• A renewed but contained trade war could bring nominal global trade growth below 5% in 2026 (-0.6pp), with USD67bn of exports at risk in Europe and China in 2025-26 (half of the global total).
• Past tariffs on Chinese imports cost the EU USD38bn per year, compared to USD17bn per year for the US.
• Over the past two years, bilateral trade flows between geopolitically close countries have jumped by USD620bn and now account for 60% of global trade.
• The next generation of trade hubs is expected to grow its share of global exports by +1.6pp over the next five years (reaching USD 1 274bn).
• In a scenario of trade policy continuity, South Africa is expected to experience export losses amounting to USD1bn over 2025-2026.

Although global trade remains strongly intertwined with the US economy, China has emerged as a new superpower, banking on its critical role in global manufacturing and its large and rising domestic market.

Against this backdrop, rising US-China tensions are reshaping global supply chains and paving the way for new trade powerhouses, according to new research from Allianz Trade, the world leader in trade credit insurance.

Potential Impacts of US Tariff Increases on South African Exports

According to the report, South Africa’s export landscape is poised for a challenging period. In a scenario where current trade policies remain unchanged, the country is projected to face export losses totaling USD1 billion over the 2025-2026 period.

Despite these anticipated losses, South Africa’s real exports of goods and services are expected to grow by 2.3% in 2025 and 1.4% in 2026, following an expected growth of 0.6% in 2024.

This indicates a gradual recovery, albeit at a slower pace, highlighting the resilience of South Africa’s export sector amidst global economic uncertainties.

However, the report also outlines a more severe scenario that could significantly impact South Africa’s export economy.

In the event of increased tariffs from the United States, coupled with retaliatory measures, South Africa could face export losses amounting to USD4 billion over the same period. Such an extreme scenario underscores the vulnerability of South Africa’s trade-dependent economy to global trade tensions and policy shifts.

This potential downturn emphasizes the need for strategic diversification and strengthening of trade partnerships to mitigate the risks associated with volatile international trade dynamics.

Allianz Trade has been operating in South Africa since 2015 through the Allianz Commercial South Africa license, underscoring its commitment to supporting local businesses amid these global trade challenges.

Additionally, Allianz provides corporate and travel insurance in the South African market, offering comprehensive solutions to safeguard businesses and individuals against evolving risks.

Trade war reloaded as Trump returns to office

In his second term as US President, Donald Trump is likely to increase tariffs on Chinese and other strategic imports (to 25% for the former and to 5% for the rest of the world, excluding Mexico and Canada), which would decrease nominal global trade growth by -0.6pp in 2026 as most measures would kick-in from the second half of 2025.

China and the EU would bear most of the cost, with USD67bn of exports at risk in 2025-26, especially in automotive manufacturing, transport equipment and metals. Their retaliation measures are likely to hit US pharmaceuticals, automotive, metals, agrifood and machinery.

“In the event of a full-blown trade war (60% tariffs on China and 10% on the rest of the world, including Mexico and Canada), the toll would increase to 2.4pps of nominal global trade growth and China, Mexico and Canada would be hit the hardest, with cumulated export losses totaling to close to USD217bn over 2025-26. But this scenario looks unlikely as the US would also have to face a large cost,” adds Ana Boata, Head of Economic Research at Allianz Trade.

American “godfathering” vs China’s “silk” doctrine

Global trade is increasingly being shaped by the competing geoeconomic agendas of the US and China. US imports have been breaking away from China, and China has been exporting more to its own geopolitically close partners (Russia, Singapore, Vietnam, the UAE, Saudi Arabia). In this context, bilateral trade between geopolitically aligned countries has risen by +2pps (USD620bn) to 60% of global trade in just two years.

“China’s trade-and industry-centric “silk” doctrine has mostly relied on soft power and connective influence, while American “godfathering” rests on four pillars: (i) an unwavering commitment to protect core national interests at all costs, (ii) securing loyalty within the network of historical allies, (iii) an active economic and military stance against rivals and (iv) expanding American influence and control across new domains such as space, tech, and AI. No matter who wins the US elections, this clash is here to stay,” explains Ano Kuhanathan, Head of Corporate Research at Allianz Trade.

Alignment with the US is costly for the EU

While the US and the EU share a common stance on geopolitical issues, their economic interests are not aligned. Nevertheless, the EU does tend to follow suit when the US imposes tariffs on China – usually in the following year – even though it pays a higher price, according to Allianz Trade’s calculations.

Past tariffs imposed on China cost the US USD17bn per year (4% of its Chinese imports), but they cost the EU almost USD38bn per year (6.4% of its Chinese imports).

Moreover, the EU itself is not safe from US protectionist measures, and there is a risk that the US and/or China follow a divide-and-conquer strategy by exploiting internal European divisions to seek bilateral deals that would improve their own negotiating positions against the block.

New trade hubs are emerging as winners, but making global supply chains more complex

In the years to come, global trade is likely to grow below its long-term average. At the same time, Allianz Trade’s supply-chain complexity index shows that global trade flows are becoming more intricate, with complexity levels doubling since 2017 and rising 6x compared to the pandemic years.

In this context, Allianz Trade identifies 25 economies that could benefit from this new geoeconomic order, given their relatively higher competitiveness compared to China in the context of an intensified trade war from the US.

“Beyond fast-growing economies such as India, this shift has opened doors for nations like Vietnam, Malaysia, Indonesia, and the UAE to step up as next-generation trade hubs. We expect these economies to grow their share of global exports by +1.6pp over the next five years, reaching USD 1 274bn. As these hubs grow to account for up to 21.3% of all global exports by 2029, they will also need to invest USD120bn on port infrastructure alone to maintain their momentum,” adds Françoise Huang, Senior Economist for Asia Pacific and Trade at Allianz Trade.

Choosing sides in the new geoeconomic order

By looking at the next-generation trade hubs and other major economies’ geopolitical, trade and cross-border investment links with the US and China, respectively, Allianz Trade computes geoeconomic distance scores relative to both countries.

These scores show that China’s sphere of influence includes more next-generation trade hubs from the emerging world, while most of the Western bloc remains closer to the US.

Unsurprisingly, the UK is the closest country to the US followed by Ireland and the Netherlands, with Canada in 4th place and Mexico only in 28th.

Most African and Asian nations are closer to China: on average 0.5 for African nations vs 0.7 distance with the US and 0.4 for Asian nations vs 0.6 distance with the US. But after Hong Kong, Canada is the 2nd closet economy to China – managing to remain close to both superpowers.

“Australia, South Korea, and Greece are among the other nations that have managed to maintain the same distance with both the US and China. These countries are geopolitically closer to the US but retain very strong trade and investment relations with China. This position could potentially become increasingly uncomfortable and force them to pick a side, should the new geoeconomic order centered on the US-China confrontation deteriorate significantly,” explains Françoise Huang.

This follows the regulatory approvals the Sanlam and Allianz businesses in Ghana obtained recently to merge and rebrand to SanlamAllianz.

The joint venture, which was launched in September 2023, is the leading pan-African non-banking financial services company, which operates in 27 countries across the continent.

