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with you all the time
Mechanical Failure
the facts
Lars A. MalmDirector, Team Management
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IMCC, Dublin October 2007
Question No. 1
What claims category accounts for the highestaggregated claims cost?
A: Collisions
B: Groundings
C: Machinery
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IMCC, Dublin October 2007
Hull & Machinery:
Claims by cost 1998-2006
9%
21%
20%
31%
6%10% 3%
Heavy Weather
Contact
Collision
Grounding
Machinery
Fire/Explosion
Other
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IMCC, Dublin October 2007
H&M Claims 1998-2006
Claims type Number Total Cost (USD) Avg. Cost (USD)
Heavy Weather 101 27 310 050 270 397
Contact 261 72 871 936 279 203
Collision 214 176 987 490 827 044
Grounding 202 164 898 053 816 327
Machinery 867 263 390 668 303 795
Fire/Explosion 32 48 807 117 1 525 222
Other 190 88 348 286 464 991
Total 1867 842 613 599 451 320
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IMCC, Dublin October 2007
H&M claims and trends, 1988-2006
521486 464
376430
505
629664 650 672 664 657 642
788
1071
910
1190
1475
1570
233 237 265
121160
118 127 143 146 131 142 137 112
192242
180233
303 306
0
200
400
600
800
1000
1200
1400
1600
1800
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
0%
5%
10%
15%
20%
25%
30%35%
40%
45%
50%
55%
60%
Club entry (No.) H&M Claims (No.) H&M Claims share of Club entry (%)
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IMCC, Dublin October 2007
Machinery claims, by cost 1998-2004
43%
10%14%
8%
23%
2%
Main engine
Steering gea r
Aux . engine
Boi lers
Propulsion
Other
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IMCC, Dublin October 2007
Machinery claims 1998-2006
Claims type Number Total cost (USD) Avg. cost (USD)
Main engine 354 112 514 417 317 837
Steering gear 82 25 207 818 307 412
Aux. engine 166 35 854 708 215 992
Boilers 85 21 749 083 255 872
Propulsion 119 58 454 623 491 215
Other 19 4 047 198 213 010
Total 825 253 780 650 307 613
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IMCC, Dublin October 2007
Main Engine claims and trends, 1988-2006
521486 464
376430
505
629664 650 672 664 657 642
788
1071
910
1190
1475
1570
32 34 49 20 29 26 21 26 28 19 21 22 15 39 43 2567 66 50
0
200
400
600
800
1000
1200
1400
1600
1800
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
0%
5%
10%
15%
Club entry (No.) ME Claims (No.) ME Claims share of Club entry (%)
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IMCC, Dublin October 2007
Investigation details
z
Period: 1998 2006z Number of claims: 354
z Based on our fleet.
z NB! Deductible avg. $110 000z Claims >=$10 000
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IMCC, Dublin October 2007
Main engine claims, by cost 1998-2006
28%
19%8%4%
7%4%
3%
3%
24%
Turbocharger
Crankshaft, Con Rod
Cylinderl iner
Entablature, Staybolts
Journal, Bearing
Fuelpum p, Gears
Cam shaft, Coupl ing
Piston, Piston rodVarious
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IMCC, Dublin October 2007
Question No. 3
Of the Clubs total number of entries for H&M, what isthe 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%
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IMCC, Dublin October 2007
Percentage of Club entry and damage cost
(1998 - 2006)
80,3%
19,7%
57,8%
42,2%
0,0%
10,0%
20,0%
30,0%
40,0%
50,0%
60,0%
70,0%
80,0%
90,0%
Low speed Medium Speed
Club Entr y
Cost
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IMCC, Dublin October 2007
Cost per ship and year (USD) 1998 - 2006
9 141
27 094
0
5 000
10 000
15 000
20 000
25 000
30 000
Low speed Medium Speed
Cost (USD)
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Types of main engine claim: all
Claims type Number Total
cost (USD)
Avg. Cost
(USD)
Turbocharger 135 32 409 706 240 072
Crankshaft,Con Rod
30 22 655 684 755 189
Cylinderliner 31 9 126 286 294 396
Journal,Bearing
22 8 398 832 381 765
Entablature,
Staybolts
19 4 130 803 217 411
Fuelpump,Gears
17 4 804 472 282 616
Camshaft,Coupling
12 4 100 955 341 746
Piston, Pistonrod
14 3 971 266 283 662
z The eight most common main
engine claims types.z In terms of numbers and total cost,
turbocharger damage remained themost common and costly claimscategory, accounting for 135 of the
354 claims and USD 32.4 million ofthe USD 117.7 million total cost.
z 104 of the 135 turbocharger claimsinvolved low speed engines.
z Crankshaft & connecting rod failures
was the second most common andexpensive damage category. Interms of average cost, these failuresproduced the most expensive claims(USD 755,000/damage).
