The relevant radioactive exclusion clauses clearly state that Assureds are not covered for loss or damage as a result of nuclear radiation produced by nuclear fuel, waste, matter, nuclear combustion or any nuclear weapons.

Clauses such as these serve a very important function. If radiation contamination were not excluded, the insurance industry could face collapse if a widespread nuclear incident or conflict occurred. These clauses therefore exists to prevent that, and rightly so.

However, their introduction originally arose from fears of a catastrophic nuclear conflict and we believe that the time has come to reconsider the market’s approach to relatively finite incidents such as the Fukushima radiation leak.

The industry has an opportunity here to meet the needs of shipowners, charterers and cargo interests by offering insurance cover that can respond to this type of incident. That cover would necessarily be strictly limited in quantum and perhaps also by some measure of the scale of the nuclear incident. Ideally the initiative should encompass physical damage buybacks for ships and cargo which may be leaving, entering or transiting an affected area. Extensions to P&I and Charterer’s covers addressing the concerns of owners and charterers affected by a nuclear incident and at risk of disputes might also be made available.

In a situation such as that following the Japanese earthquake and tsunami, where the chartering of ships to bring relief supplies and reconstruction equipment is problematic because of the risk of irradiation, an appropriate insurance solution should not only be commercially feasible, but represent an attractive product for the industry’s customers. It is also in the public interest.

On the face of it, the global economic slump created conditions that should have left marine insurance clients bearing the brunt of a hardening market and spiralling premiums.  But according to Mr Philip Bilney, Group Executive Director, FP Marine Risks, not only did that not transpire, but it is not likely to happen in the foreseeable future either.

At the recent IUMI conference in Hong Kong, Ms Deidre Littlefield cautioned that whilst the global economy may be through the worst of it, there were still signs that insurers in Asia would need to focus on “underwriting, underwriting, underwriting”.

This would suggest that underwriters should be seeking universal rate rises, higher deductibles and self-insured retentions, tighter conditions and the imposition of further risk management requirements for their Assureds.

However, from an Asian marine insurance perspective, it is apparent that this has not happened and nor will it.

There are three key reasons for this – Asia’s quick economic recovery as demonstrated by the rebounding trade figures, investment in Asia and the subsequent capacity it has brought with it, and finally the ever-maturing environments in which the assureds are operating and thereby lowering their associated risks.

Recovery

There is no doubt that Asia is recovering quicker than Europe or North America.  The IMF has forecast GDP growth of 4% worldwide, but 10% in China and 5.3% in Asia overall for 2010.

The world seems to be recovering from the recession but whether it is a sustainable recovery is yet to be seen.  Recent figures from the World Trade Organisation show that the downward trend in trade experienced worldwide during 2009 has come to an end, with world merchandise trade up 25% in the first quarter of 2010 when compared with the same quarter in 2009.

Importantly, intra-Asian trade has played a key role in sustaining growth within the region.  The WTO has recently reported that the trade flows within Asia have rebounded more strongly than those of developed economies and believes this is due to trade within the region.

China – An engine of growth

Furthermore, China’s imports grew at 16%, twice as fast as its exports (8%), suggesting that the country’s fiscal stimulus package has benefited trade within Asia as a whole.

China is now the world’s largest exporting country and probably stronger than ever relative to the West as we emerge from the financial crisis.  Unless something catastrophic happens, we expect to see the continuing, phenomenal growth of that economy.

The benefits of Asia’s growth in GDP and trade will of course filter down to the shipping, trading and maritime industries as a whole.  There is no doubt that because of this, Asia is certainly the most exciting place in which to be writing insurance business at the moment.

Investment and capacity

Accelerating a trend going back at least two decades, the last two to three years have seen an uninterrupted, headlong influx of new insurance capacity into the Asian market.

I am therefore not surprised that we are seeing continued investment into Asia.  There are now 15 Lloyd’s syndicates operating in Singapore and another five in Hong Kong plus 11 independent coverholders, most of which write Marine.