The CEOs of the two businesses are Tawiah Ben-Ahmed, chief executive Officer/MD of SanlamAllianz Life Insurance Ghana, and Mabel Nana Nyarkoa Porbley, Chief Executive Officer/MD of SanlamAllianz General Insurance Ghana.

SanlamAllianz’s ambition is to leverage its global and pan-African expertise, and unlock growth in Africa’s high-potential economies, in line with its purpose to empower generations to be financially confident, secure and prosperous. This will be achieved through supporting financial inclusion through innovative, cutting-edge technology and diverse financial services that create shared value for all stakeholders.

Mr Heinie Werth, SanlamAllianz CEO, said:

“Launching the SanlamAllianz brand in Ghana marks a new milestone for us and the broader financial services market and our commitment to doing business in Ghana. It demonstrates our strategy to leverage our expertise to create leading businesses in the economies where we choose to operate and supports our intention to enable access to financial services.”

“The joint venture will also leverage the combined economies of scale of our shareholders, Sanlam and Allianz, as well as greater distribution opportunities, shared knowledge, and existing partnerships in telecommunications and bancassurance to benefit our customers,” Mr Werth added.

• AGCS’ professional indemnity report highlights 11 trends driving future insurance claims activity.
• Trends include evolving building safety laws, ‘hackers for hire’, inflation and untrained use of generative AI tools.
• AGCS analysis shows that the legal and construction sectors are the industries most impacted by large professional indemnity claims.

Architects and engineers face greater scrutiny over building and fire safety defects. Financial services professionals may be accused of mismanaging investment funds negatively impacted by inflation.

A lawyer’s untrained use of artificial intelligence (AI) tools when preparing client cases could result in an error-ridden brief. The emerging risk landscape for professional services firms is multi-faceted.

A new report from professional indemnity (PI) insurer Allianz Global Corporate & Specialty (AGCS) identifies a number of emerging liability trends for companies, ranking them by level of anticipated impact, potential drivers of loss activity and the likely ease with which these risks may be mitigated.

Impacted professions include management consultants, auditors, accountants, architects, engineers, solicitors and lawyers, and media executives, all of whom may be held responsible for losses that arise from a perceived breach of their duties.

“Although exposures vary, all these professions face a wide range of civil liability exposures which need to be adequately addressed and mitigated. These could range from accusations of negligence or omissions resulting in harm or damage to the client, to misrepresentation, to failure to identify fraudulent activity, to the unintentional breach of contract, intellectual property rights or confidentiality, and regulatory investigations and actions,” says

Diego Assef, Head of the Global Practice Group, Professional Indemnity Claims at AGCS.

Building safety laws and digital dangers such as ‘hackers for hire’ top the trends heatmap

AGCS’ global PI claims experts identify and rank 11 emerging trends in the report with some professions being more exposed than others depending on the risk and the nature of their business. 

Evolving legislation related to building safety and cybercrime, social engineering and data loss, are both ranked #1 (very high – a critical impact to operations or loss severity could be expected).

Although building safety has predominantly been a UK issue following the Grenfell Tower fire tragedy in 2017 some impact will be felt globally too, the report notes.

In the UK, extended liability periods for building and fire safety defects could bring new legal claims against manufacturers and suppliers, with a potential domino effect on all specialists in a construction project, such as architects, engineers and design and build contractors for example.

Cyber-attacks have increased in recent years – and professional services firms are highly exposed due to the proprietary customer data and intellectual property they process or operate with. 

For example, cyber mercenaries are increasingly targeting law firms in order to illegally obtain confidential or protected data that could tip the balance in courtrooms.

These so-called ‘hackers-for-hire’ provide technical capabilities and deniability of involvement in the cyber-attack should it be discovered. 

Claims drivers, which apply across all professions, include phishing and spoofing frauds, third party supply chain risks, ransomware or malware, a lack of adequate systems or controls or data loss.

Not only does a cyber breach present immediate first-party costs and disruption, it can also result in significant regulatory exposures, including action from data protection authorities and considerable fines. Litigation from affected data subjects may follow, including large group claims. Breaches may also lead to client and third-party liability claims, with claimants alleging losses due to business interruption or leaked information.

A breach also carries the risk of reputational damage, resulting in stock drops and securities claims.  Smaller firms can be more vulnerable as they typically have less sophisticated cyber-security.

Prepare for volatility and unexpected impacts from inflation and new tech

Among the other risk trends examined in the report are geopolitical, economic and market volatility (ranked #3 – moderate impact to operations or loss severity could be expected). The report notes that regulatory exposures can arise for professionals acting for clients who may potentially be caught by a rapidly evolving sanctions regime, while for construction and design professionals, disruptions to supply chains could bring claims relating to project delays.

The inflationary environment also ranks as a #3. If inflationary pressures lead to recessionary conditions, there could be a myriad of potential exposures for professionals, including insolvency-related exposures for auditors and insolvency practitioners, lenders’ claims for solicitors and valuers, and claims arising from due diligence against lawyers and accountants, according to the report. Outside of recessionary conditions, financial services professionals may face mismanagement and suitability allegations relating to funds negatively impacted by high inflation.

At the lower end of the risk rankings scale, but not to be underestimated, is the use of new technologies such as AI tools by professional services firms (ranked #4 minor impact).

“While AI has the potential to operate as a risk reducer, as technological solutions evolve rapidly so do the potential claims drivers,” says Assef. “These include data privacy or copyright issues, the need to preserve confidentiality when using service providers, risks of errors being repeated in volume work, and the level of supervision involved in machine learning tasks.

“Professional services firms must continue to properly train and supervise their staff as technology evolves and to ensure the authenticity of work products considering the emergence of tools such as ChatGPT. Ultimately, a lack of awareness of how generative AI works, as well as untrained use, could lead to legal sanctions and civil claims against all types of professionals.”  A New York lawyer recently faced sanctions over a ChatGPT-aided brief used in their client’s personal injury case. The technology cited six non-existent court decisions.

Effective immediately, Anthony Vassallo has been appointed Global Head of Natural Resources at Allianz Global Corporate & Specialty SE (AGCS), reporting to Global Head of Specialty, Gordon Browne.

In this newly established role, Anthony will focus on further evolving AGCS’s Natural Resources proposition to the market, with the aim of driving the climate transition across all segments of the energy industry including renewables, oil and gas, power generation, and mining. In particular, AGCS has a strong ambition to grow its footprint in the renewable energy and green technology segment as well as in the emerging global hydrogen economy.

Anthony Vassallo joined Allianz in 2003 and has held a variety of roles in the specialty lines of the business, across the London Market, Asia and South America in both underwriting and distribution areas. Currently he is Global Energy Product Leader and Regional Head of Energy & Construction, Regional Unit London.

He will keep these roles in the interim until a successor is confirmed.

Gordon Browne notes: “With his extensive knowledge and expertise across Allianz, I am delighted to announce we are promoting Anthony from his regional management position to join our global Specialty leadership team. He has proven himself as a strong leader with the ability to manage and shape a global underwriting portfolio.”

