BOW WAVE 256

Bow Wave Issue 256--Too Cozy By Half Edition

news and views on trade, insurance and risk

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(c)2004 WavyLine.com	Issue No 256 18 Oct 04
Published free of charge to Readers
Editor: Sam Ignarski
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In this issue:

1. Welcome
2. Spitzer v Marsh
3. Report on the 7th Cadwallader Memorial Lecture
4. CTC Essay Prize
5. Schneier on Security
6. And Finally...

1. Welcome

Bow Wave Reader Vacancies

Underwriting Assistant in London EC3

Michael Else and Company, Underwriting Agents for Transmarine and The Charterers P&I Club are seeking an energetic, enthusiastic and motivated individual to join its underwriting team in the role of underwriting assistant to the Transmarine class underwriter. The role will involve technical support work, progressing to a position of underwriting authority. The candidate would have the capacity to develop relationships with brokers and clients as well as travelling on the company's behalf. The ideal candidate would have several years work experience and have a sound working knowledge of the principles of marine insurance.

This is an ideal opportunity to join a reputable, expanding and stable organisation offering long term career prospects and pleasant/friendly working environment. Salary £30-40,000 p.a. depending on age and experience, plus profit share and benefits.

Contact Christopher Else at

celse@else.co.uk

Poem of the Week

87

o by the by
has anybody seen
little you-I
who stood on a green
hill and threw
his wish at blue

with a swoop and a dart
out flew his wish
(it dived like a fish
but it climbed like a dream)
throbbing like a heart
singing like a flame

blue took it my
far beyond far
and high beyond high
bluer took it your
but bluest took it our
away beyond where

what a wonderful thing
is the end of a string
(murmurs little you-I
as the hill becomes nil)
and will somebody tell
me why people let go

from 100 Selected Poems by e.e. cummings

New Readers this week include:

Alan Cross, Vice President Marine Liability at Marsh Norwich Julio Mendez Colunga in Madrid
Tony Schröder,claims executive at The Swedish Club in Gothenburg Heidrun Toben, now living in Brooklyn
Karen Helde, librarian at Lane Powell Spears Lubersky in Seattle Archie Smiley in Dubai
Duncan Maclean partner at Brodies LLP in Edinburgh Dirk Van Lopik,MD of Barwill-Portugal
Andrew Gurney, Risk Analysis Manager at Lloyd's
Abdul Rasheed, Crewing Agent in the Maldives

News of Readers

Judy Crick now ex-Limit is on gardening leave until 01Apr05. Her plans for the interim include an RTW trip taking in the Antarctic, the Galapagos Islands and Mount Killimanjaro

contact her at:-

judy.crick@cpadsl.co.uk

Duncan Maclean who has worked in maritime law in Scotland for ten years has joined the firm of Brodies LLP in Edinburgh as a Partner

contact him at:-

duncan.maclean@brodies.co.uk

Readers Write

From Mr Bryan Stone in

Congratulations on picking up Ted Prince's JoC column (Bow Wave Issue 255). I have known Ted for many years, as you have no doubt, and he hasn't yet lost his great gift for seeing through ant and fudge, today called spin. My transatlantic discussion circles have hummed with enthusiastic endorsement of this article, which puts a finger where it hurts. Good advice for all who wriggle to avoid responsibility, on Iraq or Westminster or Washington, or in school or boardroom, is 'When you're in a hole, stop digging'; and the idea that, in main stream trade and transportation, today's peak is tomorrow's base load, and we'd better think what we will do about it, is regularly demonstrated in every container port . (Mind you, forecasting on the trend is easy; forecasting the break in the trend is much more difficult. But when I think of the way we wrestled with our forecasts for capacities in the 70s or 80s and 90s... you will remember when 9000 TEU ships were considered the preserve of eccentric marine architects with no understanding of business.... Saul slew his thousands, but David his tens of thousands. Presumably David prepared in advance for that eventuality.

There is a serious issue if railways have to contribute, in Europe as in the USA. Ted confirms that in such industries most operational managers won their promotion by making savings, not by planning to do more business. It is a fearful intellectual burden, and it led to two different situations. In the USA, after rail deregulation (Staggers 1980) rates fell sharply, and the network, resources and the staff were cut back sharply. But considerable line capacity remained, and was re-absorbed over 20 years by new, lower-revenue traffic which could use available capacity and make a worthwhile profit. Gradually standards rose as reinvestment became possible. The network is today in good condition, fast, safe, a good business, but the spare capacity of 1980 is no longer around; quality is vulnerable. Now, a seasonal boom or a hitch with IT can cause alarm and despondency on a huge scale. But the present rates are not likely to tempt too much new building, although both UP and BNSF have done well. The huge Alameda corridor project in Los Angeles is now a money-spinner.

