BOW WAVE 466

Bow Wave Issue 466--Vexed Investments Edition

news and views on trade, insurance and risk

Bow Wave homepage
Previous issue (465) / Current issue / Next issue (467)

Wavy Line	sam@wavyline.com
(c)2008 WavyLine.com	Issue No 466 20 Oct 08
Published free of charge to Readers
Editor: Sam Ignarski
Subscribe	Unsubscribe

In this issue:

1. Welcome
2. Investment Desk -- Systemic Risk
3. New and Improved Book for Navigators
4. TT Club Troubles
5. Filmmaker Needs Expert Help
6. And Finally...

1. Welcome

Poem of the Week

Warnings

A can of self-defense pepper spray says it may
irritate the eyes, while a bathroom heater says it's not to be used in bathrooms. I collect warnings
the way I used to collect philosophy quotes.

Wittgenstein's There's no such thing
as clear milk rubs shoulders with a box
of rat poison which has been found
to cause cancer in laboratory mice.

Levinas' Language is a battering ram?
a sign that says the very fact of saying,
is as inscrutable as the laser pointer's advice:
Do not look into laser with remaining eye.

Last week I boxed up the solemn row
of philosophy tomes and carted them down
to the used bookstore. The dolly read:
Not to be used to transport humans.

Did lawyers insist that the 13-inch wheel
on the wheelbarrow proclaim it's
not intended for highway use? Or that the
Curling iron is for external use only?

Abram says that realists render material
to give the reader the illusion of the ordinary.
What would he make of Shin pads cannot protect
any part of the body they do not cover?

I load boxes of books onto the counter. Flip
to a yellow-highlighted passage in Aristotle:
Whiteness which lasts for a long time is no whiter than whiteness which lasts only a day.

A.A.'ers talk about the blinding glare
of the obvious: Objects in the mirror
are actually behind you, Electric cattle prod
only to be used on animals, Warning: Knives are sharp.

What would I have done without: Remove infant
before folding for storage, Do not use hair dryer while sleeping, Eating pet rocks may lead to broken teeth, Do not use deodorant intimately?

Goodbye to all those sentences that sought
to puncture the illusory world-like the warning
on the polyester Halloween outfit for my son:
Batman costume will not enable you to fly.

David Allen Sullivan from Strong-Armed Angels (2008)

New Readers this week include:-

Sebastian Kadritzke of the XL Group
Chris Zavos of Barlow,Lyde & Gilbert
L Thorson of brokers Avalon
Tina Tangimetua of Aassociated Marine in New Zealand Mark Wibberley of Willis
Adam Turner of the Yacht Report
Simon Wong of the West of England P&I Club
Tom Bradshaw of Crawfords in NY
Grace Nobel of CWT-Globelink in Singapore

News of Readers

Chris de Jong of the Australian Institute of
Marine Surveyors writes:-

At the Institute’s AGM in August, two founding members were elevated to Life Members.

Capt. Neil Aiton Extra Master, a past Secretary/Treasurer and previously a Fellow, is now a non-active member. Capt. Aiton served with the Blue Funnel Line from 1955 to 1967 and held postings with various educational institutions before joining the Sydney marine surveying firm of Gibson Minto & Aiton in 1970. He retired in 2002 to act as a consultant.

Capt. Michael Bozier, Extra Master is a Fellow, a past President and currently the Institutes’ Administration Officer. Capt. Bozier served in tankers and also as a Lieutenant in the Royal Naval Reserve. After migrating to Australia in 1967, he worked in all aspects of marine surveying, retiring from Avdall & Bozier in 2001. He now acts as a consultant and expert witness in Admiralty and other maritime matters.

Also, two South Australian Branch members were elevated to the category of Fellow:

Capt. Ian Dickson: His seagoing career spanned a period of 12 years from 1949 obtaining his Master’s certificate while serving with the Blue Funnel Line. After participating in all aspects of marine surveying including acting as a Class surveyor, Capt. Dickson retired in 2005 and is now acting as a consultant to the maritime industry.