International insurers have either entered the market or dramatically increased their underwriting capacity.  With the new Asian-domiciled start-ups and increases in existing capacity, according to our own estimates, total Hull and Cargo capacity in Asia is today around three times that of just five years ago with no signs of abating. We expect to see more international insurers active in Asia before the year is out.

Whilst the capacity available is considerable, Asian marine underwriters now have unprecedented levels of authority at their disposal. US$100 million Project Cargo lines and US$25 million Hull lines are no longer unusual (without reference to treaty underwriters or to an overseas head office).

This trend has given Asia a self-contained marine market capable of supporting the great majority of insurance exposures arising in the region.  No longer is there an automatic need to seek capacity or expertise in London or Europe because it can all be found here. Insurers are realising this and repositioning themselves accordingly.  If they want to be part of the Asia Pacific Century, what choice do they have?

The developing world is highly developed

Many of the major cities in Asia enjoy world-leading infrastructure – ports, airports, roads and railways – which operate with modern technologies and are expanding daily.

Asian-focused logistics companies are highly efficient and move cargo through the system seamlessly and – in their own highly competitive environment – with ever greater regard to the safety of their customer’s goods.

Losses are being minimised throughout the supply chain as newer technologies and a continual push for international competitiveness have helped improve safety records.

Meanwhile, the shipping industry is ever-more regulated for the benefit of seafarers and the public alike.

Benign and sophisticated claims environment

The combined benefit of this is a relatively benign claims environment.  There have been some increased cargo losses in particular areas and circumstances, but on the whole we believe this downward trend will continue.

According to IUMI, total losses have, on the whole, followed a downward trend over the last 30 years.  Whilst the costs of some claims have increased, repair costs for damaged vessels have largely fallen, and with fewer ships in service losses have been muted.

Claims are an inevitable part of insurance, but when losses do occur, the Asian claims infrastructure is ever-improving.  Every major adjuster, or international law firm, is heavily represented in the region and local expertise is growing.

Market with credibility and strength

Not only are the risks getting better, they are more plentiful too. The new capacity in Asia is addressing a growing pie, as the economic data demonstrates, but what it does not reveal, and what we are witnessing, is that more marine insurance business is being attracted to the region’s markets.

Asian buyers now have better insurance options here than overseas, and foreign companies trading in Asia are more easily convinced by the international insurance brand names which are now on offer locally.

A number of international insurers have brought their existing Asian books with them and further still many Asian underwriters are increasingly writing non-Asian business.  This has created a market with credibility and strength.

Good news for Assureds

The world recovery, which is proving to be strongest in Asia, combined with plentiful capacity and better risks means it is unlikely the Asian marine insurance market will harden.  Whilst no one believes we are truly out of the woods just yet, there is no reason to assume that insurers in the region will do anything other than carry on being competitive.

As more underwriters continue to build up their regional presence in Asia, the need to increase rates and narrow conditions is suppressed.

An abundance of options for Asia’s Assureds combined with a determination on the part of underwriters to increase their market share has naturally created a competitive environment.  But, with continued investments in infrastructure and an increase in trade volumes combined with a reduction in claims, insurers in Asia understand that underwriting, underwriting and more underwriting does not need to translate into rate increases and a tightening of conditions.

Instead, underwriters in the region can utilise their local knowledge to write more business and a greater premium volume through a broader spread rather than increasing premium through increases in rating.

Whilst the harsh realities of the global economic downturn have struck the shipping and trading industries, the predicted knock-on effects on the marine insurance sector have generally not materialised.

The marine insurance market is alive and well; there has been no noticeable hardening and in some cases the cargo market has softened slightly.  Far from a decline in business, many insurers – notably Lloyd’s syndicates – have seen an increase in gross written premiums.

