

UNDERWRITERS’ ROUND TABLE 6

WAR AND PIRACY Piracy Q1 2016 Report by AEGIS Response 14

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INTRODUCTION

Welcome to the May 2016 edition of the Arthur J. Gallagher Marine Hull & War Risks Market Report.

For this special edition, we welcomed three well known Lloyd’s Underwriters to the Arthur J. Gallagher office for a round table discussion on issues currently affecting shipping and the insurance market. During our discussion, they were able to offer their own valuable insight into how insurers can assist shipowners in the difficult shipping market and also the unique difficulties they face maintaining profitability in such a challen ging environment. This discussion was most successful and is something we hope to make a more regular feature.

We also include for the first time a War & Piracy bulletin from Aegis Response, one of the market leaders in maritime security intelligence.

Simon Shrimpton has left XL Catlin and will join Houston Casualty after expiry of contractual notice periods. In further XL Catlin related news, Jonathan Holmes has moved to the Singapore office where he has commenced underwriting marine risks locally in the Far East.

Richard Bridges and Ross Deering have joined Novae Syndicate having recently left MS Amlin.

Darryl Emery after 14 years at Chaucer moved to Swiss Re as a Senior Hull Underwriter.

Jack Buchan has joined Canopious, having moved from Brit.

Paul Fry and Sarah Wilson have recently announced they will be leaving Aspen Syndicate. It is believed they will join Skuld Syndicate later this year.

MARKET MOVES

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CASUALTY REPORTS

NUSANTARA AKBAR

The Indonesian flagged Nusantara Akbar dwt 6,700 reported sinking in the Malacca Straits, 27 miles off Dumai, following water ingress. Though most of the crew abandoned the vessel, unfortunately one crew member was understood to have died having been trapped in the engine room. The accident took place on 13th February 2016.

RAFELIA 2

The ferry Rafelia (built 2014) capsized in Bali Strait and sank on 4th March 2016. On board the vessel were hundreds of passengers. 71 people were rescued but 10 passengers were missing. At the time of the accident, the local authorities were not sure about the exact number of people on board. The vessel was sailing between Gilimanut and Ketapan but capsized in relatively calm seas. According to preliminary reports, the vessel suffered water ingress which led to heavy listing.

CONTAINERSHIPS INVOLVED IN ACCIDENTS IN EGYPT

Two containerships were involved in accidents in Egypt within the same week. The MSC Fabiola, a 12,500 TEU containership, grounded following an engine failure midway Great Bitter Lake and Suez, at the southern end of the Canal while en route to Oman from Malta. Traffic was blocked and the vessel was refloated the following day with the assistance of six tugs.

Five days later the COSCO Hope, a 13,902 TEU vessel crashed into a gantry crane after midnight while leaving the port. Fortunately no deaths were reported, but a small number of workers took injuries in the accident. A number of containers were knocked over as the crane boom collapsed having been reportedly hit by the ship’s stern, and several other cranes sustained damages.Reports also suggested that some of the containers were on fire and a large explosion took place due to hazardous chemicals in one of the containers.

Above: Indonesian National Search and Rescue Agency

Above: Rafelia 2

Above: COSCO Hope


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TS TAIPEI GROUNDING

The 2006 built fully cellular containership ran aground on 10th March 2016 off the coast of Shimen Township in New Taipei after having suffered loss of propulsion during a heavy storm. The 21 crew, all Myanmar nationals, were reported safe after having abandoned the vessel on life rafts. Unfortunately during the search and rescue operations a helicopter crashed into the sea, leading to two passengers dying. Two weeks later during another storm the hull cracked and the vessel begun to break apart. Most of the containers remained on board although some have fallen into the sea and subsequently washed out at shore.

Following the hull breaking apart, a massive oil spill was caused, with oil from the vessel affecting some 2km of Taiwanese coastline.

KM BUNGA MELATI XV

The General Cargo ship KM Bunga Melati XV sank on 22nd March 2016 in Port Tagulandang, on the northern tip of Sulawesi Island, Indonesia. Reports suggest that the 1980 built vessel, which was owned by Petramina Perseno, suffered a breach after hitting a reef while approaching the port dock. At the time of the incident the vessel was carrying approx. 2,400 tons of cement.

Above: KM Bunga Melati XV

Above: TS Tapei hull breaking

Above: TS Tapei grounding

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UNDERWRITERS ROUND TABLE

Arthur J. Gallagher had the opportunity to welcome three of the leading Lloyd’s Underwriters in our London offices for a discussion around the latest topics in Marine Hull & Machinery Insurance. The Underwriters participating were: Iain Henstridge from MS Amlin Syndicate, Mike MacColl from Talbot Syndicate and Peter Townsend from Am Trust Syndicate. The questions were collated by the Arthur J. Gallagher marine team and posed by Charles Gibbs and Matthew McCabe.

PETER TOWNSEND

Peter Townsend graduated from Warwick University in 1979 with an Honours degree in Economics. He commenced work as a clerk with the marine syndicate, TW Higgins and others, at Lloyd’s in 1980. After completing his Fellowship of the Chartered Insurance Institute in 1986, he moved to become deputy underwriter on a small syndicate, writing all classes of marine business.