Capt. Howard Pronk: Joined EJC Carr in 1994, currently undertaking all classes of surveying, including appointment as a Class surveyor. After obtaining his Master’s certificate during a sea career from 1965 to 1983 Howard was employed as operations manager for shore establishments. He is currently the South Australian Representative of the Institute

c.dejong@bigpond.com

Roy Campbell who used to be with Michael Else still receives Bow Wave and enjoys feeling in touch with the world of marine insurance:-

Thos who remember him may be interested in learn that he and his wife and I have been nominated as Entrepreneurs of the Year in this year's Glenfiddich Spirit of Scotland Awards.
Readers can vote for him at:

http://www.glenfiddich.com,

and follow the links to the Spirit of Scotland Awards. They are listed under the Entrepreneur section. The actual awards ceremony will be broadcast (but only on Scotish TV) on St Andrew's Night (November 30th). Scottish Readers of Bow Wave will t be able to catch a glimpse of where marine insurance can lead you (and just how much hair you can lose).
Contact Roy at:-

r.campbell@glenfinlas.co.uk

Lloyd’s List journalist, Janet Porter, has won the WISTA UK (Women in Shipping & Trading Association) Personality of the Year Award for her contribution to the shipping industry. Janet has broken a number of high profile stories during her career including Maersk’s acquisition of P&O Nedlloyd. As a result of the story shares were suspended on the Dutch stock exchange.

Janet joined Lloyd’s List eleven years ago having written for the Journal of Commerce for a number of years: she has spent the majority of her career reporting on maritime issues.

The award was presented to Janet at her London offices on Monday 13 October. She will now be nominated for the overall international WISTA Personality of the Year Award at the organisation’s annual conference this week.

WISTA UK President, Maria Dixon, said: "Janet Porter has dedicated her career to the shipping industry, reporting the facts as they happen. Her desire to seek the truth has provided a service to the shipping industry that she can be proud of."

Note from the Editor

Greetings from a clement Autumn's Sunday in London.

A voice or two were raised in objection to our article last week on the gyrations of XL. The firms shares bounced back and the insurance side is sound enough, the voices say. Others pointed out that a large sale of shares by a senior executive in the company during a febrile period is not exactly calculated to underpin confidence in the firm's future.

When we report views from the Inns and Taverns we do not purport to do more than relay the tone and tendency of discussions. Views from the Coffee Houses tend to be from sources who are closer to what is going on. In any case we follow the practice of reporters by prefering multiple sources for any story before publishing.

A strong item this week on the vexed subject of investments in item 2.

Enjoy!

2. Investment Desk -- Systemic Risk

This interesting item appears in the excellent P&I Confidential Report issued regularly by the firm of AJ Gallagher:-

The 1980’s and 1990’s saw the reinsurance market beset by the problems of the claims spiral, driven primarily by occupational disease and liability claims. Toxic underlying claims brought down or significantly wounded a sequence of insurers and reinsurers, due to injudicious internal trading within the industry. Lloyd’s was stricken in such a way that it needed to create a lifeboat in the form of Equitas and to change a way of trading, via individual Names with unlimited liability, which had endured successfully for 300 years.

The 2000’s will be remembered for the collapsing toxic debt /mortgage spiral taking down the financial sector in a similar way. It seems that, once again, the lessons of the past have been ignored, or at best not been remembered. This time the victims were lending institutions across the world, some bankrupted,some nationalised and others ropped up or bought out to maintain confidence--and this story still has some way to run.

At the core of today’s problem is an over sophistication in the financial markets, where the same capital and liquidty is repeatedly used and abused until it becomes exhausted. At the core of the insurance spiral problem was the same premium dollar going round and round and diluting in value with each twist. When a problem arose in the primary lendings, or the primary claims, this then spiralled out of control around the market taking out businesses seemingly randomly. Different product, different decade, same problem.

One significant difference however is that this decade’s spiral has jumped species between the banking and insurance sectors, as failures in the banking sector almost brought down one of the biggest insurers in the world AIG. No doubt others are ailing. The species jump was facilitated by a product known as a "Credit Default Swap", essentially where the insurer (in this case AIG) offered buyers (in this case banks with potentially toxic debt) insurance protection against losses on debts and loans of borrowers, to the tune of $447 billion for AIG alone.