“Vassallo will assume his new underwriting leadership position at a time when AGCS and Allianz OEs around the world move into a new chapter as Allianz Commercial, working in partnership to build a ‘powerhouse’ business across the full Commercial Property & Casualty segment (Mid Corp, Large Corp and Specialty),”, a statement by the company reads.

Summary:

• Safety & Shipping Review 2023: 38 large ships lost worldwide last year – down by more than a third and the lowest total in the report’s history. South China Sea region sees most total losses. British Isles sees most shipping incidents.
• Fire is the second top cause of loss over the past year with 8 vessels lost and more than 200 incidents reported – the highest for a decade. Transport of electric vehicles and battery-powered goods bring new fire risks. Larger vessels and mis-declaration of cargo amplify consequences.
• Oil-related sanctions: growth of shadow tanker fleet posing safety and environmental concerns.
• Globally, maritime piracy is at its lowest level for almost three decades. The overall reduction in activity in the Gulf of Guinea – down from 35 incidents in 2021 to 19 in 2022 – is a significant contributor.
• More expensive claims due to inflation. Cost pressures could impact shipping sector’s decarbonization and safety initiatives.

However, a combination of factors impacting fire risk, ongoing and new threats posed by the ripple effects of the Ukraine conflict, decarbonization challenges, economic uncertainty, as well as the rising cost of marine claims, means the sector still has plenty of obstacles to navigate over the next 12 months and beyond, according to insurer Allianz Global Corporate & Specialty SE’s (AGCS) Safety & Shipping Review 2023.

“Shipping losses have sunk to the lowest number we have seen in the 12-year history of our annual study reflecting the positive impact safety programs, trainings, changes in ship design and regulation have had over time,” says Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS. “While these results are gratifying, several clouds appear on the horizon.

More than a year after Russia’s invasion of Ukraine, the growth of the shadow oil tanker fleet is the latest consequence to challenge shipowners, their crew and insurers. Fire safety and the problem of mis-declaration of hazardous cargo must be fixed if the industry is to benefit from the efficiency of ever- larger vessels.

Inflation is pushing up the cost of hull, machinery and cargo claims. Meanwhile, although the industry’s decarbonization efforts are progressing, this remains by far the sector’s biggest challenge.

Economic pressures could put vital investments in companies’ strategies, as well as in other safety initiatives, in jeopardy.”

Every year AGCS analyzes reported shipping losses and casualties (incidents) involving ships over 100 gross tons.

During 2022, 38 total losses of vessels were reported globally, compared with 59 a year earlier. This represents a 65% decline in annual losses over 10 years (109 in 2013). Thirty years ago, the global fleet was losing 200+ vessels a year.

According to the report, there have been more than 800 total losses over the past decade (807). South China, Indochina, Indonesia, and the Philippines maritime region is the global loss hotspot, both over the past year and decade (204 total losses).

It accounted for one-in-five losses in 2022 (10) driven by factors including high levels of trade, congested ports, older fleets and extreme weather.

The Arabian Gulf, British Isles and West Mediterranean waters were the second top loss locations (3). Around a quarter of vessels lost in 2022 were cargo (10).

Foundered (sunk/submerged) was the main cause of total loss across all vessel types (20), accounting for over 50%. Fire/explosion ranked as the second top cause of loss (8). Vessel collision third (4). 

While total losses declined over the past year, the number of shipping casualties or incidents reported remained consistent (3,032 in 2022 compared to 3,000 in 2021).

The British Isles saw the highest number (679).

Machinery damage or failure accounted for close to half of all incidents globally (1,478). There were over 200 fires reported during 2022 (209) – the highest number for a decade, making this the third top cause of incidents globally, up 17% year-on-year.

Hull and cargo fire risks continue to concern

Several factors are increasing the risk of fires at sea and on land. Decarbonization is leading to new types of cargo being transported on vessels, such as electric vehicles (EVs) and battery-powered goods. Potentially highly flammable lithium-ion (Li-ion) batteries pose a growing risk for container shipping and car carriers.

This battery market is expected to grow by over 30% annually over the next decade.

One of the main hazards of Li-ion batteries is ‘thermal runaway’, a rapid self-heating fire that can cause an explosion. The main causes of Li-ion fires are substandard manufacturing or damaged battery cells or devices, over-charging and short-circuiting. Fires in EVs with Li-ion batteries are difficult to extinguish and capable of spontaneously reigniting. “Most ships lack the suitable protection, detection and firefighting capabilities to tackle such fires at sea,” says Khanna. “Attention must focus both on pre-emptive measures and emergency plans to help mitigate this peril such as adequate crew training and access to appropriate firefighting equipment or improving early detection systems. Purpose-built vessels for transporting EVs would be advantageous.”

At the same time, hazardous cargos are increasingly transported by increasingly larger vessels. Container carrying capacity has doubled in the last 20 years. The 10 largest container operators have more than 400 new vessels on order and the majority will be larger than the ships they replace. Consequently, the impact of fires is amplified, potentially resulting in more severe losses.

Fire is already one of the most frequent causes of total losses across all vessel types with 64 ships lost in the past five years alone.

Meanwhile, AGCS analysis of close to 250,000 marine insurance industry claims shows that fire was also the most expensive cause of loss, accounting for 18% of the value of all claims analyzed.

Industry reporting systems attribute around 25% of serious incidents onboard container ships to mis-declared dangerous goods, such as chemicals, batteries, and charcoal, although many believe this number to be higher. “Failure to properly declare, document and pack hazardous cargo can contribute to blazes or hamper firefighting efforts,” Khanna explains. “Labeling a cargo as dangerous is more expensive. Therefore, some companies try to circumvent this by labeling fireworks as toys or Li-ion batteries as computer parts, for example.” Several large container shipping companies have turned to technology to address this issue using cargo screening software to detect suspicious bookings and cargo details, while large container operators are imposing penalties. “Unified requirements and penalties for mis-declared hazardous cargo would be welcomed,” says Khanna.

Ukraine and oil sanctions: growth of shadow tanker fleet latest safety concern

More than a year after Russia’s invasion of Ukraine, the ripple effects for shipping continue to be felt. The threat of collateral damage on civilian shipping in or around the war risk area remains high and could stem from floating mines for example.

Oil sanctions have also resulted in Russia and its allies creating a shadow tanker fleet to transport and sell its oil. Estimates of its size vary – as many as 600 vessels.

“The shadow fleet is more likely to be made up of older ships, operating under flags of convenience with lower maintenance standards,” explains Justus Heinrich, Global Product Leader Marine Hull at AGCS. “The increase in their number is a worrying development, threatening the world fleet and the environment. A major incident can cause loss of life as well as uninsured damage or pollution.” In May 2023 an uninsured, unladen 1997-built tanker, Pablo, exploded in Southeast Asia, reportedly killing crew.

Decarbonization the sector’s biggest challenge

Shipping contributes around 3% of global greenhouse gas (GHG) emissions annually and is committed to tough targets to cut these. The pace and progress of its efforts are influenced by technological developments, adoption of energy-efficient fuels, regulation and market forces. Shipping companies and cargo operators are already switching to vessels powered by liquefied natural gas and are using and trialing alternative fuels such as biofuels, methanol, ammonia and hydrogen, as well as solar and battery-powered all-electric vessels, wind-assisted propulsion systems, more efficient propellers and bulbous bow designs.