After twenty years with Lloyd’s syndicates, Peter “jumped the fence” to join Marsh in charge of the marine reinsurance support team. The last eighteen months of his eight year broking career were spent as Head of marine hull at Aon, before he was approached by Swiss re, who he joined in August 2009 as hull and liability underwriter. In November 2015 he became Head of Marine at Amtrust, writing for their Lloyd’s syndicate.

Peter was elected to the Joint Hull Committee, the London market hull technical body, in 2010 and is the current Deputy Chairman. In January 2016 he was elected to the Lloyd’s Market Association committee (LMA). He is a past member of the International Union of Marine Insurers (IUMI) Ocean hull committee

and Technical Marine Committee of the International Underwriting Association. In addition he is a member of the Lloyd’s Salvage Group and a committee member of the Insurance Institute of London. He lectures regularly at the Lloyd’s Maritime Academy, the technical courses for the Chartered Insurance Institute and has spoken at IUMI and Salvage conferences.

AM Trust Group was founded in 1998 and is a USD 6 billion multinational, specialty, property and casualty insurance company listed on the NASDAQ. AmTrust Group is rated “A” AM Best with a stable outlook

Syndicate 1206 started in 1996 as part of management buyout from Sturge. By 2000 it was a fully integrated Lloyd’s Vehicle. In 2016 AmTrust purchased ANV to move into top 10 syndicates by size. Syndicate 1206 has a £200 million capacity.

IAIN HENSTRIDGE

Iain Joined the London marine insurance market in 1986, initially in the company market before a move to Amlin in 1987 as Deputy Yacht underwriter. Joining Catlin in 1992 saw Iain switch to Hull underwriting and whilst there he developed the account into one the largest at Lloyd’s. Iain returned to Amlin in 2009 where he is currently Global Product Leader for Marine Hull & War and the regional Manager for the Lloyd’s Marine business at Amlin.

MS Amlin provides clients worldwide with Reinsurance, Property & Casualty and Marine & Aviation coverage. With over a hundred years’ experience in the insurance markets, our track record is built on a proven strategy; encouraging our teams to apply Amlin’s successful underwriting formula, incorporating a dynamic approach to risk, all the while developing a geographically diverse global portfolio. Amlin was acquired by MSAD in 2015 and is delighted to be part of one of the world’s largest and longest established insurance groups.


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MIKE MACCOLL

Mike started his career at Lloyd’s Claims Office in 1985 before moving on to Cigna International in 1995 and Richards Hogg International (RHI) in 1997. In 1999 Mike became Managing Director of Richards Insurance Services and Richards Technical Services (part of RHI and Charles Taylor Consulting) handling development of the marine claims and surveying businesses servicing the London and International insurance markets. In 2008 Mike joined Talbot Underwriting Ltd as Marine Claims Manager and in 2010 was appointed Senior Class Underwriter responsible for Hull, Yachts and Marine War risks for Syndicate 1183 at Lloyd’s. Mike is a subscribing member of the Association of Average Adjusters, an Associate Member of the Chartered Insurance Institute, a Chartered Insurer, a Fellow of the Institute of Chartered Shipbrokers, and a member of the Joint Hull Committee at Lloyd’s.

Through its operating subsidiaries, Validus Group offers a broad range of innovative insurance solutions, with a particular emphasis on shorttail lines of business. Talbot Syndicate 1183 develops tailored insurance solutions that address clients’ evolving and often unique needs. In particular, the syndicate writes a comprehensive marine account complemented by property, construction, contingency, accident and health, financial institutions, aviation and treaty reinsurance.


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CG: We are all well aware that the shipping market is currently facing some unprecedented challenges. We have seen steady increases in vessels laid up in the offshore and container markets. It seems in early 2016 that many dry bulk owners are also rushing to lay up vessels until the market shows some sign of improvement. What can insurers do to assist owners in these challenging times?

IH: “I suppose if you look at the Baltic Dry Index it has reached record lows and obviously a ship is only worth what it can earn. So you can deduce from that the ships are worth less and therefore we would expect to see some of the sums insured coming down which does give reduced premiums. Of course we understand some people have loan commitments and need to service those and insure at those values.

Ships can be laid up but there needs to be a base of premium for insurers to meet their obligations and if that base is denuded much more, then I think people will certainly look to reduce their capacity in the market and perhaps we could see the first signs of a slightly harder Hull market. I think it is quite difficult with Bulk Carriers at the moment particularly, I think there are a lot of fleets on the move during this P&I season, Owners are under genuine pressure, but let’s not forget they did have some great times a few years ago, but they are tough now. Accounts are remarketed but there is not much appetite from the Insurers perspective to write undervalued tonnage with no work.

CG: May I suggest that is the situation as we find ourselves in now, with premium coming down as a natural consequence of assets being revalued downwards, but what you are saying is that we’ve probably got to the stage when it’s not going to accelerate any further?

IH: No I doubt it. There is a massive oversupply for the capsizes in particular. Coming off the peak of 220,000 a day a few years back, you are looking at just a few thousand dollars a day today. These guys are suffering and we feel their pain but we still have a business to run and if you ground a capsize it is a very expensive casualty so there needs to be a base premium.

Ultimately if you are really honest there is an oversupply of tonnage for the work available. Short of offering layup facilities, (there are port risks covers etc. that brokers have which can take this kind of tonnage), unfortunately

some of these ships, especially the older ladies, will be on their final voyages. There is a fairly healthy insurance market for final voyages and I suspect we will be seeing some more of that.