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IMCC, Dublin October 2007
Types of main engine claim: low and
medium speed 1998-2006
Claims type Number
Total cost
(USD)
Avg. Cost
(USD)
Turbocharger 104 27 869 016 267 971
Entablature,Staybolts
19 4 130 803 217 411
Cylinderliner 28 8 291 734 296 133
Journal, Bearing 13 3 906 343 300 488
Piston, Pistonrod
9 2 348 233 260 915
Claims type Number Total cost(USD)
Avg. Cost(USD)
Turbocharger 31 4 540 689 146 474
Crankshaft,Con Rod
27 19 496 058 722 076
Camshaft,
Coupling8 3 451 850 431 481
Journal,Bearing
9 4 492 490 499 166
Fuelpump,Gears
7 1 023 196 146 171
Slow speed Medium speed
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 failurecategory. 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 Bearingsis the most expensive claims type (at USD 300,500).
336 877
983 683
Avg.05-06 Avg.05-06
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IMCC, Dublin October 2007
Turbochargers who or what is at fault?
z 135 damages average costUSD 240 000
z 40% of claims not related to turbine
foreign objects.
z Medium speed engine over-represented in number
z Running hours Strictly adhere tothe makers instruction
z Total cost for damages 1998-2006: USD 32 400 000
z ABB SEKO Concept (life time of rotating parts)
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IMCC, Dublin October 2007
Crankshafts, Connecting rods
who or what is at fault?
z Total cost for damage 1998-2006: USD 22 700 000
z 30 cases average cost USD 755 000
z Very expensive!
z Predominantly a Medium Speed Engine issue
z Lubrication failure filters, purif iers, contamination
z Lube oil analysis to be made on a quarterly basis
z The Swedish Club recommends that partical counts are
included in the above analysis
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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 tofollow proper procedures (shipyard visits)
z Bring in the experts!
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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 costsz Larger main engine > more parts, larger parts, more expensive
parts, for example: l iners, 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
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IMCC, Dublin October 2007
Hull & Machinery: claims cost and
premium/deductible trends
0,00%
20,00%
40,00%
60,00%
80,00%
100,00%
120,00%
140,00%
160,00%
180,00%
1998 1999 2000 2001 2002 2003 2004 2005 2006
Claims
Premium
Deductible
M i H ll E l ti f G L R ti
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IMCC, Dublin October 2007
0%
20%
40%
60%
80%
100%
120%
140%
12 24 36 48 60 72 84 96 108
120
Ultim
ate
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)
Assuming a30% expenseratio(acquisition andmanagementexpenses),technical breakeven is achievedwhen the grossloss ratio doesnot exceed 70%
19991998200020021997 / 2001200419962003/2005
Marine Hull Evolution of Gross Loss Ratio,actual and estimated towards ultimate U/W
Year 1996 to 2005
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IMCC, Dublin October 2007
Question No. 4
And the winner is?
A: Underwriters
B: Owners
C: No one
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IMCC, Dublin October 2007
Why insure such failures?
How to insure such failures?
If one is to insure these failures, consider thefollowing:
Underwriting is a cyclical and painful exercise that requiresdiscipline over time
There will most certainly be a market reaction given claimsdevelopment and current rates
There is no alternative to Exposure Rating
If you are not able to rate exposure commensurate to therisk assumed dont assume the riskActive and focused loss prevention will assist you but
only to a certain extent
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IMCC, Dublin October 2007
Minor engine problem off Dutch Harbour,
Alaska, 2004
Current reserve: USD 167 000 000
ff
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IMCC, Dublin October 2007
Minor engine problem off
La Rochelle, France
Current reserve: USD 83 000 000
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IMCC, Dublin October 2007
Leaning towards an increase in premium
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IMCC, Dublin October 2007
Where it all started