with you all the time

Mechanical Failure the facts

Lars A. Malm Director, Team Management

Question No. 1

What claims category accounts for the highest aggregated claims cost?
A: Collisions B: Groundings C: Machinery

IMCC, Dublin October 2007

Hull & Machinery: Claims by cost 1998-2006

10% 6%

3%

9% 21%

Heavy W eather Contact Collision Grounding Machinery Fire/Explosion

31% 20%

Other

IMCC, Dublin October 2007

H&M Claims 1998-2006

Claims type Heavy Weather Contact Collision Grounding Machinery Fire/Explosion Other

Number 101 261 214 202 867 32 190

Total Cost (USD) 27 310 050 72 871 936 176 987 490 164 898 053 263 390 668 48 807 117 88 348 286

Avg. Cost (USD) 270 397 279 203 827 044 816 327 303 795 1 525 222 464 991

Total

1867

842 613 599

451 320

IMCC, Dublin October 2007

H&M claims and trends, 1988-2006

1800 Club entry (No.) 1600 1400

1190

60% H&M Claims (No.) H&M Claims share of Club entry (%)
1475 1570

55% 50% 45%

1200 1000
788

1071 910

40% 35% 30% 25% 20% 15%

303 306

800
629 664 650

672

664

657

642

600 400

521

486

464 376 265 121

505 430 242 180 233

233

237

200 0 88 89 90

160

118

127

143

146

131

142

137

192 112

10% 5% 0%

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

IMCC, Dublin October 2007

Machinery claims, by cost 1998-2004

2% 23% Main engine 43% Steering gear Aux. engine Boilers 8% 14% Propulsion Other 10%

IMCC, Dublin October 2007

Machinery claims 1998-2006

Claims type Main engine Steering gear Aux. engine Boilers Propulsion Other

Number 354 82 166 85 119 19

Total cost (USD) 112 514 417 25 207 818 35 854 708 21 749 083 58 454 623 4 047 198

Avg. cost (USD) 317 837 307 412 215 992 255 872 491 215 213 010

Total

825

253 780 650

307 613

IMCC, Dublin October 2007

Main Engine claims and trends, 1988-2006

1800 Club entry (No.) 1600 1400

1190

15% ME Claims (No.) ME Claims share of Club entry (%)

1475 1570

1200 1000
788

1071 910

10%

800
629

664

650

672

664

657

642

600 400 200

521

486

464 376

505 430

5%

32

34

49

20

29

26

21

26

28

19

21

22

15

39

43

25

67

66

50

0 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

0%

IMCC, Dublin October 2007

Investigation details

z z z z z

Period: 1998 2006 Number of claims: 354 Based on our fleet. NB! Deductible avg. $110 000 Claims >=$10 000

IMCC, Dublin October 2007

Main engine claims, by cost 1998-2006

Turbocharger Crankshaft, Con Rod 24% 28% Cylinderliner Entablature, Staybolts Journal, Bearing Fuelpump, Gears 3% 3% 4% 7% 4% 19% 8% Camshaft, Coupling Piston, Piston rod Various

IMCC, Dublin October 2007

Question No. 2

Of the Clubs total cost for main engine claims which type of main engine accounts for the majority?
A: Low Speed B: Medium Speed C: Gas Turbines

IMCC, Dublin October 2007

Question No. 3

Of the Clubs total number of entries for H&M, what is the proportion of Low Speed main engines respectively Medium Speed main engines?
A: Low Speed 20% Medium Speed 80% B: Low Speed 60% Medium Speed 40% C: Low Speed 80% Medium Speed 20%

IMCC, Dublin October 2007

Percentage of Club entry and damage cost

(1998 - 2006)
90,0% 80,3% 80,0% 70,0% 60,0% 50,0% 42,2% 40,0% 30,0% 19,7% 20,0% 10,0% 0,0% Low speed Medium Speed 57,8%

Club Entry Cost

IMCC, Dublin October 2007

Cost per ship and year (USD) 1998 - 2006

30 000 27 094 25 000

20 000

15 000

Cost (USD)

10 000

9 141

5 000

0 Low spe e d Me dium Spe e d

IMCC, Dublin October 2007

Types of main engine claim: all

Claims type
Turbocharger Crankshaft, Con Rod Cylinderliner Journal, Bearing Entablature, Staybolts Fuelpump, Gears Camshaft, Coupling

Number
135 30 31 22 19 17 12

Total Avg. Cost cost (USD) (USD)

32 409 706 22 655 684 9 126 286 8 398 832 4 130 803 4 804 472 4 100 955 3 971 266 240 072 755 189 294 396 381 765 217 411 282 616 341 746 283 662

z z

The eight most common main engine claims types. In terms of numbers and total cost, turbocharger damage remained the most common and costly claims category, accounting for 135 of the 354 claims and USD 32.4 million of the USD 117.7 million total cost. 104 of the 135 turbocharger claims involved low speed engines. Crankshaft & connecting rod failures was the second most common and expensive damage category. In terms of average cost, these failures produced the most expensive claims (USD 755,000/damage).

z z

Piston, Piston 14 rod IMCC, Dublin October 2007

Types of main engine claim: low and medium speed 1998-2006

Slow speed
Claims type Turbocharger Entablature, Staybolts Cylinderliner Journal, Bearing Piston, Piston rod Number 104 19 28 13 9 Total cost (USD) 27 869 016 4 130 803 8 291 734 3 906 343 2 348 233 Avg. Cost (USD) 267 971 217 411 296 133 300 488 260 915 336 877 Avg.05-06