PT: Perhaps assureds need to understand our problems as well with the conundrum of the vast amount of laidup tonnage because we are now being presented with event exposure that we have never priced before. Shipping exposures have always been viewed as noncorrelating by their very nature. Taking offshore supply boats for example, with 40 or 50% of fleets being laid up cold in hurricane exposed areas; we are presented with an event risk that we have never fully factored in because it was always viewed as noncorrelating exposure. We are presented suddenly with the same sort of risk that our colleagues who write property in wind exposed areas also have. Apart from the wind exposure we also have perhaps the fire risk for vessels laid up together which could hit multiple vessels.

We are sympathetic to the owners’ issues but as Iain said we have a business to run and the only way we can assist is if the risk changes. Of course if the vessel is laid up we take the navigational perils away but are we buying a problem in the future when vessels come back after reactivation? Perhaps we could lower values, increase deductibles, restrict the perils? All these are ways in which Underwriters possibly could assist with a premium reduction.

CG: Does the recent scare involving the ‘CSCL Indian Ocean’ increase fears of a serious casualty involving the largest container ships. Can any lessons be learned in terms of risk mitigation?

PT: I think it is just confirming the certainty that there will be a serious casualty. Only days after the ‘CSCL Indian Ocean’ (19,200 TEU capacity), the APL Vanda containership grounded in the Solent. They managed to get both vessels off. With regards to the ‘CSCL Indian Ocean’ she was grounded for 5 days and salvors had to remove somewhere in the region of 50,000 cubic meters of riverbed in order to assist her off. They had to wait for the spring tide and they also had to discharge 6,500 tonnes of bunkers to deballast the vessel. Had salvors not been able to get the vessel off at that tide one of the few options they had was to discharge some of the containers. The salvors looked at the sheerlegs that might be required to lighten the vessel. The sheerleg is a crane barge platform which jacks up and has the height and capability to remove containers off the top remembering


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that potentially there are 11 containers below the deck and 11 containers on deck. The nearest sheerleg with a capability of doing that was in Canada. So we could say this was another near miss. We shouldn’t forget that this is modern tonnage, and this equals fewer claims and situations, but as it ages it is almost certainly going to happen. 25% of the worlds TEU capacity is carried on vessels of 10,000 TEU or more. It is a problem that is increasing, evolving and certainly not going away. I question the ability of salvors to be able to discharge a vessel of that size which is not alongside purpose built ship to shore cranes. Add a slight list and the problem magnifies. I also question the ability to deal with fire on board a mega containership. The IMO regulation as I understand it is that you need to have fixed firefighting capability for five layers of containers on deck, whereas the new ultra post panamax has 11 containers on deck. I think that was brought about to cover the panamax vessels but those have evolved enormously. If you have a fire in one of the upper containers on one of those ships how can you put it out?

CG: We agree that there is a monster claim to happen but what is the insurance market going to do when it happens? Are you then going to exclude these types of loss, or try to change the terms on these mega shipping companies?

IH: You shouldn’t write the risk if you are frightened of it and let’s not forget that not everybody writes big container ships.

PT: I understand there was a fire on a large containership recently which resulted in a big sue and labour expense being submitted which Hull Underwriters paid. Had this ship not been a containership, it would have been a GA claim. Because it was a containership, the cost of collecting the counter guarantees on behalf of the Hull Underwriters meant that the cost of the GA was so high that a sue and labour expense was submitted in lieu of a GA. That’s not the aim of sue and labour, it was a sticking plaster to deal with this particular casualty, but I do believe that we are at breaking point for GA on these big containerships. These exceptional factors need to be reflected in the pricing, deductible levels and coverage.

In terms of risk mitigation, the owners should be driving this. They should be looking at changing the basis on which they carry their goods. GA has been around for 2,800 years and works very well for everything else except containerships. It is the multiplicity of the cargo interests aggravated by the increased contribution of cargo to the overall ventured values. The bigger the ships, the greater the cargo value is contributing to that which currently is being assumed by hull interests

I think we are fast approaching a tipping point, and my pleato owners is that they should devise a new system together for the way they carry their containers.

There are two aspects to the containership risk. General Average is one; the other is the salvage aspect. There is a problem, as these ships are built with very tight tolerances. If the ship’s trim is out by more than two


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meters between bow and stern you can’t get the underdeck containers out because the cell guides foul.

How do we discharge containers from a ship with a list? People come with proposals but they raise more questions than provide solutions. The technology for carrying containers has changed much faster that the technology for salvage.

This is much wider than an insurance issue. Because when it happens, not if, a lot of serious questions are going to be asked. While we don’t have the answers we don’t seem to be searching hard enough for those answers. And let’s not forget that this is a shipping issue, as we are all in it, shipowners, classification societies, the salvors, IMO, the insurance Underwriters and all stakeholders.

Let’s not forget that in the past 50 years containerships have revolutionised manufacturing goods. You can buy a TV at 500 dollars only because it can sail at 24 knots from the Far East to Europe. We have yet to see the very large casualty but look at how long it took to unload the Rena which was a relatively small vessel, with 3,350 TEUs capacity and about 1,350 boxes on board. Three years after she grounded the boxes were not yet unloaded. With mega ships carrying 13,000 TEU plus you move the decimal point across one space.

