Tuesday, October 18, 2016

Shipping: Hanjin Re/Insurance Loss Could be $2 Billion Says Credit Suisse

From Artemis:

Hanjin re/insurance loss could be half a Tianjin ($2bn): Credit Suisse
The insurance and reinsurance sector could ultimately face a loss of as much up to $2 billion due to the financial collapse and bankruptcy of Hanjin Shipping this year, according to analysts at Credit Suisse. If that size of loss manifests, it has the potential to seep through to ILS funds investing in specialty risks.

Hanjin Shipping insolvency insurance and reinsurance lossCredit Suisse’s insurance equity analysts believe that the industry will face losses either in their results this quarter or next, depending on when they log estimates for the coming business interruption impact.

The Hanjin Shipping company suffered a spectacular financial collapse earlier this year, resulting in a technical insolvency and a need to restructure debt and causing cargo ships and containers to be stuck at sea, in ports and dockyards around the world.

The resulting business interruption claims have the potential to be enormous and of course where there is business interruption the knock-on effects could result in contingent BI claims as well.
The risks of cargo being delayed, stuck outside ports, on the quay side, in warehouses and generally not reaching its final destination, are one of the marine cargo areas of specialty insurance where losses can accumulate quickly.

Hanjin Shipping’s insolvency came after its creditors pulled its line of credit and at that time the company had an estimated 530,000 teu’s (which are 20ft container equivalent amounts of cargo) being carried on its fleet or in its care in transit.

To give an idea of the scale of Hanjin, it is said to carry around 7% of the cross-Pacific cargo each year, which is an enormous volume. Around $14 billion of cargo was said to have been stranded around the world due to the collapse of Hanjin....MUCH MORE
Meanwhile, Platts is taking a modest victory lap:

Hanjin Shipping’s demise no surprise to Platts Ocean Intelligence chief
Hanjin’s demise hardly came as a crashing surprise to Platts Ocean Intelligence chief Jason Silber.

Consider the following: “Hanjin…is undergoing a restructuring…results for FY 2013 and 1Q FY 2014 continue to be worrying – not surprising given that the container shipping sector is still suffering from severe supply-demand imbalance and high bunker costs (and is) expected to remain challenging in the near term, and we are not optimistic that the company’s current cost-cutting and other measures to improve its bottom line will return it to profitability in the next few years.”

And this: “Hanjin’s strained financial position would affect its ability to pay its counterparties on time, as evident in the delays in payments…Ocean Intelligence recommends a credit limit of USD low-seven figures for the company. This account should be monitored closely, and any deterioration in its payment performance would warrant an immediate credit review.”

Prophecy or intuition? No: merely an Ocean Intelligence report published two whole years before the momentous collapse of Hanjin, the world’s seventh (or eighth or tenth – depends who’s asked) largest container liner and South Korea’s flagship carrier.

Our analyst recommended a relatively modest credit line of low $ seven figures. Now that may seem generous, but given mid-2014 bunker prices of around $700/mt (now $250), and the amount of fuel larger container carriers digest, it’s a very conservative recommendation.

Take the Hanjin Green Earth, a 13,000 ton-container ship. Not the largest of liners, but still very big, the vessel boasts a 12,000-ton bunker fuel tank, plus another 400 tons for distillate fuel used when sailing in certain coastal zones. Filling up the bunker tank alone would cost $8.4 million in 2014, and $3 million in today’s low fuel price environment. A low $ seven figure credit line would suffice for fixing only one vessel a month....MORE