Medium speed
Claims type Turbocharger Crankshaft, Con Rod Camshaft, Coupling Journal, Bearing Fuelpump, Gears Number 31 27 8 9 7 Total cost (USD) 4 540 689 19 496 058 3 451 850 4 492 490 1 023 196 Avg. Cost (USD) 146 474 722 076 431 481 499 166 146 171

Avg.05-06

983 683

z The tables above show the five most common claims for low speed and medium speed engines. z Turbocharger damage is the most common and expensive failure event for low speed engines. z Crankshaft and connecting rod damage is the most expensive medium speed engine failure

category. There were 27 such claims in 1998-2006, costing USD 19.5 million. z The table to the left also shows that, on an average cost basis, damage to the Journal or Bearings is the most expensive claims type (at USD 300,500). IMCC, Dublin October 2007

Turbochargers who or what is at fault?

z z

Total cost for damages 1998-2006: USD 32 400 000 135 damages average cost USD 240 000 40% of claims not related to turbine foreign objects. Medium speed engine overrepresented in number Running hours Strictly adhere to the makers instruction ABB SEKO Concept (life time of rotating parts)

IMCC, Dublin October 2007

Crankshafts, Connecting rods who or what is at fault?

z z z z z z z

Total cost for damage 1998-2006: USD 22 700 000 30 cases average cost USD 755 000 Very expensive! Predominantly a Medium Speed Engine issue Lubrication failure filters, purifiers, contamination Lube oil analysis to be made on a quarterly basis The Swedish Club recommends that partical counts are included in the above analysis

IMCC, Dublin October 2007

Crankshafts, Connecting rods who or what is at fault?

z Automatic lube oil filter counter readings to be logged daily z Contamination of lube oil condition of cylinders z Crank shaft deflection readings to be carried out regularly,

and compared with previous readings

z In connection with repairs or maintenance make sure to

follow proper procedures (shipyard visits)

z Bring in the experts!

IMCC, Dublin October 2007

Cylinder liners - Who or what is at fault?

z z z

Total cost for damage 1998-2006: USD 9 100 000 31 cases average cost USD 295 000 Cylinder lubrication Regular inspections through the scavenge ports (as often as possible) Piston rings quality and condition Fuel oil The Swedish Club recommends that no fuel oil is used prior to the analyses of the bunker has been received Mingling of bunkers should be avoided if possible Performance monitoring pressure measurement and power calculation Running in after overhaul adhere to manufacturers recommendations

z z

z z z

IMCC, Dublin October 2007

Journals, Bearings who or what is at fault?

z z z z z

Total cost for damage 1998 - 2006: USD 8 400 000 22 cases average cost $380 000 Lube oil, lube oil, lube oil... Measurment of ovality Con rod bolts life time expectancy, error in repairs/overhaul Con rod ovality Proper tools and procedure Bring in the experts!

z z z

IMCC, Dublin October 2007

Inflation Exposure H&M

z Crews experience/competence is decreasing z Lack of dry-dock space and availability z Larger vessels > require bigger dry docks z In case of emergency dockings of large vessels there are

substantial additional costs

z Larger main engine > more parts, larger parts, more expensive

parts, for example: liners, bearings, pistons, cylinder heads

z Innovation and new design > untested technology z Larger vessels contains additional auxiliary engines and T/C z Steel price is increasing z Delivery time for spares is extended
IMCC, Dublin October 2007

Hull & Machinery: claims cost and premium/deductible trends

180,00% 160,00% 140,00% 120,00% 100,00% 80,00% 60,00% 40,00% 20,00% 0,00% 1998 1999 2000 2001 2002 2003 2004 2005 2006 Claims Premium Deductible

IMCC, Dublin October 2007

Marine Hull Evolution of Gross Loss Ratio, actual and estimated towards ultimate U/W
Year 1996 to 2005
Assuming a 30% expense ratio (acquisition and management expenses), technical break even is achieved when the gross loss ratio does not exceed 70%

140%
1999

120% 100% 80% 60% 40% 20% 0%

48 12 24 36 60 72 84 96 10 8 12 0 U lti m at e

1998 2000 2002 1997 / 2001 2004 1996 2003/2005

1996 1997 1998 1999 2000 2001 2002 70% 2003 2004 2005

Ultimate calculation based on figures of 6 IUMI members: France, Germany, Italy, Norway, UK Lloyds, UK IUA (5 for 1996 no Germany) IMCC, Dublin October 2007

Question No. 4

And the winner is?

A: Underwriters B: Owners C: No one

IMCC, Dublin October 2007

Why insure such failures? How to insure such failures?

If one is to insure these failures, consider the following:

Underwriting is a cyclical and painful exercise that requires discipline over time There will most certainly be a market reaction given claims development and current rates There is no alternative to Exposure Rating If you are not able to rate exposure commensurate to the risk assumed dont assume the risk Active and focused loss prevention will assist you but only to a certain extent

IMCC, Dublin October 2007

Minor engine problem off Dutch Harbour, Alaska, 2004

Current reserve: USD 167 000 000

IMCC, Dublin October 2007

Minor engine problem off La Rochelle, France

Current reserve: USD 83 000 000

IMCC, Dublin October 2007

Leaning towards an increase in premium

IMCC, Dublin October 2007

Where it all started

IMCC, Dublin October 2007