CG: There are many potential opportunities that will arise from the lifting of sanctions against Iran. How can insurers and brokers assist shipowners in this area?

IH: The simplest answer is not to overpromise, not to rush in, and to have proper well thought out solutions where there is full buy in from the legal departments. Because there are primary and secondary sanctions, there are currency considerations so it needs to be well thought out.

MM: The clients need to understand the ramifications of what remains of the sanctions clearly so they are in a position to make an informed decision as to whether they can go into Iran themselves, or do business with Iran, knowing they have a full insurance product behind them. If they don’t know that, it can only lead to problems at a later date.

CG: Do you think the market is polarised between a set of Underwriters who are UK subsidiaries of US companies and others who are more European.

IH: There are those who are red light and those who are amber light and cautious but there are no green lights at the moment so this has to be treated with caution.

PT: It is the same problem we had several years ago when the sanctions clause was first imposed by certain Underwriters and markets, some markets didn’t impose one. When not all markets are operating on the same basis, that creates the same conundrum that exists now. It is just a variation on the original sanctions clause issue.

There are other elements of the business where the problems are even greater, for example P&I. You have the world’s biggest reinsurance contract reinsured by American Underwriters, by people who in some ways would be estopped from paying a claim to a shipowner or to a club due to a breach of primary sanctions. Yet the clubs are offering that (P&I cover) which essentially binds everyone around it, the Lower Pool, the upper Tier, the Captive and the commercial market. The following markets therefore may be being committed to risks that they cannot respond to.

IH: We had issues with what would happen if you loaded bunkers in Dubai and found out that was Iranian Oil. This was a circumstance that IMO, the Joint Hull Committee and the IUMI worked together to get resolution. It is an enormously difficult area. Shipping is international. We have to do our due diligence. Iran is only one area. They talk about increased sanctions in North Korea. If you look at the Norwegian Sanctions wording it includes Russian sanctions. What would happen if there was an escalation between Turkey and Russia? There have been seizures of vessels within the Black Sea. Potentially does that mean a claim might not been paid? Iran is one thing which is approaching a resolution but there are other sanctions issues for the future.

PT: And certainly it is high on the agenda of the Market Associations, be it the LMA or the Joint Hull Committee or the Joint Cargo Committee.

MM: The question from the owners is when someone says that it is covered, what do they mean? There is still a lot of uncertainty. There are problems with moving the funds, not only the US dollars. Obviously given the current markets a lot of owners are thinking of trading to Iran but they will need to consider it. They can make a commercial decision, but they need to be fully informed by the Brokers and Underwriters in order to do that.


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As claims are often referred to as the ‘Shop Window’ of insurance, what should the London market be doing to improve the claims agreement/ settlement process in order for London to retain its position as the premier insurance market globally?

MM: I think when it comes to a track record of claims payment, the London Market is pretty good overall. On major casualties that have occurred over the years London is famous for paying those claims quickly, Costa Concordia is an obvious example of that. There are many examples of the London market stepping up to the plate very quickly and very efficiently handling the most complex and large claims. Perhaps the processes behind that for the smaller and attritional type claims may be what we are talking about here and I have no doubt that processes can be enhanced, be quicker.

There is lot of cost involved in the claims handling process; there is a lot of change in the claims handling process. Certainly from my experience of claims handling, the key to it is to have a relationship with the broker and the client and taking claims by the scruff of the neck upfront. We are often compared to different entities in different parts of the world, Norway comes to mind, where the Norwegians facilitate claims handling in a different way often writing a larger share on a nonsubscription basis but obviously charging for the claims handling on top for the following markets and making profit out of that. The London Market doesn’t do that. We use independent claims advisors; personally I think this is positive for the client. We look for the best in consideration of the type of casualty; we look for the best lawyers, best salvors etc. where we have that influence and we look to take control of the claim. So from a major casualty point I don’t think there is any criticism, perhaps it’s the processes behind that which could be improved. But it is a global marketplace and the London Market is often a bit part of the administration of the claims handling as opposed to the frontline.

IH: I think if you also look at the collection of claims where you have gone to verticalised placing, I am pretty sure that some of these markets that started to appear on security lists may lack the willingness to settle claims quickly.

MM: The criticism might be held on the London Broker who placed business overseas and it is the overseas placement that’s delaying the claims money coming through, not actually the London part.

M McCabe: In my experience recently, I totally agree that the complex high profile cases are handled very efficiently. It is the smaller claims (which to some owners could still involve a substantial amount of money). It was very simple when you had one leader party in London and it was very simple to have a claim agreed and settled, but nowadays Lloyd’s dictate that you can’t do that anymore and you need to have two leaders and Xchanging, who no longer are an agreement party but still have between 23 days to turn it around. Sometimes when you explain to the client, it is difficult for them to understand why since the leader has agreed and the claim is approved the funds are not released.

IH: As underwriters we offer a marginalised product andlook to differentiate ourselves, which is very difficult in a market driven with overcapacity a lot which is A rated paper. So how do we do it? It’s down to relationships with the claims teams, our claims adjusting, and with the placing brokers and then knowing that there is a general willingness to pay on behalf of a leader. Some would look to make grey where there is black and white so that’s why you choose a good broker who knows the market, because if you went to an amateur broker or leave it to an algorithm you wouldn’t necessarily get that service.