According to IUMI, total losses have, on the whole, followed a downward trend over the last 30 years.  Whilst the costs of some claims have increased, repair costs for damaged vessels have largely fallen, and with fewer ships in service losses have been muted. There have been some increased cargo losses in particular areas and circumstances, but on the whole the claims environment has been relatively benign.

Moreover, there has been ongoing investment into marine underwriting in many parts of the world.  Cargo in particular continues to be one of the most favoured lines for general insurers, and many companies have invested further in their marine teams even during the recession.

Will the market change move in the medium-term? The FP Marine Risks Crystal Ball predicts little, if any, change over the next six months.  We expect that rates will remain at current levels, or possibly even drift a little lower in some areas – particularly cargo.

However, in terms of marine liability programmes for large, multi-jurisdictional or complex risks, Asia has not yet responded to local demand, allowing London to continue leading the way.

Whilst small or purely local programmes in Asia can often be placed in their respective domestic insurance markets, this is generally not possible if higher limits are involved or risks are spread across multiple jurisdictions. For example, the Korean, Japanese and Chinese markets have the experience and appetite for domestic programmes, but we are unlikely to see them entering the international arena in the short to medium term.

Generally speaking, international insurers operating in Asia have not placed specific underwriting expertise for larger liability programmes in to the region, contrary to hull, cargo or P&I.

As such, these programmes tend to be underwritten via the US or London head office by an underwriter who may have less in-depth experience or knowledge of the Asian market, the particular legislative environments, or the insurance and servicing requirements of clients in Asia.

It is fair to say that Asia, apart from the developed jurisdictions such as Hong Kong, Singapore, Korea and Japan, often has relatively immature liability legislation or infrastucture. This has historically affected demand for liability insurance in the region; however, the understanding of insurance buyers in Asia is developing, creating an increasing need for liability underwriters. Furthermore, those buyers expect to utilize capacity in Asia in the same way they do for other classes due in part to the perceived servicing benefits.

Some insurers are responding. In the last two years, some Lloyd’s syndicates have sent liability underwriters to Singapore, and other insurers and syndicates are likely to provide the expertise and capacity in the near future. There is also at least one Agency market in Asia currently expanding their liability portfolio and employing underwriters who were previously based in London.

However, London continues to provide most capacity due to its historical experience in this area. It remains the leading market for a large swathe of marine liability programmes across the world.

We believe the Asian market is under-served by liability underwriters, certainly when compared to marine hull, cargo or P&I, and an opportunity exists for a leading liability market to grow an Asian book.

Last month, the Japan Club submitted its year end results meaning that all International Group cartel members have now reported, and the group has made a combined loss of USD318m even after cash calls of USD545m by six of the clubs.

The underlying loss totals USD964m, which is almost exactly the USD953m loss that clubs incurred on their investment portfolios.

Since renewal, there has of course been some recovery in the markets, so any losses that were market write-downs may now be seeing a reversal. It is estimated that general increases may have contributed another USD500m to club incomes for the current year.

Whilst the underwriting results are comparable to the previous year, the key difference is the lack of investment profit, which last year meant the group was able break even but this year has resulted in substantial losses

The underlying loss totals USD964m, which is almost exactly the USD953m loss that clubs incurred on their investment portfolios.

Since renewal, there has of course been some recovery in the markets, so any losses that were market write-downs may now be seeing a reversal. It is estimated that general increases may have contributed another USD500m to club incomes for the current year.

Whilst the underwriting results are comparable to the previous year, the key difference is the lack of investment profit, which last year meant the group was able break even but this year has resulted in substantial losses.

Now, of course, those investment returns have all but disappeared as the financial markets continue their descent.

The Clubs have either had to sell their investments at a significant loss or write down the value of those securities, leaving them with a paper loss on the year with the same net result (although with the ongoing risk of further reductions in their equities values).

As a result, we are witnessing a return to a more technical underwriting approach as Clubs no longer have the safety net of other income streams. This has inevitably led to an increase in premiums for shipowners.