Transitioning away from carbon-based shipping will involve a demanding period of change and significant investment of about $1.4trn.

A mix of fuels is likely to exist for the next five to 10 years, posing challenges for shipowners, operators and ports. From a loss perspective the industry has not yet seen any major claims from alternative technologies or fuels. However, as these are introduced at scale, more issues may surface. “Collaboration is key and regular exchanges of information and data between companies and insurers from testing and experiences will be important in helping to reduce transition risks,” says Heinrich.

Economic pressures back on the radar

Following the post-pandemic boom in container shipping, economic and geopolitical uncertainty and falling demand have hit freight rates. The cost of shipping a container between Asia and the United States or Europe in April 2023 was more than 80% lower than a year earlier. “The question is whether this decline, together with the prospect of an economic downturn, will impact maintenance and risk management budgets. Prior downturns have impacted these, leading to losses and an uptick in machinery damage incidents.,” says Heinrich.

Progress made in fighting piracy

Globally, maritime piracy is at its lowest level for almost three decades. There were 115 incidents during 2022. Ten years ago there were 138 in the first six months of 2013 alone. The overall reduction in activity in the Gulf of Guinea – down from 35 incidents in 2021 to 19 in 2022 – is a significant contributor. In 2019, it accounted for 90% of global kidnappings reported at sea.

 “However, sustained efforts are needed to ensure the continued safety of seafarers in the Gulf of Guinea region. Piracy is tied to underlying social, political and economic problems, which could deteriorate further. The region remains dangerous,” says Khanna. Two incidents were reported in the last quarter of 2022. In March 2023 pirates boarded a product tanker off the coast of Democratic Republic of the Congo, while in April another tanker was boarded about 300 nautical miles southwest of Abidjan, Ivory Coast – all crew were later reported safe with the oil cargo the target 28. Seafarers are encouraged to follow industry best management practice recommendations in these waters.

Factors impacting the cost of claims

Increased commodity prices, higher labor costs and supply chain disruption have had a significant impact on marine insurance claims, in particular hull and machinery.

“The price of steel, a key cost driver in hull claims, increased sharply post-pandemic, as did spare parts. A typical propeller or machinery claim now costs around two times more than pre-pandemic,” explains Régis Broudin, Global Head of Marine Claims at AGCS. “Shortages and delays in obtaining replacement parts have also led to longer stays in repair yards while labor shortages have also increased costs. Labor shortages have increased costs. This comes on top of the increased expense of dealing with large vessels, which face higher costs for repairs, salvage and towing.”

The post-pandemic boom in container shipping has also impacted. Cargo values have risen with the increase in the price of goods and raw materials. “Even companies with the best risk management will see the impact of inflation on claims,” concludes Broudin.

The insurance industry can benefit from blockchain technology, which has a proven ability to solve the problem of mistrust, delays, cost of employing middle men, through smart contracts, a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract without third parties. 

Smart contracts provide security that is superior to traditional contract laws and support transactions that are partially or fully self-executing, self-enforcing, or both. It ensures premiums and claims are executed based on the exact conditions of the underwritten contract without prejudice or sentiment.

The good thing is, Insurers are increasingly adopting this technology, in the bid to eliminate ambiguity and leave no room for future interpretation or misinterpretation of contracts.

A popular adoption of the blockchain is in the innovation of the B3i insurance blockchain consortium, where insurers including Allianz, Aegon, and Swiss Re teamed up with technology firm Blockchain to develop B3i, whose goal was to create a more efficient and secure way of sharing information and settling claims.

Traditionally, the insurance industry has relied on a complex web of intermediaries, including brokers, underwriters, and reinsurers, to process claims and settle disputes. This process can be slow, costly, and prone to errors.

With B3i, insurers could use blockchain technology to create a shared ledger that tracks policies, claims, and payments in real-time, such that, if a customer makes a claim, the claim can be automatically processed and settled using smart contracts, which are self-executing contracts that automatically trigger payments when certain conditions are met. This reduces the need for human intervention and speeds up the claims process.

In addition to improving the efficiency of claims processing, blockchain technology can also help insurers better manage risk. 

By creating a shared database of information, insurers can more accurately assess risk and price policies accordingly. This can help reduce premiums for customers and increase profitability for insurers.

Although the consortium has ceased activities and filed for insolvency following unsuccessful funding rounds, the firm was successful with simplifying insurance processes and increasing transparency.

Well, B3i did not expand its operations into Nigeria. 

However, Nigeria’s insurance industry has been exploring blockchain technology to improve efficiency and enhance customer experience.

One example of this is the partnership between the Nigerian Insurers Association (NIA) and ChainThat, a UK-based blockchain technology provider. NIA, in 2019 announced that it would be working with ChainThat to develop a blockchain-based platform, insureChain, for the Nigerian insurance industry.

The platform is designed to streamline the insurance value chain by providing a secure and transparent way for insurers, brokers, and customers to share information and settle claims. InsureChain uses smart contracts to automate claims processing and reduce the risk of fraud or errors.

In addition to InsureChain, several Nigerian startups have also been exploring the use of blockchain technology in the insurance industry. For example, Aella Credit, a Nigerian fintech startup, has developed a blockchain-based platform for microinsurance that allows customers to purchase insurance policies using their mobile phones.

Another startup, SureRemit, has created a blockchain-based platform that allows users to purchase and send vouchers for insurance products and other services. The platform uses blockchain technology to ensure that transactions are secure and transparent.

Overall, as blockchain technology continues to develop and mature, we can expect to see further innovation and disruption in the insurance industry in Nigeria and around the world.

Allianz Group confirms full-year outlook

1Q 2023:   

• Total business volume rises 3.9 percent to 46.0 billion euros
• Operating profit increases 24.2 percent to 3.7 billion euros; strong performance particularly in Life/Health and Property-Casualty business segments
• Shareholders’ core net income strong at 2.2 billion euros 
• Strong Solvency II capitalization ratio of 206 percent, compared with 201 percent at the end of 4Q 2022

Outlook:

• 2023 operating profit target confirmed at 14.2 billion euros, plus or minus 1 billion euros

Other:  

• New share buy-back program of up to 1.5 billion euros announced

Q1 2023 Results Table

We can be proud of our operating profit and bottom line, a reflection of our strength, our skills, and consistent execution of our strategy. We once again benefited from our diversified business mix and delivered particularly strong performance in the Property-Casualty segment, driven by robust pricing, continued underwriting discipline and focus on further productivity gains. Our strong profitability and capitalization underscore our aspiration to remain the trusted partner for our clients to secure their futures as they continue to navigate a time of hesitation and uncertainty.” 

– Oliver Bäte, Chief Executive Officer of Allianz SE

Financial highlights

Total business volume

1Q 2023: Total business volumes rose by 3.9 percent to 46.0 billion euros, driven by the Property-Casualty business segment which benefited from higher prices and volumes. This result was partly offset by lower business volumes in the Life/Health business segment, primarily due to softer single-premium volumes, and a decrease in AuM-driven revenues in our Asset Management business segment. 