M McCabe: But regardless of which Lloyd’s Broker you use for the London Market you would still have the Xchanging…

IH: I know, absolutely and obviously there have been ownership changes there and hopefully we expect to see an improvement in service.

CG: Can I go back to the comparison with the Scandinavian System. You were making the point that Scandinavians do it differently. They have everything in house and they control that process themselves. Some Owners I think take great comfort from the fact that everything is in house, one point of contact. If a problem happens on a weekend there is just only one phone call to make and they are also very good at marketing themselves. Norwegian Hull Club has 120 claims people or people in the claims department; they also have the incident room. Do you think that the London market doesn’t market itself well?

IH: Yes, I think that London doesn’t sell itself particularly well, but I don’t think that all Owners want this kind of stifling experience.

CG: As leaders, do you feel a responsibility to the following markets?


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MM: There are responsibilities and legal liabilities. But certainly from our perspective this doesn’t drive the claims handling. Obviously we have a responsibility to the following market. You can’t just ignore the followers and by protocol you are not allowed to.

PT: I think the London Market system is perhaps more transparent than some of our competitors. While not referring specifically to any other market if there is something that is slightly contentious the leader is performing a duty of care towards the capital providers, but also the supporting market has the discussion, the open forum just to ensure that everything is done to the letter of the law with everyone’s agreement.

CG: How are you preparing for the New Insurance Act which will come into effect further this year? Will the new Insurance Act help further improve the standing of the London Market?

PT: As far as preparing for the New Insurance Act we have some in house training. This is a question of the old Insurance Act not working well and some of that was in the interpretation of the Insurance Act. There are certain issues that perhaps needed reforming. For example a breach of warranty voided the policy and you couldn’t put it right, whereas now you will be able

to do so and this is ultimately good for all the parties involved. What will happen is each and every word will be tested in the courts but rule of law will not apply. At the moment it is largely untested but as people become more comfortable with it, it can only improve the standing of the London Market.

CG: On the face of it is also more consumers’ friendly.

MM: I would agree it seems it is very consumer driven.

IH: The mindset behind it is correct without doubt. You‘ve seen in certain parts of the world insurers taking money in good faith and then you look at the policy. It is full with a string of warranties, which are completely unfair. You use warranties as conditions precedent, as a means of controlling the risk so that you can sell an acceptable premium to both parties. But you can see some people using this as a tool to beat the assured with and that’s not a way of working.

PT: I think a lot of it comes down to the quality of the broker to explain the exact ramifications and things that competing markets can offer. That’s when you become risk advisors rather than transactional brokers and that’s an expertise that facilitised brokers are going to lose.



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PIRACY Q1 2016 REPORT by AEGIS ResponseBy Lottie Catto and Ed Whitten

In 2016, West African waters will be the world’s most dangerous for piracy for the third year running and many commercial shipping firms see no sign of change in the short to medium term. And yet there are indications of an improvement – at least in the long term. As the maritime situation in East Africa has shown, political will is of central importance if the problem is to be tackled and Nigerian President Muhammadu Buhari has made a commitment to combating piracy. Wellinformed local sources say this is not an empty promise: Buhari’s influence, combined with new regional and bilateral measures aimed at combatting piracy and maritime crime in the wider Gulf of Guinea, could mean companies operating in the region start to see encouraging signs of change soon.

THE MOST DANGEROUS WATERS IN THE WORLD

The waters off Nigeria stand alone in their reputation for having vessels routinely hijacked with the purpose of abducting crew for ransom, or the hijack of commercial vessels in this area in order to offload product for resale on the black market. With poorly enforced security, lowlevel boarding and robberies at ports and close to shore occur with worrying frequency.

In 2015 there were 43 confirmed incidents1 of piracy in the wider Gulf of Guinea. Of these, 20 were classified as hijacks, 75% of which involved the kidnap of crew or passengers for ransom. In contrast, there was only one reported incident of a vessel being hijacked for product theft, involving MT MARIAM on 11 January 2015. The hijack and subsequent maritime kidnap involving the cargo ship SOLARTE in October 2015 is indicative of this type of incident in this area. Armed pirates approached the vessel at speed and opened fire before boarding. They stole ship’s cash and then identified the Ukrainian master and deputy of the SOLARTE and abducted them, along with two Lithuanian crewmen. On 13 November, an official from the Lithuanian government announced that the four hostages had been released, declining to comment on whether a ransom had been paid.

Pirates usually target vessels close to the Niger Delta shore, where there is a high concentration of targets, and often abduct the master of a vessel and any other senior crewmen, due to the perceived higher ransom value of senior crew. They typically take three to four hostages in total, as a lower number is more easily transportable and requires less initial investment, due to the smaller amount of food etc. which is needed

to keep hostages alive while negotiations are ongoing. The hostages are then transferred to land, where they are held during the negotiations.

The creek areas of the Niger Delta are relatively inaccessible, lawless and therefore ideal places to hold hostages during negotiations. For expatriates who fall victim to maritime kidnap, the average time in captivity is four weeks and ransoms range from US $50,000 – 150,000. The three hostages taken from the MT KALAMOS in February 2015 (two Greek and one Pakistani), were released for a reported ransom of US $400,000. For local nationals, both the ransom figure and time in captivity is lower.

