Page 333 - M97TB9_2018-19_[low-res]_F2F_Neat2

Chapter 12 Marine and aviation reinsurance 12/3 Chapter

A1 Hull 12
The term hull usually includes all those risks underwritten on the original policy form and may include
risks other than actual physical damage to the vessel.
Example 12.1
As an example, claims arising from the operation of the running-down clause, which covers collision liability, are
likely to be included in an insurers’ hull account, rather than its liability account, since the risk is part of the standard
hull coverage.

The hull account will probably not be limited to ocean hull but might also include:
• builders’ risk – building (and launching) risks of vessels;
• fishing vessels;
• coasters;
• river hulls and barges; and
• yachts.
It could also include towage risks, which necessitate a highly specialised form of protection.

A1A Extent of cover and exclusions
The need for hull reinsurance arises partly from the fact that all insurers who write original policies of
Very high values are
hull insurance find themselves, at some time or other, with an involvement greater than they feel they now to be found in
should prudently retain. A common cause of this overlining is that very high values are now to be found fleets
in fleets the world over, a situation highlighted by the fact that many fleets have an unbalanced
structure – that is to say, a few peak values followed by others considerably lower. This situation brings
about a problem for the insurer who wishes to maintain its percentage involvement in the fleet but at the
same time finds itself with considerably more of the peak values than it thinks prudent.

This imbalance in values in a fleet can be extended to apply to an insurer’s entire hull account. It is this
imbalance, above all else, that necessitates some form of reinsurance to ensure that, in any loss Reference copy for CII Face to Face Training
situation, the insurer is left with an involvement which represents an acceptable percentage of its
premium income and which would not ruin its hull account or, at worst, threaten its solvency. At other
times, the insurer may wish to reinsure a particular class or type of vessel or, indeed, classify its
reinsurance needs by way of a country of registration or ‘flag’ and by doing so, improve the quality of its
retained hull account.
Special mention must be made regarding yachts as these are often underwritten by a specialised market
Yachts are often
and, even when written within an overall hull account, are often separately identified and protected. underwritten by a
While the values of yachts may not themselves be high, particularly when compared with ocean-going specialist market
merchants’ ships, the liabilities are often many times the hull value and represent a special problem
when arranging reinsurance protection, particularly if liabilities are included in the hull policy.
The other feature of a yacht account is a possible imbalance of the account, i.e. value of a top yacht may
be near, or even exceed, the total annual premium income from the whole account.

Question 12.1
What particular risks are associated with yachts moored in a marina?

Yachts at anchor are considerably more likely than ocean-going vessels to be involved in one storm, fire
or natural hazard and this risk of accumulation in one event is sometimes of particular importance when
arranging the reinsurance programme of a yacht account.
In a subscription market, such as London, it is possible for an insurer writing direct or facultative
reinsurance to regulate its line commitment on a hull considerably more precisely than in a country
where it is the practice for one company to take 100% of the risk and where, in all probability, it is not
possible to achieve the spread of risk which is so important in order to balance the account. In those
countries and in other situations where an original insurer is obliged to accept 100% of the value, there
is a greater need for individual facultative reinsurance to enable a higher percentage of the original risk
to be insured.