Some shipowners feel that the Clubs should have pulled out of the equity markets once the meltdown began, but at the time those Clubs with substantial equity exposures were offering the best ‘return’ to their members even whilst managing a technical underwriting deficit (but an overall positive balance sheet). This strategy provided members with competitive premiums year after year.

All Clubs will undoubtedly exercise caution in their current and future investment strategies which, whilst building a more stable platform over a long period, will continue to result in higher calls to owners if claims activity cannot be controlled or suppressed.

Shipowners should be cautious in how they expect premiums to change in the near-future; even with a dramatic return to buoyant investment markets, the Clubs are likely to exercise a more conservative approach.

Shipowners may therefore need to start looking at not only the merits of the service being provided by each Club and the spread of their membership, but their investment portfolio as well.

The global economic gloom is casting its shadow over insurance like everything else, with sharp rises in premiums likely across the board in the near future. We asked logistics-industry insurance expert Philip Bilney* why reducing cover is not a good idea.

Can project forwarders avoid paying more for insurance?
The temptation is always there to skimp on insurance cover. Reducing the level of cover or seeking less comprehensive policies may save money short-term but the risk is that it would be a “false economy”. It does look as though the insurance market in general will harden over the next several months – in other words premiums will rise – for a number of reasons. This applies to most sectors including Marine Cargo insurance, E&O, projects and project-related cover such as Delayed Start-Up (DSU) or Advanced Loss of Profits (ALOP) insurance. But the answer at a time like this is to look to an organisation such as the WCA Family that has the buying power to reduce the impact of any market price hikes.

So insurers are seeking to restore their profits?
Essentially, yes, because insurance companies have to make a profit like anyone else. Here are some of the reasons why – reasons you may care to pass on to project owners tempted to cut back at this difficult time.

First, supply and demand: insurance capital is derived primarily from equity markets and when that capital dries up, the amount of risk any one insurer can accept is reduced. Less equity market capital means a reduced supply of insurance capital, which in turn leads to a higher price to buy that small part of it which you need to cover your risk. In this regard it behaves in much the same way as any other commodity, but in the opposite direction.

Similarly, there is not an abundance of capital sloshing around looking to take advantage of a perceived increase in rates. After Hurricanes Rita and Katrina, which hit the Energy and Offshore market so hard, there was a rush of new capital into the industry to take advantage of the anticipated hardening, with the result that it never actually happened. That sort of capital ingress often tends to manifest itself in the form of new start-up reinsurance companies which are effectively the wholesalers of insurance capital.

But surely premiums are already expensive?
Actually, premiums will be rising from a relatively low level. The market has been at historically soft levels for the last year or so and thus is due an upturn anyway (in my experience upturns only really happen when the market is already genuinely soft). We had the same situation immediately before 9/11, which prompted the last serious hardening of the market.

Also, major losses were unusually high in 2008. For example, claims from
Hurricane Ike alone are expected to reach USD16 billion.

Insurance companies are famously known as “investors with a bad habit” (underwriting), so many have been hit hard by a collapse in their asset values. The thing is, very few are admitting to it yet.

What other factors contribute?
Generally speaking, recessions on a scale now being encountered worldwide produce more crime, including fraudulent claims and associated losses, and that of course drives up premiums.

Insurance buyers will often ask why the cost of their particular insurance has gone up in a hard market although the risk remains the same. The answer is that all classes of insurance are connected because the source of capital is much the same, and reinsurance costs (the mechanism by which insurance companies offset their risks) tend to rise across the whole industry. So the tide of the whole market rises and falls as one, although of course individual anomalies do occur here and there.

When will the premium increases start to hit home?
Curiously enough given the depressing economic news, there is some debate over whether this hardening is actually happening as yet. The ‘rescue’ of AIG has actually had the effect of reducing some prices because AIG has to compete harder to retain market share, and in other areas some insurers are maintaining prices in order to avoid losing good business.