They also offered insurance on other esoteric asset-backed security pools - securities like "Collateralized Debt Obligations", pools of subprime mortgages, pools of Alt-A mortgages, prime mortgage pools and collateralized loan obligations. When the housing market collapsed, imploding home prices resulted in precipitously rising foreclosures. The mortgage pools AIG insured began to fall in value. Additionally, the credit crisis began to take its toll on leveraged loans and it saw mounting losses on the loan pools it had insured. So the seeds sown by the
banking industry were reaped by the insurance industry.

Without wishing to necessarily promote Luddite principles, today’s problem would never had existed in the good old days of Friendly Societies and Building Societies which "did exactly what it says on the tin". Local associations, founded on mutual principles, borrowed from one person and lent to another for a predetermined purpose. End of story -- no wholesale packaging of funding, no chains of dominoes, just simple borrowing and lending.

However this was not sophisticated enough -- Building Societies demutualised and became banks, allowing them to tap into new sources of funds to lend, grocery stores such as Tesco suddenly became banks, and a whole generation of financial architects designed ever more esoteric synthetic securities -- and made themselves vast personal gains in the process. Today we are now having to clean up the mess this over sophistication caused, and to deal with the recession that inevitably follows it.

Sometimes the simple solution may be the best. Perhaps the events of the last month are the best advert simple mutual societies could ever ask for.

For further infomation contact:-

Bernard_Cook@ajg.com

3. New and Improved Book for Navigators

A revised and updated book for navigators has been published on its 100th birthday -- the tenth edition of the UK’s Admiralty Manual of Navigation Vol 1, which was issued on 15OCT08.

The has been brought up to date by author Lt Cdr Alan Peacock of the Royal Navy who details the use of satellites and electronic equipment such as ECDIS in this edition, which is published by The Nautical Institute.

Lt Cdr Peacock says "This new book retains all the fundamental ‘Principles of Navigation’ so that mariners who rely on the computer-powered equipment found on ship’s bridges today can turn to an authoritative source for support. Without a resource like this, mariners are at the mercy of whatever software happens to be fashionable at the moment."

Proper navigational skills will always be needed. GPS or radar may not be available. Local pilots may not be available to act as guides. Radar silence may be necessary in hostile waters, and, sadly, hostile waters are not unknown to today’s mariner as merchant shipping is preyed on in certain parts of the globe

For more details go to:-

http://www.nautinst.org

4. TT Club Troubles

The word in the coffee houses is that the TT Club is about to lay off staff following a sharply deteriorating operating performance. For some months observers have been trying to guess the amount of income loss the Club has suffered in the current account year. Perhaps as much as 25 per cent some say. This seems high.

This latest round of redundancies forms a kind of book end with events in the 2001 year when results turned south and free reserves were discharged on a scale not seen in the history of the organisation.

Aside from writing the wrong risks for the wrong prices what seems to have gone wrong at the Transport Mutual? What is it about the way it lives now that makes it so vulnerable to volatility?

The Club is the biggest specialist in a demanding market. It can never afford to blindly follow market rates down and must in fact come home ahead of the market most of the time.

The Club has always been comparatively small in capital but rich in specialist staff and management. But over the past decade it has parted company with many of its specialist managers and many of its best staff.

Because it is relatively small as an insurer the Club must rely on reinsurance but cannot afford to sweep many losses onto reinsurers. It has evidently of late become overdrawn at the reinsurers' favour bank.

Sensitivity to market changes places a premium on good customer facing executives, able to make on-the-spot decisions in their local and regional markets. One has heard over the years many complaints about over-centralisation in London, constant auditing, reporting and second-guessing of the professional staff. This may not have done very much to reinforce the committment and nimbleness the Club needs to thrive.

Insuring the very large battalions in the container stevedoring, terminal and freight sectors--not to speak of their fleets of cranes and equipment--is hazardous since these kinds of companies are feared in
the marine market for their tendency to pay too little for their insurance and for causing losses to their underwriters.

Not income, not industry grandees, not market share, nor management fee. The only reliable indicators for whether an organisation like the TT Club is doing well or badly are the free reserves and the solvency ratios relative to business written.

Not rocket science but not that easy to achieve either.