A CHANGE IN TACTICS

Although the past year has seen a shift in tactics by pirates in West Africa, the levels of incidents of maritime kidnap and boarding and robberies have remained steady and there is no indication that this will decrease in the medium term. All but three months in 2015 (June, September and October), saw at least one kidnap incident where crew or passengers were abducted from vessels by pirates. While total piracy incidents have fallen from 62 in 2014 to 43 in 2015, this does not mean the threat of piracy has reduced. Instead, it reveals a shift away from hijacks for product theft in favour of maritime kidnaps. The majority of the last year’s hijacks occurred within Nigeria’s contiguous zone, less than 24 nautical miles (NM) off the coast of the Niger Delta. By comparison, 2014 saw more hijacks take place at some distance from the Nigerian coastline, most notably, the January hijack for product theft of MT KERALA at Luanda, Angola (at least 860 NM from the Nigerian coast) and the June hijack for product theft of MT FAIR ARTEMIS off Ghana (at least 200 NM from the Nigerian coast). Concomitant with the shift away from product theft, pirates in 2015 transferred their attention to targeting vessels for maritime kidnap close to their bases in the Niger Delta. It is interesting to note that of the four hijacking incidents that occurred beyond 24 NM of the Niger Delta coast in 2015, three of them took place in January, indicating that as the year went on, this shift became even more pronounced. No such shifts have been evident at the start of 2016 and already incidents have been shown to follow the same tried and tested formula seen in 2015: pirates have targeted passenger and merchant vessels for maritime kidnap, close to the Niger Delta shore.

WAR AND PIRACY

1 Incidents reported to both military and civilian piracy reporting centres 2 It is also worth noting that reporting figures for this region are notoriously low, with up to 60% of piracy incidents believed to go unreported.

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THE SOLUTION

Wider Gulf of GuineaIn much of Africa, where foreign investment has flooded into developing deep water ports capable of meeting the anticipated demands of increasing global trade and greater ship sizes, there has not been comparable investment in security infrastructure. This is true of West Africa, which has seen an average increase in container traffic of almost 12% yearonyear since 2001 and where ports – such as Lomé, Tema, Luanda and Lekki – are undergoing large expansion projects funded by European and Asian investors, but basic security at these harbours and anchorages continues to be a problem. In order to appease investors and generate trade and economic growth, the Economic Community of Central African States and the Economic Community of West African States (ECOWAS) adopted the Yaoundé Code of Conduct to tackle maritime crime in Central and West Africa in June 2013 and have developed maritime security strategies which provide frameworks for member states to cooperate on crossborder issues and share information. ECOWAS’s Integrated Maritime Strategy has led to the establishment of the Maritime Trade Information Sharing Centre in Accra and a Multinational Maritime Coordination Centre in Cotonou, formed to facilitate joint security exercises and operations in the Gulf of Guinea’s Pilot Zone E.

While these initiatives have elevated maritime security issues to the political level and have spawned organisations that will assist with the long term improvement of maritime security in the region, progress in reducing short to medium term maritime crime is being hampered, particularly by domestic underinvestment in maritime law enforcement. The 3,000 NM coast of West Africa is not effectively policed by capable and sizeable navies or coast guards and shipping is not restricted to lanes or anchorages which can be easily patrolled (although the Secure Anchorage Area off Lagos demonstrates how such areas could be successfully protected). Almost all West African maritime security forces lack the number of working offshore patrol vessels (OPVs) required to conduct effective patrolling of the entirety of their territorial waters, or to effectively respond to incidents, and do not have more advanced capabilities such as maritime patrol aircraft or satellites which could help them to monitor waters further from the shoreline.

A number of countries, including Benin and Ghana, have invested in radar surveillance capabilities including Nigeria’s recently inaugurated Israelidesigned, UAEbuilt Falcon Eye mass maritime surveillance system. However, current systems only cover waters up to a maximum

0Jan Feb Mar Apr May

2

4

6

8

10

12

14

2013 20152014

Jun Jul Aug Sept Oct Nov Dec

2016

TOTAL NUMBER OF REPORTED PIRATED INCIDENTS

14

of 40 nautical miles. Most countries in the region also receive some degree of international assistance in the form of equipment and training; the USled annual Obangambe Express maritime exercise, in which all Gulf of Guinea littoral states participate, is the most prominent example of this. In 2015, this exercise focused on building the region’s collective capacity to counter illicit maritime activity. If repeated, this type of assistance will have a positive impact in the long term but without permanent training support and greater investment, it is unlikely to immediately improve maritime security as the participants are too few and the fundamental issues behind piracy and maritime crime in the region remain.

The reality is that improving maritime security structures – which adaptable criminals will always seek to circumvent – must be coupled with strategies to tackle corruption, disrupt landbased criminal networks, deter involvement in maritime crime through effective prosecutions and improve socioeconomic conditions on coastlines. While there is the political will to address these issues in most countries in the region – and particularly in Nigeria under President Muhammadu Buhari – progress is slow due to endemic corruption, dysfunctional judicial systems and low commodity priceswhich are constraining economic development.

