PICC Underwrites Hijacked China Cargo Vessel in Somalia

BEIJING, China, Oct 30, 2009 (A. M. Best via COMTEX) -- PPCCF | Quote | Chart | News | PowerRating -- PICC Property & Casualty Co. Ltd. [77633] said it is the insurer for the hijacked Chinese cargo vessel off the coast of Somalia, underwriting the ship with an insurance amount of US$400 million.

The Chinese cargo vessel, De Xin Hai, which belongs to Qingdao Ocean Shipping Co. Ltd., a subsidiary of China Ocean Shipping (Group) Co., was hijacked by Somali pirates in the Indian Ocean about 10 days ago.

De Xin Hai's insured amount is substantially covered by reinsurance in international market as the standard insurance practice, said PICC in a statement.

PICC said its Qingdao branch's international division handles the vessel's marine insurance, which covers all necessary protection for cargo vessel including natural disasters, accident and casualty and some liability risks.

In China, PICC is the largest nonlife insurers to offer marine, cargo and logistic insurance. The Beijing-based insurance group started offering marine insurance in 1951.

PICC now has market share of 60% for marine insurance in China. In the first half of 2009 fiscal year ended this June, cargo insurance accounted for 2.6% of total premium income, down from the previous year's 3.3%.

PICC has formed a special working unit with its local and head offices to look into De Xin Hai's hijack incident, said China's largest nonlife insurer.

The cargo carrier, weighing 40,892 tons and 225 meters in length, was carrying coal and heading to India from South Africa. China's Ministry of Transport said government units are making efforts to rescue the cargo vessel.

Cosco is China's largest shipping company with bulk cargo fleets navigating to more than 360 ports in more than 100 countries and region.

The bulk carrier was hijacked in the Indian Ocean, 350 nautical miles northeast of the Seychelles and 700 nautical miles off the east coast of Somalia, according to the European Union Naval Force Somalia.

Increasing piracy attacks off the Somalia Coast and the Gulf of Aden region prompted countries, including China, to send naval fleets to patrol in the areas. In 2008, an estimated amount of US$25 million to US$30 million was paid in ransom to Somali pirates, according to the 2009 pirate report by Allianz Global Corporate and Specialty [87997], a subsidiary of Allianz AG [55288].

All marine vehicles, from yachts to oil tankers, are liable to pirate attack but bulk carriers are the most common targets. Research shows pirates are largely uninterested in the ship's cargo as holding the vessel for ransom is enough for them, according to Allianz.

Piracy is a "peak risk" because potential loss is high while its probability is low, said Allianz in its report. It is generally hard to include piracy risk as part of general insurance policy as the concentration, method and target of pirates varies.

The growth of piracy is likely to increase insurance premiums as well as the cost of shipping, said Daniel McCarthy, marine hull underwriter at Allianz Global Corporate and Specialty. Premium hikes are only one reaction to piracy, but each insurer approaches this issue differently.

In the London market, which underwrites most marine risk policies, about 80% of cases piracy are shifted from hull to war policies. Discussion are also going on about the adaptation of kidnap and ransom insurance to the piracy situation, said Allianz in the report.

(By Iris Lai, Hong Kong bureau manager: Iris.Lai@ambest.com)

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