But in general, insurance companies are refusing to reduce premiums now and there are some areas (Marine Hull for example) where increases of 5-10 percent are already being applied. The jury is still out, but the general view in the industry is that prices will move sharply upward from early 2009.

Trade Credit premiums, on the other hand, have already doubled. If you can buy cover at all. Default & bankruptcy claims are escalating dramatically and most insurers in that sector (there are only a handful) are hunkering down and declining to accept much new business while they wait for the storm to pass. But business is still being done.

So what can project forwarders do to economise?
Despite some rising prices, now would be the worst possible time to run uninsured. Claim frequencies will rise, not only for the reasons I mentioned above, but also because more goods will be rejected by customers than would normally be the case, and if they are genuinely damaged, then cargo insurance will cover this.

FSL (freight services liability cover) also becomes more vital as people get more litigious and the nmber of disputes rises. Forwarding businesses are highly exposed at the best of times, but the risks can only worsen as the world’s economies slide into recession and trading becomes more difficult.

It’s also worth bearing in mind that insurance companies tend to give a much better deal to long-standing clients than they do to companies who are perceived to dip in and out of the market. So while there is every reason to ‘shop around’, there is also value in building and maintaining a good relationship with an insurer over time – try to work only with reputable, secure insurers and where possible leverage off the influence of those organisations who have genuine buying power.

*Philip Bilney is group executive director of FP Marine Risks, a specialist provider of insurance products and services across the entire spectrum of Marine and related sectors. Based in Hong Kong, in 2006 the company was the first Asian-based insurance broker to become a fully accredited Lloyd’s of London broker following three years of mandatory provisional accreditation. FP Marine Risks, the sole broker for WCA Family of Logistic Networks, developed Project Cargo Insurance, one of a suite of products available exclusively to members of WCA Family that includes Marine (cargo) insurance and Freight Services (E&O and legal liability) cover.

The challenge for credit and political risk insurers is considering the numerous factors that affect the markets in which they operate. Global trends affect the demand for business and local issues determine how they structure cover for their clients. Oliver O’Connell looks at a snapshot of the Asian credit and political risk insurance market and the wider external factors and detailed internal issues that affect it.

“The first trend to take into account in the region is the increase in intra-Asian trade. This has been increasing over the last few years, and while business between Asia and Europe and North America has always been there, intra-Asia business is certainly a much greater percentage of the total than it was two or three years ago,” observes Jeremy Hampshire of Hong Kong-based Trade Line, the specialist trade credit and political risk insurance broker.

“The second trend, which follows on from that, which is obviously a global trend – is the movement from LC to open account. In Asia this has manifested itself as European and US buyers saying that this is the only way we are going to trade from now on. If you combine these two trends you end up with higher credit and political risk, especially credit, for companies within Asia, and their trading. It doesn’t matter where they’re trading, but this has led to an increased requirement for trade credit insurance,” he adds.

In terms of the most affected trade sectors, the trend began a few years ago with the transition to open account in the electronics industry. Following on from this was also a shift in the textiles industry amounting to approximately 65% of transactions by early 2005. Other trade sectors showing a similar trend include plastics, chemicals, steel, and some soft commodities.

This is also leading to a trend in which payment terms are being pushed out. Starting with a move extending payment terms from 15 days to 30, this has eventually been pushed as far as 60 days. These companies now have higher accounts receivables on their balance sheet for the same amount of business than they did one or two years ago. This means higher risk and supposedly more trade credit insurance opportunities.

In the last 18 months underwriters report to have seen a 25% increase in business, if not 30% in some areas, and in line with global trends, brokers have seen a 25-35% increase in enquiries over the same period.

Increased competition
Greater demand for insurance has seen an increase in interest in Asia from insurers, with a number of new office openings, cooperation agreements and new initiatives. Says Hampshire: “The main brokers have never made a big commitment to this class of insurance. They may have done so in Singapore for example, but they don’t have a significant presence. So things have been left largely to individual operators.”

