Maersk Insurance rings up its fifth profitable year

Shipping giant’s move to have ‘skin in the game’ proves successful after recording yet another year in the black

An ambitious strategy of setting up a new insurance company to help shipping giant AP Moller-Maersk retain more risk appears to have paid off.

Five years on from Maersk Insurance starting its underwriting operation, the business has rung up a cumulative after-tax profit of $85m and provided a $106m loan to the parent group.

“When we look at the business plan that we made five years ago, it has more or less played out as we expected," Maersk Insurance managing director Lars Henneberg said. "We have delivered the return anticipated and promised to our owners. We are satisfied with the result.”

The Copenhagen-based business had a premium income of $50.2m, with claims of $30.2m in 2016. This resulted in a post-tax profit of $21.35m for the year.

Maersk Insurance had a very favourable combined ratio of 60% in 2016, with the range over its five years of existence running from 59% to 82%. 

Combined ratios are a key measure of underwriting performance, calculated by dividing claims plus expenses by premium. Figures in the low 80% range or below are exceptionally good.

Maersk Insurance was set up in 2011 with $90m of launch capital by AP Moller-Maersk and, after five consecutive years of profit, has total assets of $273m including equity of almost $170m.

The insurance company was established as a 100% subsidiary of the group, with a target of driving the total cost of risk down by 15% year on year. But cutting insurance spending was not the only target.

A key objective was also to have “skin in the game”, so there was a greater understanding of the risks the business was running and increased emphasis on loss prevention.

The focus so far has been taking a share in the hull insurance of AP Moller-Maersk’s huge fleet as well as terminals and energy risks but a move into the employee benefits sector is now on the agenda.

Over the past year, Maersk Insurance has fully reinsured its shipping, terminal and energy exposure but that was purely down to reinsurance rates being so low that it made sense to transfer rather than retain these risks.

“Every year we look at the price of reinsurance and how much risk we want to retain and how much to transfer," Henneberg said. "If the price of reinsurance is high, we will retain more risk. If the price of reinsurance is low, we will retain less risk. It is a function of retention management."

Although insurance and reinsurance markets have been soft through the years since Maersk Insurance was established, one of the objectives has been to position the group to better withstand any future hard market.

Maersk Insurance also has looked at the possibility of playing a role in the protection-and-indemnity (P&I) cover of the company's fleet but mutuality and cover being normally written on a 100% basis poses a challenge.

Henneberg says Maersk Insurance continues to monitor the P&I market but there are no plans at the moment to enter this sector.

“We have not found a way to fit Maersk Insurance into the current mutual structure," he said. "Although some of the clubs are willing, we do not see a feasible way of participating in our P&I programmes."

Although Maersk Insurance is small fry in the overall AP Moller-Maersk business empire, it is successful at a time when the core container line and offshore energy operations have been in the red.

Maersk Line operates a fleet of around 600 containerships including vessels up to 20,000 teu. The Svitzer subsidiary has a towage and salvage fleet of more than 500 vessels. Maersk Supply has 50 or more vessels, while Maersk Drilling has over 20 units. APM Terminals operates facilities in about 70 ports.

For many years, AP Moller-Maersk controlled two Bermuda-based captive insurers, Corvetine and Barkentine, but they were rolled into Maersk Insurance in 2014.

Maersk Insurance is chaired by AP Moller-Maersk finance chief Jan Kjaervik, who is also a director of the Britannia Club; Marianne Sorensen of Maersk Drilling is on the Standard Club board; Skuld has Martin Larsen of Maersk Supply Services as a director; the Through Transport Mutual Insurance Association (TT Club) has Morten Engelstoft, who has held various senior roles in Maersk shipping companies as a director; and retired Maersk executive Knud Pontoppidan is a former chairman of the club and remains a director. 

Svitzer has a substantial fleet entered in the Shipowners' Club, while the UK War Risks Club is chaired by Torben Stage, of Svitzer.