NIGER DELTA FOCUS

President Buhari, spurred on by a desire to secure revenues from stolen oil and by a genuine desire to stamp out corruption in Nigeria, has launched a series of initiatives to tackle maritime crime and remove corrupt officials in key institutions such as the Nigerian Maritime and Administration and Safety Agency, the Nigerian National Petroleum Corporation and the Nigerian Navy. Buhari’s anticorruption effort is unlikely to change the security picture in the short term – and could be painful for companies suspected of malpractice – but it provides hope that in the long term one of the key contributors to maritime crime in Nigeria will finally be dealt with. As part of this drive, since September 2015 the Niger Delta’s Joint Task Force has intensified its Operation Pulo Shield, reportedly arresting over 1,600 suspected pirates, seizing hundreds of vessels and destroying numerous illegal oil refineries. While these claims are likely to be exaggerated, the renewed military focus in the region is positive and response times to incidents are allegedly much shorter than they have been previously. Attacks, however, have continued both in the Delta’s waterways and offshore and are likely to do so throughout 2016; albeit at a relatively low level when compared with 2013. This may change, however, if Buhari restricts or stops the amnesty payments being paid to former

members of the Movement for the Emancipation of the Niger Delta (MEND) which has largely stopped attacks on oil infrastructure and shipping since its formation in 2009. Payments have continued despite Buhari giving an original December 2015 deadline for cessation, probably because of a realisation of the consequences of doing so. Although he may be intent on stopping it eventually, it will likely be continued throughout 2016, but some of the more expensive schemes may be reduced. Halting the programme would have an immediate detrimental effect on maritime security in the region as former MEND members – particularly the large proportion of young and unemployed – would likely resume attacks on oil infrastructure on and offshore.

CONCLUSION

While incidents of piracy show no sign of abating in the short to medium term, there is renewed hope for the Gulf of Guinea’s security picture. The majority of piracy is occurring close to the Niger Delta shore and is perpetrated by Nigerianbased maritime criminal gangs, making Nigeria’s political buyin crucial to solving this problem. Buhari has signalled a reinvigorated campaign against the endemic targeting of vessels off Nigeria, while multilateral efforts by littoral states have set in motion an improvement in coordination on antipiracy measures which is likely to bear fruit, albeit far in the future. There remain several roadblocks to progress which could derail this improvement. The cessation of amnesty payments to former MEND militants is a major one and could result in a swift resumption in attacks on oil infrastructure both onshore and off. Increased activity by secessionist Biafran militants, hoping to use piracy as a means to a political end, is another. Meanwhile, attacks will continue to plague commercial vessels in these waters in the medium term. However, Buhari’s political will and the will of the West African region, suggest that one should take this rare opportunity to be positive for the longterm maritime security of the Gulf of Guinea.

GARDAWORLD

GardaWorld is a global leader in comprehensive security and risk management. We are the world’s largest privatelyowned security company, serving clients in emerging, complex and highrisk markets around the world. Our services include static security, security consulting, risk analysis and reporting, crisis management and business continuity, mobile security, close protection, training and kidnap for ransom and extortion response.


15

Piracy incidents: Gulf of Guinea 2013–14

Piracy incidents: Gulf of Guinea 2014–15

Aegis Response is the kidnap for ransom and threat extortion response service of GardaWorld. We are an established and trusted provider of maritime intelligence and piracy response to the maritime sector. Our team’s extensive experience enables us to guide our clients towards making informed decisions to ensure the successful outcome of a crisis incident. Aegis Response consultants have managed the response to 39 piracy incidents in their case histories and assisted clients with 23 ransom drops to pirates. Our dedicated maritime intelligence team compiles comprehensive records of West African, Somali and Southeast Asian piracy incidents. We produce a monthly maritime intelligence report available to all Aegis Response clients, which

outlines the latest piracy incidents and tactics in sea areas where maritime criminality is a high risk. Our team of response consultants is based in seven different countries around the world, enabling us to reach our clients swiftly and easily in the event of a piracy incident and enhancing our understanding of regionspecific crisis risks.

Aegis Response has secured agreements with several leading underwriters to act as responders on their policies. This provides Aegis Response clients with the freedom and flexibility to place their insurance with the underwriter they choose while still maintaining their relationship with us as their preferred security partner.



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PRODUCT TANKER HIJACKED BY PIRATES OFF NIGERIA

According to Reports the Turkish tanker Puli, was attacked and seized by Pirates at 01:30hrs on 11th April 2016 while the vessel was en route from Douala to Abidjan. According to the Nigerian Navy 6 members of the crew were kidnapped, including the master and chief engineer. The pirates were seeking an undisclosed ransom amount for the crew. According to reports by Reuters, the six members of the crew were released two weeks later and returned safely to Istanbul. The terms of the release have not been disclosed.

FIVE CREW MEMBERS TAKEN BY PIRATES OFF NIGERIA

Five crew members were kidnapped after pirates attacked a vessel offshore Niger Delta on 26th March 2016. The vessel attacked was the 6,436 DWT MT Sampitiki and the attack was reported some 30 miles off the coast of Bonga. After having spent four hours on board and damaging some of the equipment on board, the pirates left the ship with five hostages. At the time of the attack the vessel was sailing between Port Harcourt and Luba in Equatorial Guinea.

FOUR HOSTAGES RELEASED UNHARMED

Four seamen abducted by pirates from the Greekowned, Panamaflagged tanker “Madonna 1” have been released unharmed in Nigerian territory according to a press statement by the shipping company on 30th March 2016. The four – three Greeks and one Filipino – were abducted in early March while the ship was sailing without cargo about 15 nautical miles from the coast of Nigeria while heading toward the port of Lome in Togo when it was attacked by armed pirates. After the abduction, the ship continued its journey and the Greek Shipping ministry mobilized its crisis management team, which alerted the ministries of national defense, foreign affairs and international centers for fighting piracy to the incident.