In March, Trade Line entered into a strategic alliance with Cosmos Services Company giving the company access to a network of offices across Asia, as well as in London. For Cosmos, part of Japan’s Itochu Corporation, the aim of alliance is to expand its trade credit and political risk insurance field to better serve its client base. Trade Line still operates as a separate independent unit but now is a greater presence within the industry.

On the more specialist side of the industry, FP Marine Risks, the Hong Kong-headquartered specialist marine insurance broker, has launched a new trade finance initiative aimed at providing specifically designed marine insurance products for the industry.

Philip Bilney, executive director of FP Marine Risks, says: “There’s no doubt that in Hong Kong and Asia there is a growing need for trade financing banks to protect their marine exposures. By launching this initiative, we are leveraging our existing portfolio of specialist marine insurance services to address this need.”

Spearheading the new initiative is Audrey Poon, a broker with 16 years of experience in the insurance industry who joins FP Marine Risks as manager, trade finance. Having spent the past decade specialising in marine cargo insurance for trade financiers and international commodity traders in Singapore, Poon is aiming to help similar companies in Hong Kong minimize their risk in what FP Marine Risks see as an increasingly volatile market.

In the underwriting section of the insurance business, the major players are increasing their presence in the region. Atradius is establishing an office in Hong Kong at the moment and is investigating obtaining a license for China as well. Bermuda-based Exporters Insurance Company is establishing a representative office in Hong Kong in what is described as a prelude to the expansion of Exporters’ activities in the region through growing contact with local brokers. It is expected that Ace will also look to develop in Asia, perhaps using Japan as a platform for expansion into the rest of the region.

Hampshire adds: “A lot of the other majors are here already so perhaps some of the niche players will want to increase their presence here. We certainly get more visits of representatives from the majors coming through than three or four years ago. The general feeling is that there is more business going on in Asia and Latin America than elsewhere, and given the situation in Latin America at the moment, Asia seems preferable.”

In conjunction with this increased interest in the region is an increase in people moves within the industry. There is a level of opportunity, but with factors such as the cultural difference between Europe and Asia it is difficult for companies to simply parachute someone in and expect them to be able to create new business in a short time. Underwriters claim that with a lack of ‘home-grown’ specialist brokers, they have to spend more time on direct marketing and direct sales and cannot just rely on broker channels to drive business.

Active markets
In terms of the markets within the region that are driving business, China, unsurprisingly, leads the way in generating enquiries. Business coming from China is more for credit insurance rather than political, but most other active markets in the region are weighted more in the favour of requests for political risk coverage. For example, the Philippines, Indonesia and Vietnam all generate more political than credit insurance requests.

The challenge of low pricing that has featured across the world has been especially prominent in Asia with rates falling dramatically in most countries. Of the above mentioned countries, Indonesia and Vietnam have dropped quite significantly, though the Philippines and China have maintained similar pricing levels to the recent past.

Indonesia is of particular concern in that some brokers feel that margins have dropped to the extent that perhaps things have gone down by too much against the potential risk in the country. Mining has proved an especially strong sector for political risk insurance, Martin Phelan, head of political risk for the Pacific region at Marsh in Melbourne, comments: “We’ve done a number of transactions in lease and asset finance for mining equipment. For example in the coal sector in Kalimantan, Indonesia, where the client is supporting international contract mining companies by using asset finance as an alternate structure to pure project finance or traditional on balance sheet debt.”

In this instance the mining company required limited recourse project finance to develop $300 million copper-gold project on which it had completed a bankable feasibility study. The project is located in a sparsely populated country with limited infrastructure – physical, commercial and legal – very low income levels and virtually no history of foreign investment or financing other than that provided by development agencies. The mining laws and regulation that did exist was untested at the time.

Understandably the banks were concerned with the risks involved – the stability of key property rights including government commitment on issues such as royalties and the right to export minerals, the reliability and transparency of the legal system and the remoteness, and therefore possible vulnerability, of the project.