Internal growth, which adjusts for foreign currency translation and consolidation effects, was strong at 3.5 percent, driven by the Property-Casualty business segment.

Earnings

1Q 2023: Operating profit jumped 24.2 percent to 3.7 (1Q 2022: 3.0) billion euros. This is due to a higher result of our US operations in the Life/Health business segment, and a stronger insurance service result in the Property-Casualty business segment.

This was partly offset by the Asset Management business segment due to reduced AuM-driven revenues and a higher cost-income ratio. 

Shareholders’ core net income was strong at 2.2 (1Q 2022: 0.4) billion euros due to both a higher operating profit and an improved non-operating result. Non-operating result in the prior year was impacted by a provision related to the AllianzGI US Structured Alpha matter.

Allianz net income attributable to shareholders was 2.0 (1Q 2022: 0.5) billion euros, up substantially in part due to the aforementioned provision.

Core Earnings per Share (EPS)³ was 5.43 (1Q 2022: 1.02) euros. 

The annualized Core Return on Equity (RoE)³ was 15.6 percent (full year 2022: 12.7 percent).

On May 10, 2023, Allianz announced a new share buy-back program of up to 1.5 billion euros. The program shall start end-May 2023 and be finalized by December 31, 2023, at the latest.

Solvency II Capitalization Ratio

The Solvency II capitalization ratio was 206 percent at the end of 1Q 2023 compared with 201 percent at the end of 4Q 2022. Including the application of transitional measures for technical provisions, the Solvency II capitalization ratio was 232 percent at the end of the first quarter of 2023 compared with 230 percent at the end of 2022.

Segmental highlights

“Allianz’s first quarter results demonstrated strong performance and proven resilience across all segments. With the first-time application of IFRS 9 and 17, we delivered our results with even more clarity and transparency and proved our ability to create value.

• Our Property-Casualty business showed excellent internal growth, driven by healthy pricing that contributed to offset the impact of inflation. The significant increase in operating profit is due to our strict underwriting discipline and focus on productivity gains.
• Value creation in our Life/Health business is strong. Our profitability is well supported by the solidity of our in-force business as well as the robustness of new business value. 
• Our active Asset Management recorded 14.9 billion euros net inflows and our third-party assets under management reached 1.7 trillion euros. This bodes well for a solid profitability development.

We confirm our full-year outlook of operating profit of 14.2 billion euros, plus or minus 1 billion euros.”

– Giulio Terzariol, Chief Financial Officer of Allianz SE

Property-Casualty insurance: Dynamic growth

1Q 2023: Total business volume rose by 11.2 percent to 24.1 (21.7) billion euros. Adjusted for foreign currency translation and consolidation effects, internal growth was strong at 11.1 percent due to a volume effect of 5.0 percent, a price effect of 5.6 percent as well as a service effect of 0.5 percent. The main contributors to the increase were AGCS, Türkiye, Allianz Partners and Germany.  AGCS Total Gross Premium Written (GPW) of EUR 3,736mn is EUR +618mn/+20% better than prior year (Q1 2022: €3.118 billion).

Operating profit surged by 22.7 percent to 1.9 (1.5) billion euros, due to a higher operating insurance service result that was partly offset by a slightly lower operating investment result. For AGCS, the operating profit for Q1 2023 of €202 million (Q1 2022: €182 million) is €20 million better than prior year mainly due to a better insurance service result.

The combined ratio improved by 1.9 percentage points to 91.9 percent (93.8 percent). The loss ratio benefited from a higher discounting effect and lower claims from natural catastrophes. This was partly offset by a lower run-off result. The expense ratio improved by 0.5 percentage points to 24.9 percent (25.4 percent). 

Life/Health insurance: Excellent new business margin 

1Q 2023: PVNBP, the present value of new business premiums amounted to 18.5 (21.1) billion euros, driven primarily by lower single premium volumes in Germany and Italy, slightly offset by increased volumes in the United States as a result of a fixed index annuities sales promotion.  Further decreases in Germany were driven by economic impacts, primarily higher discounting on recurring premiums. 

Operating profit increased to 1.3 (0.8) billion euros and benefited in particular from a higher result in the United States. The release of the Contractual Service Margin (CSM) was stable and in line with expectations. 

Contractual Service Margin (CSM) at 52.4 billion euros, up by 0.2 billion euros from the end of 2022. Healthy value of new business and the expected in-force return resulted in solid normalized growth of 1.1 percent in the first quarter. 

The new business margin (NBM) increased to 5.5 percent (4.9 percent), driven by an improved business mix and higher interest rates. The value of new business (VNB) was stable at 1.0 (1.0) billion euros.

Asset Management: Positive net inflows

1Q 2023: Allianz operating revenues were 1.9 billion euros, down by 8.1 percent. Higher performance fees were more than offset by lower AuM-driven revenues.

Operating profit was 723 (832) million euros, down 13.2 percent from the prior-year period. Adjusted for foreign currency translation effects, operating profit decreased by 16.0 percent. The cost-income ratio (CIR) rose to 62.0 percent (59.7 percent).

Third-party assets under management were 1.668 trillion euros as of March 31, 2023, up by 33 billion euros from the end of 2022. Positive net inflows of 14.9 billion euros and favorable market impacts of 42.2 billion euros were partially offset by negative foreign currency translation effects of 23.4 billion euros.

Total assets under management were 2.174 trillion euros at the end of the first quarter of 2023, reflecting the trend in the third-party assets under management.

Main Takeaways:

• Allianz Global Corporate & Specialty (AGCS) publishes 12th annual survey of key business risks around the world, according to 2,700+ respondents
• Natural catastrophes and Climate change drop down the rankings as companies prioritize pressing macroeconomic concerns – inflation, the energy crisis and possible recession
• Pandemic outbreak plummets down the list of worries as Covid-19 restrictions have largely been removed
• Macroeconomic developments and political risks and violence are top threats in Nigeria as theft, fraud and corruption, shortage of skilled workforce, and energy risks rise

It is both stability and change in the Allianz Risk Barometer 2023. Cyber incidents and Business interruption rank as the biggest company concerns for the second year in succession (both with 34% of all responses).

However, it is Macroeconomic developments such as inflation, financial market volatility and a looming recession (up from #10 to #3 year-on-year), as well as the impact of the Energy crisis (a new entry at #4) which are the top risers in this year’s list of global business risks, as the economic and political consequences of the world in the aftermath of Covid-19 and the Ukraine war take hold.

Such pressing concerns call for immediate action from companies, explaining why both Natural catastrophes (from #3 to #6) and Climate change (#6 to #7) drop in the annual rankings, as does Pandemic outbreak (from #4 to #13) as vaccines have brought an end to lockdowns and restrictions.

Political risks and violence is another new entry in the top 10 global risks at #10, while Shortage of skilled workforce rises to #8. Changes in legislation and regulation remains a key risk at #5, while Fire/explosion drops two positions to #9. View the full global and country risk rankings and watch a short video here.