PIRACY REPORTS

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VESSEL ARTICLE SOURCE PHOTO PHOTO SOURCE

Nusantara Akbar http://www.rooselaw.co.uk/RoosePart-ners%20Casualty%20Newsletter%20-%20Edition%20151%20-%2017%20Febru-ary%202016.pdf

http://worldmaritimenews.com/archives/183014/one-dies-26-evacuated-as-tanker-sinks-in-ma-lacca-strait/

Rafelia 2 http://www.newsmaritime.com/2016/ferry-rafelia-2-with-hundreds-of-passengers-cap-sized-in-bali-strait/

http://www.shipwrecklog.com/log/2016/03/rafelia-2/rafelia-ii-1/

TS Taipei http://www.rooselaw.co.uk/RoosePart-ners%20Casualty%20Newsletter%20-%20Edition%20157%20-%2030%20March%202016.pdf

http://www.rooselaw.co.uk/RoosePartners%20Casualty%20Newsletter%20-%20Edition%20157%20-%2030%20March%202016.pdfhttp://www.shipwrecklog.com/log/2016/03/ts-taipei-2/ts-tai-pei-7/

KM Bunga Melati XV https://worldmaritimenews.com/ar-chives/186799/cargo-ship-hits-reef-sinks-in-indonesia/

https://www.vesselfinder.com/news/5656-Cargo-Ship-KM-BUN-GA-MELATI-XV-sank-in-Port-Tagu-landang-Indonesia

Containerships involved in accidents

http://www.maritime-executive.com/article/container-ship-grounding-blocks-suez-canal

http://www.shipwrecklog.com/log/2016/04/msc-fabiola/

http://gcaptain.com/cosco-containership-crashes-into-crane-at-egypts-port-said-causing-major-damage-photos-and-video/

http://humansatsea.com/2016/05/03/fire-erupts-con-tainer-ship-hits-gantry-port-said/

PIRACY REPORTSVESSEL ARTICLE SOURCE

Product Tanker highjacked by Pirates off Nigeria http://worldmaritimenews.com/archives/188416/pirates-kidnap-crew-of-tanker-mt-puli/

Five crew members taken by Pirates off Nigeria http://worldmaritimenews.com/archives/186992/five-crewmembers-tak-en-by-pirates-off-nigeria/

Four hostages released unharmed http://www.amna.gr/english/article/13383/Seamen-abducted-by-pirates-from-Greek-owned-ship-off-Nigerian-coast-released

MARINE CASUALTIES

http://www.rooselaw.co.uk/RoosePartners%20Casualty%20Newsletter%20-%20Edition%20151%20-%2017%20February%202016.pdf




http://worldmaritimenews.com/archives/183014/one-dies-26-evacuated-as-tanker-sinks-in-malacca-strait




http://www.newsmaritime.com/2016/ferry-rafelia-2-with-hundreds-of-passengers-capsized-in-bali-strait





http://www.rooselaw.co.uk/RoosePartners%20Casualty%20Newsletter%20-%20Edition%20157%20-%2030%20March









http://www.shipwrecklog.com/log/2016/03/ts-taipei-2/ts-taipei-7/



https://worldmaritimenews.com/archives/186799/cargo-ship-hits-reef-sinks-in-indonesia/



https://www.vesselfinder.com/news/5656-Cargo-Ship-KM-BUNGA-MELATI-XV-sank-in-Port-Tagulandang-Indone








ttp://gcaptain.com/cosco-containership-crashes-into-crane-at-egypts-port-said-causing-major-damage-p



http://humansatsea.com/2016/05/03/fire-erupts-container-ship-hits-gantry-port-said/



http://worldmaritimenews.com/archives/188416/pirates-kidnap-crew-of-tanker-mt-puli/

http://worldmaritimenews.com/archives/188416/pirates-kidnap-crew-of-tanker-mt-puli/

http://worldmaritimenews.com/archives/186992/five-crewmembers-taken-by-pirates-off-nigeria/

http://worldmaritimenews.com/archives/186992/five-crewmembers-taken-by-pirates-off-nigeria/

http://www.amna.gr/english/article/13383/Seamen-abducted-by-pirates-from-Greek-owned-ship-off-Nigeri

http://www.amna.gr/english/article/13383/Seamen-abducted-by-pirates-from-Greek-owned-ship-off-Nigeri


18

Arthur J. Gallagher

Walbrook OfficeThe Walbrook Building25 WalbrookLondonEC4N 8AW

Tel: +44 (0) 20 7204 6000Fax: +44 (0) 20 7204 6001

www.ajginternational.com

Arthur J. Gallagher (UK) Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AW. Registered in England and Wales. Company Number: 1193013. www.ajginternational.com

CONDITIONS AND LIMITATIONS This information is not intended to constitute any form of opinion or specific guidance and recipients should not infer any opinion or specific guidance from its content. Recipients should not rely exclusively on the information contained in the bulletin and should make decisions based on a full consideration of all available information. We make no warranties, express or implied, as to the accuracy, reliability or correctness of the information provided. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide and exclude liability for the statistical content to fullest extent permitted by law.

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