5. Filmmaker Needs Expert Help

Joe Divincenti writes:-

I had a meeting here in Hong Kong with a young filmmaker, Jason Kohn, who won the 2007 Grand Prize for Documentaries at the esteemed Sundance Film Festival. (The film was Manda Bala--a documentary on current-day Brazil). He is scripting a fiction project and one of the elements centres around a "ghost vessel", e.g. one that’s been pirated and somehow spun back into (say) the intercoastal trade between the Straits of Molacca, East Africa, and the Bay of Bengal. He’s a bit stuck on how someone could have (or could not have) gotten away with this in Pre-9/11 days. I figured that from your vastly erudite readership (note the shameless sucking up), there ought to be a surveyor or other party who has experience in dealing with such situations. What Jason would really like to know is some of the intricacies as to how someone would track backwards and on what sort of smidgen of information they might get their first inkling of something amiss( eg gear certificates, hull numbers, engine block serials and so forth)

If you could put this to your readers, I’m sure we can get someone squeezed into the credits of the film with an acknowledgement. After all. how often do Underwriters and Cargo Mavens get a chance to become famous?

Jason who is a really likeable guy working on an
interesting project can be emailed directly at:-

Jason@kilofilms.com

6. And Finally...

A list for our times here, courtesy of Jason Copland:-

CEO -- Chief Embezzlement Officer.

CFO -- Corporate Fraud Officer.

BULL MARKET -- A random market movement causing
an investor to mistake himself for a financial
genius.

BEAR MARKET -- A 6 to 18 month period when the
kids get no allowance, the wife gets no jewellery and the husband gets no sex.

VALUE INVESTING -- The art of buying low and selling lower.

P/E RATIO -- The percentage of investors wetting their pants as the market keeps crashing.

BROKER -- What my broker has made me.

STANDARD & POOR -- Your life in a nutshell.

STOCK ANALYST -- Idiot who just downgraded your stock.

STOCK SPLIT -- When your ex-wife and her lawyer
split your assets equally between themselves.

FINANCIAL PLANNER -- A guy whose phone has been
disconnected.

MARKET CORRECTION -- The day after you buy stocks.

CASH FLOW -- The movement your money makes as it disappears down the toilet.

YAHOO -- What you yell after selling it to some
poor sucker for $240 per share.

WINDOWS -- What you jump out of when you're the
sucker per share.

INSTITUTIONAL INVESTOR -- Past year investor
who's now locked up in a nuthouse.

PROFIT -- An archaic word no longer in use.

FOETAL POSITION -- correct position to be in
during a market correction.

P.S.

Rather a good one from Andy Bye of Regis:-

Iraqi Footballer Tale

Rafael Benitez sent scouts out around the world
looking for a new striker. One of the scouts informs him of a young Iraqi striker who he thinks will
turn out to be a true superstar. The Liverpool
manager flies to Baghdad to watch him and is
suitably impressed and arranges for him to come
over to Anfield.

Two weeks later Liverpool are 3-0 down to Arsenal with only 20 minutes to go. The manager gives the young Iraqi striker the nod and sends him on.

The lad is a sensation, scores 4 goals in 20
minutes and wins the game for Liverpool . The fans are delighted, the players and coaches are ecstatic, and the media all love the new star. When the lad comes off the pitch, he phones home to tell his mum about his first day in English football.

'Hello mum, guess what?' he says. 'I played for 20 minutes today, we were 3-0 down but I scored 4
and we won. Everybody loves me: the fans, the
media, they all call me a hero.'

'Wonderful,' says his mum sarcastically. 'Well,
just let me tell you about my day. Your father got shot in the street by masked men, your sister was abducted and assaulted, I was robbed in the street on the way back from the market, and your brother has run off and joined an armed gang.'

With this news, the young lad is very upset. 'What can I say mum, except I'm so sorry.'

'Sorry??!' exclaims his mum. 'SORRY??!!! It's your blinking fault we all moved to Liverpool in the first place!!!

P.P.S.

Things Could be Worse Department

Ever imagine what it would be like to be on a ship near to an atomic blast with the force of one million tons of TNT? We haven't either. See the clip of a Pacific test which was conducted during February 1965

http://tinyurl.com/3m2mqq

BOW WAVE is published each week to over 15 000 Readers in the transport,insurance,shipping and finance industries.

Thanks for reading BOW WAVE