In Nigeria, the top three risks are Macroeconomic developments (#1 from #3), Political risks and violence maintains second position, and Cyber incidents slides down two places to #3.

The Allianz Risk Barometer is an annual business risk ranking compiled by Allianz Group’s corporate insurer Allianz Global Corporate & Specialty (AGCS), together with other Allianz entities, which incorporates the view of 2,712 risk management experts in 94 countries and territories including CEOs, risk managers, brokers and insurance experts. Respondents were questioned during October and November 2022.

The survey focused on large- and small- to mid-size companies. Respondents were asked to select the industry about which they were particularly knowledgeable and to name up to three risks they believed to be most important. It is being published for the 12th time.

AGCS’ CEO Joachim Mueller comments on the findings: “For the second year in a row the Allianz Risk Barometer shows that companies are most concerned about mounting cyber risks and business interruption. At the same time, they see inflation, an impending recession and the energy crisis as immediate threats to their business. Companies – in Europe and in the US in particular – worry about the current ‘permacrisis’ resulting from the consequences of the pandemic and the economic and political impact from ongoing war in Ukraine. It’s a stress test for every company’s resilience.

“The positive news is that as an insurer we see continuous improvement in this area among many of our clients, particularly around making supply chains more failure-proof, improving business continuity planning and strengthening cyber controls. Taking action to build resilience and de-risk is now front and center for companies, given the events of recent years.”

In 2023, the top four risks in the Allianz Risk Barometer are broadly consistent across all company sizes globally – large, medium and small – as well as across core European economies and the US (energy crisis excepted). Risk concerns for businesses in Asia Pacific and African countries show some deviation, reflecting the different impact of the ongoing war in Ukraine and its economic and political repercussions.

Digital and disruption dangers

Cyber incidents

Cyber incidents, such as IT outages, ransomware attacks or data breaches, ranks as the most important risk globally for the second year in succession – the first time this has occurred.

It also ranks as the top peril in 19 different countries, among them Madagascar, Mauritius, Morocco, France, and the UK.

It also ranks as a top three risk in Nigeria, Kenya, South Africa and Tanzania. It is the risk that small companies (<$250mn annual revenue) are most worried about.

“For many companies the threat in cyber space is still higher than ever and cyber insurance claims remain at a high level. Large companies are now used to being targeted and able to repel most attacks. Increasingly, we see more small- and mid-size businesses impacted who often tend to underestimate their exposure. They all need to continuously invest in strengthening their cyber controls,” says Shanil Williams, AGCS Board Member and Chief Underwriting Officer Corporate, responsible for cyber underwriting.

According to the Allianz Cyber Center of Competence, the frequency of ransomware attacks remains elevated in 2023, while the average cost of a data breach is at an all-time high at $4.35mn and expected to surpass $5mn in 2023. The conflict in Ukraine and wider geopolitical tensions are heightening the risk of a large-scale cyber-attack by state-sponsored actors. In addition, there is also a growing shortage of cyber security professionals, which brings challenges when it comes to improving security.

Business interruption (BI)

For businesses in many countries, 2023 is likely to be another year of heightened risks for Business interruption (BI) because many business models are vulnerable to sudden shocks and change, which in turn impact profits and revenues.

Ranking #2 globally and in Africa and the Middle East, BI is the number one risk in countries such as Cameroon, Brazil, Germany, Mexico, Netherlands, Singapore, South Korea, Sweden and the US.

It also ranks in the top three risks in Ghana, Morocco and  South Africa. It has however moved down to ninth in Nigeria from sixth.

The scope of disruptive sources is wide. Cyber is the cause of BI companies fear most (45% of responses); the second most important cause is the energy crisis (35%), followed by natural catastrophes (31%).

The skyrocketing cost of energy has forced some energy-intensive industries to use energy more efficiently, move production to alternative locations or even consider temporary shutdowns. The resulting shortages threaten to cause supply disruption across a number of critical industries, including food, agriculture, chemicals, pharmaceuticals, construction and manufacturing.

A possible global recession is another likely source of disruption in 2023, with potential for supplier failure and insolvency, which is a particular concern for companies with single or limited critical suppliers.

According to Allianz Trade, global business insolvencies are likely to rise significantly in 2023: +19%.

Macroeconomic malaise

Macroeconomic developments such as inflation or economic and financial market volatility rank as the third top risk for companies globally in 2023 (25%), up from #10 in 2022 – the first time this risk has appeared in the top three for a decade.

It ranks as a top three risk in Nigeria (#1), Burundi, Ghana, Ivory Coast, Madagascar, Mauritius, Morocco, Namibia, and Tanzania.

All three major economic areas – the United States (US), China and Europe – are in a crisis mode at the same time, albeit for different reasons, according to Allianz Research, which forecasts recession in Europe and the US in 2023.

Inflation is a particular concern as it is ‘eating’ into the price structure and profitability margins of many companies.

Like the real economy, the financial markets are facing a difficult year, as central banks drain excess system-wide liquidity and trading volumes even in historically liquid markets decline.

“2023 will be a challenging year; in purely economic terms, it is likely to be a year to forget for many households and companies. Nevertheless, there is no reason to despair,” says Ludovic Subran, Chief Economist at Allianz. “For one thing, the turnaround in interest rates is helping, not least for millions of savers. The medium-term outlook is also much brighter, despite – or rather because of – the energy crisis. The consequences, beyond the expected recession in 2023, are already becoming clear: a forced transformation of the economy in the direction of decarbonization as well as increased risk awareness in all parts of society, strengthening social and economic resilience.”

Risk risers and fallers

The Energy crisis is the biggest risk riser in the Allianz Risk Barometer appearing for the first time at #4 (22%).

It ranks in the top risk three in Burundi and came in as a new entrant in Nigeria (#7) and South Africa (#6).

Some industries, such as chemicals, fertilizers, glass, and aluminum manufacturing, can be reliant on a single source of energy – Russian gas in the case of many European countries – and are therefore vulnerable to disruption to energy supply or price increases.

If such base industries struggle, repercussions can be felt further down the value chain in other sectors.

According to Allianz Trade, the energy crisis will remain the largest profitability shock for European countries in particular.

At current levels, energy prices would wipe out the profits of most non-financial corporates as pricing power is diminishing amid slowing demand.

Political risks and violence

Driven by 2022 being another year of turmoil with conflict and civil unrest dominating the news, Political risks and violence is a new entry at #10 (13%). Aside from war, companies are also concerned about increasing disruption from strikes, riots and civil commotion activity as the cost-of-living crisis bites in many countries.

In Africa and the Middle East, Political risks and violence fell two places to sixth but it is still in the top three risks in Nigeria, Burundi and Madagascar.

Recent years have shown the huge impact a coordinated violent SRCC event can have on an economy and politics, such as the Black Lives Matter protests in the US or #EndSARS protests in Nigeria in 2020, while in 2023 the rising cost of living could also bring an increased risk of disruption from such events.

Natural catastrophes

Despite dropping in the ranking year-on-year globally, Natural catastrophes (19%) and Climate change (17%) remain major concerns for businesses.

