Small surplus, stable premiums at German defence club

Credit: IHS Markit
Credit: IHS Markit

German freight, demurrage & defence insurer Schutzverein Deutscher Rheder has closed the 2017 policy year with a smaller financial surplus and reduced insured tonnage, even so premium rates for its members will remain frozen.

The mutual, which mainly serves German non-operating shipowners posted a marginal surplus of EUR17,147 (USD19,000) down from around EUR55,000 in 2016 and from over EUR400,000 in 2015.

Managing director Michael Wester said that the drop from last year was chiefly due to tax effects. However, over the last 6 years its insured fleet has shrunk rapidly – from 2,100 vessels in 2012 to only 1,280 as per end of October – eroding its premium base.

The decline is roughly in line with the dramatic reduction of the German-controlled fleet over the last years due to KG insolvencies and vessel sales. Still the volume of claims recovered or averted on behalf of members rose to EUR18.4 million in 2017, up from EUR15 million the year before.

Talking to IHS Markit, Wester stressed that Schutzverein remains in robust condition with accumulated reserves of far above EUR5.0 million while its operations are still cost-efficient despite a “substantial reduction in vessels”.

Its annual general meeting last week voted to keep premium rates unchanged for the 14th consecutive year in a range from EUR440 to EUR1,800 per annum. That would still allow the FD&D club to show a balanced result going forward, Wester explained. Further underlining Schutzverein’s strength, the insurance cover for members has just been increased to cover surveyor costs up to EUR5,000 per case and legal assistance for collision-related disputes which used to be excluded from cover.

This year, claims volumes have been falling, probably as a result of the decline in insured tonnage, with the number of new disputes handled by Schutzverein dropping to 241 in the period from January to October, against 269 in the corresponding period last year. However, general enquiries for legal assessments, mainly related to charter party wording, rose from 221 to 253 over the same period, Wester said.

Schutzverein’s chairman Dr. Kurt Klemme, managing director of Reederei Nord, said that the board is alarmed at the rising share of disputes over bunker-related losses. “Nearly every second dispute today is bunker-related and we expect a lot more of it coming up,” Klemme said, pointing to possible quality and transition problems in relation to the 0.5% sulphur cap effective January 2020.

Despite likely operational disruptions and disputes with charterers in the immediate aftermath of the regulation, shipowners are expected to benefit significantly from the effects of IMO 2020 on tonnage supply and demand. Three factors are expected to hamper vessel productivity, thus limit tonnage supply and to send freight and charter rates soaring: longer deviations to bunker ports due to limited availability of different fuel products, increased drydocking of ships for scrubber retrofits and repairs, increased numbers of machinery failure due to problems during fuel transition.

Upcoming initiatives at Schutzverein include the set-up of an online rating tool for charterers and suppliers of its shipowner members. The new offer, which may raise eyebrows with charterers, will be part of its relaunched web portal in the coming months. The rating tool is to increase awareness over substandard charterers or suppliers and to prevent losses and disputes for Schutzverein’s members, Klemme said, adding that the initiative is compliance with competition law.