Marsh brought together a syndicate of political risk insurers to ensure that commercial lenders had the appropriate coverage against a range of actions and events that could affect the project.

High commodity prices across the globe over the last two to three years have been driven this mining and oil and gas boom causing a reasonably pronounced upturn in new projects and investment. This is channelling into copper, gold and other base metal mine development and the consolidation of project financing schemes in addition to new exploration and extraction of oil and gas deposits.

Phelan highlights the opportunities available for insurers: “A lot of the transactions we’ve been involved in are still creating further opportunities, medium to large project finance-based copper and gold projects, including in some new countries such as Laos. The commercial market facilitated the entry of foreign investment into the country over the last three years, and by the close of this year, total foreign investment over the last five years – largely from Australian companies in the mining sector – amounts to over $1 billion.”

As demonstrated by the Kalimantan mining project, it is localised issues, not global trends that determine the details of political risk coverage. The Philippines and Papua New Guinea tend to be both the hottest and most contentious markets for enquiries and are dominated by local risk factors.

On a national level the Philippines is a highly attractive country geologically for mine development, but is also a challenging country politically with a range of cultural-cum-political issues. The influence of the Catholic Church is just one of the political and cultural challenges faced by foreign investors in new mining projects, as it is a strong vocal force and strident agitator against new projects because of their environmental, social and cultural impacts.

Phelan comments: “At Marsh we get involved in very distinct regional, national, provincial and even local issues. Political risk is not just about sovereign government issues. For example Papua New Guinea has very high levels of tribal diversity especially in the southern highlands – nationally there are as many as 700 tribes and 700 different dialects. The devil is in the detail when providing cover to projects in regions such as this. It doesn’t necessarily stop deals getting done, but it can be highly intimidating as a challenge in the market. So you need to have the knowledge and ability to come to grips with what the issues are and how they can be managed.”

While it may be wider global factors that moderate the wider market trends and flows of business, it is the location-specific issues and the ability of both the underwriters and brokers to come to grips with them that determines success and failure in a regional market. There is no shortcut to developing workable market knowledge.

Philip Bilney is an Executive Director at FP Marine Risks, the first Asian broker to receive full Lloyd’s accreditation in its own right. He heads up FP Marine Risks’ Hong Kong Office.

Q1: Why and when was FP Marine Risks set up?

A1: The company was set up in January 1994. At the time, the Asian marketplace was characterised by multi-national broking houses who maintained very little in-house marine expertise, and certainly not across all marine lines. There were no regional brokers with the skills and knowledge required in this market sector, which created a clear opportunity to set up a specialist marine broker.

We have been able to successfully grow within that marine niche since then, and today we have 33 staff in the Hong Kong office and 47 in total.

Q2: Hong Kong is a competitive market – how does FP Marine Risks stand out?

A2: Above all else we differentiate ourselves by remaining focused on our marine specialisation.

All of our tools, resources and processes are designed with that very much in mind, which I think benefits all parties involved.

Many people also comment on the energy and drive of the company. There is a sense of urgency in the place, which I think is vitally important to clients.

Q3: What classes and areas do you specialise in?

A3: All marine classes and all Asian countries. As might be expected, we are finding that China and India are attracting most attention these days, but the rest of Asia Pacific shouldn’t be ignored. There is growth almost everywhere in the region.

Q4: Why did you apply for Lloyd’s broker accreditation?

A4: As individuals we came from a Lloyd’s background so it was an easy decision for us, particularly given Lloyd’s’ pivotal role in our business.

This was further reinforced by the fact that we were keen to be able to conduct our dialogue with the Lloyd’s market without the need to involve third parties, which meant of course having a direct presence in London.

Q5: What do you find is the perception of Lloyd’s in the local market?

A5: Lloyd’s has the best brand and the best name recognition in the business. Perhaps because of that some Asian buyers of insurance perceive Lloyd’s to be expensive, even though we all know that isn’t necessarily the case. So we sometimes have to overcome that obstacle.