In Europe, rail capacity has been greatly reduced, relief tracks, branch lines etc all ruthlessly closed, but the capacity is now very well used by passenger trains at frequent regular intervals. Medium range Inter-City and High Speed Trains are a great success in most of Europe, urban mass transit systems are now, since the breakdown of urban highways, a well-planned part of infrastructure for urban living, at a high standard in most European conurbations, and planning and investment have gone ahead on a long-term basis. But new freight?

There is plenty of political encouragement through liberalisation; the EU has done well, quickly, to increase competition and market appeal. But new infrastructure for freight trains, except for isolated projects, is not generally on the shopping list. It isn't just a matter of new lines or routes. Longer, heavier trains need new parameters. Heavy axle loads (Europe is 22,5 tonnes; the USA can go to 32,5 tonnes at 120 km/h, and get 30% productivity straight off) and higher clearances are obvious starting points. But they have to be thought of before the crunch, and the present political models don't allow for that.

Contact Bryan at:-

stone@eye.ch

A week which saw a third wiped off the value of the world's largest insurance broker shows how fragile are the fortunes of the financial services industry. We can also see what folly it is to describe as cosy those arrangements between industry players which even appear to shelter an inner rot.

Enjoy.

2. Spitzer v Marsh

No prizes for what story grabbed our attention this week. Our friends over at the Insurance Insider were fleetest of foot and closest to the mark, sending out this e-mail on Thursday last:-

THE INSURANCE INSIDER - SPECIAL REPORT

BREAKING NEWS: 14th October 2OO4: 6:3Opm GMT

As predicted by Insider Week two weeks ago, the campaigning New York Attorney-General Eliot Spitzer is suing Marsh over its long-established practice of charging insurers Placement Service Agreements (PSAs) in return for placing business with them.

Shares in Marsh's parent MMC immediately dropped 17 percent to $38.3O as investors digested the allegations which suggest at widespread corruption in the world's largest insurance broker. According to the complaint: "Marsh solicited - and obtained - fictitious high quotes from insurance companies in order to deceive its clients into believing that true competition had taken place. It promised to protect insurance companies from competition, and did so. And it threatened to hurt the business of those who thought of truly competing for particular pieces of business".

The complaint - filed in the Supreme Court of the State of New York County of New York - continues: "The losers in all of this, of course, are Marsh's clients and the marketplace for insurance, which Marsh has corrupted by distorting and elevating the price of insurance for every policyholder. Other victims here are Marsh's own shareholders, who have never been told that hundreds of millions of dollars of Marsh's profits derive from illegal activities".

Pointedly, the first two examples used by Spitzer as evidence of these "improper incentive[s]" are Marsh's relationships with AIG and ACE Ltd, ran by the father and brother of MMC chief executive Jeffrey Greenberg. Spitzer noted that "numerous large insurance companies have participated in a bid-rigging scheme with Marsh", but began first with AIG, saying: "Beginning in or around 2OO1 until at least the summer of 2OO4, Marsh Global Broking's Excess Casualty Group and AIG's American Home Excess Casualty
(AIG's principal provider of commercial umbrella or excess liability and excess worker's compensations insurance) engaged in systematic bid manipulation".

According to Spitzer, similar arrangements were entered into with ACE. He quotes one e-mail, where an ACE underwriter is told to increase his quote by Marsh. "Original quote $99O,OOO ....we were more competitive than AIG in price and terms. MMGB [Marsh Global Broking] requested we increase premium to $1.1mn to be less competitive, so AIG does not loose [sic] the business".

Other insurers allegedly involved in "colluding with Marsh to rig bids and submit false quotes to unwitting clients throughout New York and across the United States" include The Hartford and Munich Re subsidiary Munich-American Risk Partners.

Spitzer revealed that two unnamed executives had pleaded guilty to participating in the illegal conduct and are expected to testify in future cases. According to Spitzer, Marsh collected approximately $8OOmn in contingent commissions in 2OO3 (a figure estimated in the autumn 2OO3 edition of Insider Quarterly www.insiderquarterly.com).

"The insurance industry needs to take a long, hard look at itself," said Spitzer at a news conference today. "If the practices identified in our suit are as widespread as they appear to be, then the industry's fundamental business model needs major corrective action and reform."

"There is simply no responsible argument for a system that rigs bids, stifles competition and cheats customers," he added.

Spitzer is suing for fraudulent business practices, antitrust breaches, fraud and unjust enrichment and demands punitive damages against the firm - the latest regulatory action against MMC following separate investigations into its asset management arm Putnam and also consultancy unit, Mercers.