In a year that included Hurricane Ian, one of the most powerful storms recorded in the US, record-breaking heatwaves, droughts and winter storms around the world, and $100bn+ of insured losses, they still rank in the top seven global risks.

Climate change

In Africa and the Middle East, Climate change is one of the biggest risers from #10 to #4 highlighting the risks it poses to the region. It also ranks as a top three risk in Kenya, Mauritius, Namibia and Tanzania and comes in as a new entrant at ninth in Nigeria.

Download the full report from here: Allianz Risk Barometer | AGCS

This transaction consists of Allianz acquiring 51% of ordinary shares from Jubilee Holdings Limited (JHL) and all shares previously owned by the Aga Khan Fund for Economic Development (AKFED).

JHL will retain an 8.37% stake in the company and a further 25.63% through its subsidiary, the Jubilee Investments Company Ltd.

This is the fifth and final transaction envisioned by the agreement announced on September 29 2020 by Allianz and JHL.

Allianz had agreed to acquire the majority shareholding in the short-term general (property and casualty) insurance business operations of JHL in five countries in Africa, namely Kenya, Uganda, Tanzania, Burundi, and Mauritius.

The first acquisition in Kenya was completed in May 2021, while Uganda was completed in October 2021, followed by Burundi in March 2022 and Tanzania in May 2022.

“We are pleased to have completed the final transaction in our agreement with Jubilee, thereby cementing Allianz’s presence in East Africa. We remain confident that the global strength of Allianz combined with Jubilee’s strong brand and deep local expertise will enable us to provide best-in-class insurance solutions to customers in East Africa and beyond,” says Delphine Traoré, Allianz Africa Regional CEO.

Jubilee Holdings Group Chairman, Mr. Nizar Juma, stated that “The new entity will leverage the digital capabilities, global underwriting expertise, and capacity of Allianz. We thank the regulator and everyone who has been involved in the entire process. We look forward to pooling our synergies to enhance product offering and customer experience to our mutual clients across all fronts.”

The sector continued its long-term positive safety trend over the past year but Russia’s invasion of Ukraine, the growing number of costly issues involving larger vessels, crew and port congestion challenges resulting from the shipping boom, and managing challenging decarbonization targets, means there is no room for complacency, according to marine insurer Allianz Global Corporate & Specialty SE’s (AGCS) Safety & Shipping Review 2022.

Key points in the AGCS Safety & Shipping Review 2022:

• Safety & Shipping Review 2022: 54 large ships lost worldwide last year. Total losses down 57% over past decade. South China, Indochina, Indonesia, and the Philippines top loss location.
• The Arabian Gulf saw a significant increase in loss activity to rank second. British Isles sees most shipping incidents.
• Southeast Asian waters are replacing the Gulf of Guinea as the most dangerous for commercial shipping.
• Ukraine invasion has multiple impacts: loss of life/vessels, exacerbation of crew crisis, trade disruption, sanctions burden, and cost and availability of bunker fuel.
• Fires, container ship and car carrier incidents leading to oversized losses and ‘general average’ process becoming more frequent. Sustainability concerns driving up costs of salvage and wreck removal. Decarbonization of shipping industry creating new risks.
• Shipping boom safety impact: growing use of non-container vessels to carry containers, working life of vessels being extended, port congestion putting crews and facilities under pressure.

“The shipping sector has demonstrated tremendous resilience through stormy seas in recent years, as evidenced by the boom we see in several parts of the industry today,” says Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS. “Total losses are at record lows – around 50 to 75 a year over the last four years compared with 200+ annually in the 1990s. However, the tragic situation in Ukraine has caused widespread disruption in the Black Sea and elsewhere, exacerbating ongoing supply chain, port congestion, and crew crisis issues caused by the Covid-19 pandemic.

At the same time, some of the industry’s responses to the shipping boom, such as changing the use of, or extending the working life of, vessels also raise warning flags. Meanwhile, the increasing number of problems posed by large vessels, such as fires, groundings and complex salvage operations, continue to challenge ship owners and their crews.”

The annual AGCS study analyzes reported shipping losses and casualties (incidents) over 100 gross tons. During 2021, 54 total losses of vessels were reported globally, compared with 65 a year earlier.

This represents a 57% decline over 10 years (127 in 2012), while during the early 1990s the global fleet was losing 200+ vessels a year.

The 2021 loss total is made more impressive by the fact that there are an estimated 130,000 ships in the global fleet today, compared with some 80,000 30 years ago.

Such progress reflects the increased focus on safety measures over time through training and safety programs, improved ship design, technology and regulation.

According to the report, there have been almost 900 total losses over the past decade (892). The South China, Indochina, Indonesia, and the Philippines maritime region is the main global loss hotspot, accounting for one-in-five losses in 2021 (12) and one-in-four-losses over the past decade (225), driven by factors including high levels of trade, congested ports, older fleets, and extreme weather.

“The 2021 loss total is made more impressive by the fact that there are an estimated 130,000 ships in the global fleet today, compared with some 80,000 30 years ago.” – AGCS

–

The Arabian Gulf (46) and West African Coast (38) are fifth and sixth respectively over the same period. Globally, cargo ships (27) account for half of vessels lost in the past year and 40% over the past decade. Foundered (sunk/submerged) was the main cause of total losses over the past year, accounting for 60% (32).

While total losses declined over the past year, the number of reported shipping casualties or incidents rose.

The British Isles saw the highest number (668 out of 3,000). Machinery damage accounted for over one-in-three incidents globally (1,311), followed by collision (222) and fires (178), with the number of fires increasing by almost 10%. Globally, most incidents, over the past decade, have been caused by machinery damage or failure (9,968), followed by collision (3,134), contact (2,029), piracy (1,995) and fire/explosion (1,747).

Southeast Asian waters are replacing the Gulf of Guinea

Maritime piracy and armed robbery attacks reached the lowest recorded level since 1994 last year (132), according to the International Maritime Bureau (IBM).

The drop can be attributed to successful intervention by authorities, but continued coordination and vigilance is necessary to ensure the long-term protection of seafarers given recent rising numbers of incidents in the Singapore Straits and Southeast Asia and recent reports of incidents in Ivory Coast, Angola, and Ghana waters.

The Gulf of Guinea remained the world’s piracy hotspot in 2021 but saw activity fall from 81 reported incidents in 2020 to 34 in 2021, according to the IMB.

The good news has continued in Q1 2022. The IMB’s latest global piracy and armed robbery report recorded 37 incidents globally in the first three months of 2022 – compared to 38 incidents over the same period last year – with nearly half of them (41%) occurring in Southeast Asian waters, particularly in the Singapore Straits. In comparison, there was a welcome decrease in reported incidents in the Gulf of Guinea region with seven incidents reported since the start of the year.  There have been no reported crew kidnappings within the Gulf of Guinea waters in Q1 2022 compared to 40 crew kidnappings in the same period in 2021.

Ukraine impact: safety and insurance

The shipping industry has been affected on multiple fronts by Russia’s invasion of Ukraine, with the loss of life and vessels in the Black Sea, disruption to trade, and the growing burden of sanctions.