There is also a certain mystique about Lloyd’s, making it appear perhaps rather elitist, which can actually help to attract business sometimes. But at the end of the day, price considerations almost invariably prevail.

The insurance market in Asia tends to see Lloyd’s as remote and a little aloof. However more recently there has been a realisation that Lloyd’s has been modernising rapidly and becoming more professional. Lloyd’s chain of security is generally recognised as a powerful asset.

Q6: You have just received your full accreditation as a Lloyd’s broker – how will this help your business?

A6: It demonstrates that we have placed substantial and growing amounts of business into Lloyd’s over the last three years. It also shows that we have met the standards of Lloyd’s brokers, and from a Hong Kong perspective this demonstrates professionalism and credibility.

There are a number of current London market initiatives, such as contract certainty, which of course we buy into as a Lloyd’s broker. But we have also made a conscious decision to extend the same initiatives into Asia – we want to deploy these improvements in professional standards as widely as possible.

Q7: FP Marine Risks opened a London office – why was this?

A7: We opened the office in London in August 2003 as we knew we needed it in order to operate effectively as an accredited broker. We found it essential to have a presence on the ground, and since then have been able to recruit a number of specialist brokers in our office there.

We have two routes to Lloyd’s underwriters – the first is directly from Hong Kong by email to underwriters in the Room. Some underwriters have been adept at changing their own practices to accommodate this and in practice can work with us in the same way that a local underwriter can – a Lloyd’s underwriter who replies to us first thing in the morning in the UK will sometimes have responded more quickly than his Asian-based competitors. This is important to us and has worked well.

The second route is via our brokers on the ground in London. Dealing directly with a broker 7,000 miles away from Lime Street requires a particular mindset, so we find having the two approaches essential.

We now have 12 people in London and nine who regularly walk around the Room, which has had a massive impact on our profile in Lloyd’s. Having a fully operational London office also sometimes presents us with new business opportunities – being Asian specialists we often get referrals and enquiries related to the region.

The more we become engaged in London the more it becomes apparent that London and Lloyd’s remain the epicentre of marine insurance. There is tremendous value in the way Lloyd’s operates – it enjoys a unique physical marketplace that is just not found in other centres around the world.

Q8: Do you see syndicates setting up in Asia having an advantage?

A8: Yes, the syndicates who set up in Asia are in the front-line and as such are much more likely to see a greater choice of risks, and to understand the market better.

It’s worth bearing in mind that marine underwriters operating in Asia are generally doing well. Although rating levels here are often lower than in other parts of the world, claims tend to be as well.

Q9: FP Marine Risks recently set up a Melbourne office – what was the rationale for this?

A9: Australia and New Zealand are markets that suit us perfectly in terms of language and legal systems, and of course they share similar time zones to Hong Kong. But they can also be quite introverted markets, and therefore a presence on the ground is essential. So when the opportunity presented itself we were very keen to quickly establish ourselves.

I’m very pleased to say that the office is doing well – we are seeing business that is of high-quality and well-presented. It’s tremendously exciting.

Q10: What are your predictions for the Hong Kong and regional market for ten years time?

A10: I hope and expect that Hong Kong will still be the key regional Financial Centre for Asia in ten years time – it has all the infrastructure that it needs for that, and many advantages over Shanghai or other cities.

Many people expect China to continue on its path of tremendous growth and reform, and I’m sure that will be the case. But it won’t all be in a straight, trouble-free line – expect many bumps to come. The insurance market there will no doubt continue to develop and open up, and the indigenous insurers will continue to become more sophisticated. The old polarisation of the market into one or two huge players will never return.

Q11: What is the future for FP Marine Risks?

A11: We will continue to be marine specialists – that focus has worked well for us. I see huge and exciting potential for considerably more growth for us in the Asia-Pacific region, and indeed elsewhere around the world.
Philip was in conversation with Alex Faris, Lloyd’s General Representative for Hong Kong