At time of going to press, Marsh was unavailable for comment. AIG stock fell by 11.6O percent. ACE Ltd was down 8 percent and The Hartford down 6.7 percent.

Full analysis will be available in the October edition of The Insurance Insider - available to download from the 21 October.

A copy of the 31-page complaint can be downloaded from the "Special Reports" section of Insider Documents on:-

http://www.theinsider.co.uk

To subscribe:-

tim@theinsider.co.uk

3. Report on the 7th Cadwallader Memorial Lecture

Criminalisation in Shipping: Human Pawns in Legal and Political Games

A call for "a halt to unwarranted detention of seafarers was made by the IMO Secretary General, Admiral Efthimios Mitropoulos, at this event. He urged governments to end treating seafarers as scapegoats and emphasised that both the IMO and the ILO regarded their detention as a violation of human rights. Giving the keynote address at the 7th Cadwallader memorial lecture of the London Shipping Law Centre held at Lloyds of London, Captain's room, on 6th October, which attracted a gathering of around 400 shipping luminaries, Mr Mitropoulos warned that criminal sanctions against seafarers for negligent conduct would be a significant departure from international law and would have very serious repercussions on recruiting quality officers and on the morale of seafarers to co-operate openly after a casualty.

Both Dr Wiswall, vice-President of the CMI, and Mr. MacDonald, Secretary General of the International Federation of Shipmasters' Association, speaking at the same event, equated seafarers' detentions with political hostage taking. Stephen Martin of Steamship Insurance Management Services called for the need of due process, consistency and proportionality by governments and court authorities in punishing individuals after a marine casualty. He stressed that those punished for misconduct must possess the necessary "mens rea" (intent or recklessness). Otherwise, arbitrary and disproportionate punishments become an impediment to effective investigation into casualties, a deterrent to transparency, disruptive of trade and are contrary to natural and legal justice.

The Chairman of the event, Lord Steyn, who is a vociferous advocate on human rights, concluded that governments must be persuaded that the legal demand is for proportional treatment of seafarers.

The event, which was generously sponsored by the shipping industry, served a significant purpose by making a plea for justice to seafarers. Founding director of the Centre, Dr. Aleka Sheppard, said at the opening of the event, that she sincerely hoped that what was discussed would reach the attention of legislators and state governments so as to act as a beacon for their thoughts and actions. She closed the event by delivering a donation, which the Centre raised for the charity of the Mission to Seafarers, to Mr. Michael Everard, the vice-President of the charity, in tribute to the memory of Professor Cadwallader.

http://www.london-shipping-law.com/

4. CTC Essay Prize

Later in the proceedings at the Cadwallader Lecture came the announcement of the winners of the CTC Essay Prize spnsored by Charles Taylor Consulting (CTC). The winners, this year were: Michael Wagener, a South African lawyer, who won the first prize for an excellent essay on "The use or abuse of the corporate veil in shipping: is legislation needed to unveil it and, if so, for what reasons?" The second prize was won by Edward Temple Waite, claims manager at Tindall Riley, who wrote on "Limitation of liability: is it needed any more and, if so, for what reasons?"

Read both of the essays by clicking on the link below:-

http://www.ctcplc.com/news/news/showbody.asp?id=82

5. Schneier on Security

Bruce Schneier, that becon of sanity on the subject of on-line security is expanding the way you can read his writings.He is in the process of making changes
his monthly e-zine Crypto-Gram, all designed to give readers more reading options.

Crypto-Gram is now available in blog form. Called "Schneier on Security," the blog will have the same content as Crypto-Gram but it will be posted continually rather than only on the 15th of the month

The current edition has a must read piece on the proposed use of RFID chips in passports-a very so so idea

http://www.schneier.com/blog/archives/2004/10/rfid_passports.html

6. And Finally...

From Gordon Elliot comes this appetising English-Spanish Menu sent in by his son who lives in Madrid sent me the menu:-

The Casa Gallega

Spanish covers (tapas)

Octopus to the party (pulpo a feira)

Corageous potatoes (patatas bravas)

Huge air spray with grelos (lacón con grelos)

Canes and little ones (Cañas y chiquitos)

Drink from the boot and the big joint (beba en bota y en porrón)

Thin Uncle Joseph (Fino Tío Pepe) and Thin Fifth (Fino Quinta)

They will pass from Navarra (Pacharán de Navarra)

Wines from the River Ha and the Valley of Rocks (Vinos de Rioja y Valdepeñas)

Today´s menu

Female Jews with Thief (Judías con chorizo)

Pretty to the Iron (Bonito a la plancha)

Special Opening Promotion

One mug of bleeding if you buy a Little Joseph of Veal (Una jarra de sangría por pedir un pepito de ternera)

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