It also faces challenges to day-to-day operations, with knock-on effects for crew, the cost and availability of bunker fuel, and the potential for growing cyber risk.

The invasion has further ramifications for a global maritime industry already facing shortages. Russian seafarers account for just over 10% of the world’s 1.89 million workforce, while around 4% come from Ukraine. These seafarers may struggle to return home or rejoin ships at the end of contracts. Meanwhile, a prolonged conflict is likely to have deeper consequences, potentially reshaping global trade in energy and other commodities.

An expanded ban on Russian oil could contribute to pushing up the cost of bunker fuel and impacting availability, potentially pushing ship owners to use alternative fuels.

If such fuels are of substandard quality, this may result in machinery breakdown claims in future.

“An expanded ban on Russian oil could contribute to pushing up the cost of bunker fuel and impacting availability, potentially pushing ship owners to use alternative fuels”.

– AGCS

At the same time, security agencies continue to warn of a heightened prospect of cyber risks for the shipping sector such as GPS jamming, Automatic Identification System (AIS) spoofing and electronic interference.

Prior to the Ukraine invasion there had already been a number of these incidents, reported in the Middle East and China.

At the same time, the shipping industry continues to fall victim to cyber-attacks. India’s busiest container port, Jawaharlal Nehru Port Trust, was hit by a ransomware attack in February 2022, following incidents at US and South African ports in recent years.

“The insurance industry is likely to see a number of claims under specialist war policies from vessels damaged or lost to sea mines, rocket attacks and bombings in conflict zones,” explains Justus Heinrich, Global Product Leader, Marine Hull, at AGCS. “Insurers may also receive claims under marine war policies from vessels and cargo blocked or trapped in Ukrainian ports and coastal waters.”

The evolving range of sanctions against Russian interests presents a sizeable challenge. Violating sanctions can result in severe enforcement action, yet compliance can be a considerable burden. It can be difficult to establish the ultimate owner of a vessel, cargo or counterparty. Sanctions also apply to various parts of the transport supply chain, including banking and insurance, as well as maritime support services, which makes compliance even more complex.

A burning issue: fires on board

During the past year, fires on board the roll-on roll-off (ro-ro) car carrier Felicity Ace and the container ship X-Press Pearl both resulted in total losses. Cargo fires are indeed a priority concern.

There have been over 70 reported fires on container ships alone in the past five years, the report notes. Fires often start in containers, which can be the result of non-/mis-declaration of hazardous cargo, such as chemicals and batteries – around 5% of containers shipped may consist of undeclared dangerous goods. Fires on large vessels can spread quickly and be difficult to control, often resulting in the crew abandoning ship, which can significantly increase the final cost of an incident.

Fires have also become a major loss driver for car carriers. Among other causes, they can start in cargo holds, caused by malfunctions or electrical short circuits in vehicles, while the open decks can allow them to spread quickly.

The growing numbers of electric vehicles (EVs) transported by sea brings further challenges, given existing counter-measure systems may not respond effectively in the event of an EV blaze.

Losses can be expensive, given the value of the car cargo and the cost of wreck removal and pollution mitigation.

When large vessels get into trouble, emergency response and finding a port of refuge can be challenging. Specialist salvage equipment, tugs, cranes, barges and port infrastructure are required, which adds time and cost to a response.

The X-Press Pearl, which sank after it was refused refuge by two ports following a fire – the ports were unable or unwilling to discharge a leaking cargo of nitric acid – is one of several incidents where container ships have had difficulty finding a safe haven. Meanwhile, the salvage operation for the car carrier Golden Ray, which capsized in the US in 2019, took almost two years and cost in excess of $800mn.

“Too often, what should be a manageable incident on a large vessel can end in a total loss. Salvage is a growing concern. Environmental concerns are contributing to rising salvage and wreck removal costs as ship owners and insurers are expected to go the extra mile to protect the environment and local economies,” says Khanna. “Previously, a wreck might have been left in-situ if it posed no danger to navigation. Now, authorities want wrecks removed and the marine environment restored, irrespective of cost.”

Higher salvage costs, along with the burden of larger losses more generally, are a cost increasingly borne by cargo owners and their insurers. “’General average’, the legal process by which cargo owners proportionately share losses and the cost of saving a maritime venture, has become a frequency event, as well as a severity event, with the increase in the number of large ships involved in fires, groundings and container losses at sea compared with five years ago,” explains Régis Broudin, Global Head of Marine Claims at AGCS. It was declared in both the Ever Forward and Ever Given incidents.  The large container ship Ever Forward ran aground in the US in March 2022, and was stuck for over a month before it was freed, almost a year to the day after its sister vessel, Ever Given blocked the Suez Canal.

Post-pandemic world brings new risk challenges

While the Covid-19 pandemic resulted in few direct claims for the marine insurance sector, the subsequent impact on crew welfare and the boom in shipping and port congestion raises potential safety concerns.

Demand for crew is high, yet many skilled and experienced seafarers are leaving the industry. A serious shortfall of officers is predicted within five years.

For those who remain, morale is low as commercial pressures, compliance duties and workloads are running high. Such a work situation is prone to mistakes – 75% of shipping incidents involve human error, AGCS analysis shows.

The economic rebound from Covid-19 lockdowns has created a boom time for shipping, with record increases in charter and freight rates. While this is a positive for shipping companies, higher freight rates and a shortage of container ship capacity are tempting some operators to use bulk carriers, or consider converting tankers, to transport containers.

The use of non-container vessels to carry containers raises questions around stability, firefighting capabilities, and securing cargo. Bulk carriers are not designed to carry containers, which could impact their maneuvering characteristics in bad weather, and crew may not be able to respond appropriately in an incident.

With demand for shipping high, some owners are also extending the working life of vessels. Even before the pandemic, the average age of vessels was rising. Although there are many well-managed and maintained fleets composed of older vessels, analysis has shown older container and cargo vessels (15 to 25 years old) are more likely to result in claims, as they suffer from corrosion, while systems and machinery are more prone to breakdown. The average age of a vessel involved in a total loss over the past 10 years is 28.

Shipping bottlenecks and port congestion

The AGCS report also shows that Covid-19 measures in China, a surge in consumer demand, and the Ukraine invasion have all been factors in ongoing unprecedented port congestion which puts crews, port handlers and facilities under additional pressure.

“Loading and unloading vessels is a particularly risky operation, where small mistakes can have big consequences. Busy container ports have little space, while the experienced labor required to handle the containers properly is in short supply. Add in fast turnaround times and this may result in a heightened risk environment,” explains Heinrich.

Climate change: transition problems

With momentum gathering behind international efforts to tackle climate change, the shipping industry is coming under increasing pressure to accelerate its sustainability efforts, the report notes, given its greenhouse gas emissions grew by around 10% between 2012 and 2018.

Decarbonization will require big investments in green technology and alternative fuels. A growing number of vessels are already switching to liquefied natural gas (LNG), while other alternative fuels are under development, including ammonia, hydrogen and methanol, as well as electric-powered ships.

The transition to alternative fuels, according to AGCS, will likely bring heightened risk of machinery breakdown claims, among other risks, as new technology beds down and as crews adapt to new procedures.