BOW WAVE 628

Bow Wave Issue 628--Churning Edition

news and views on trade, insurance and risk

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(c)2012 WavyLine.com	Issue No 628 20 Feb 12
Published free of charge to Readers
Editor: Sam Ignarski
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In this issue:

1. Welcome
2. Lloyd’s List Viewpoint
3. Atlantic Mutual's Relics
4. Piracy Developments
5. Nanosecond Trading
6. And Finally...

1. Welcome

Poem of the Week

From Barrie Youde:-

I have long known that my great-great grandfather John Gorham was master and part-owner of the schooner Cheshire Lass; and that he died on board his ship at Hawarden Bridge in November 1858, aged 43. It was only yesterday that I learned what became of the Cheshire Lass. She had been built at Runcorn in 1857, so she was still a fairly new ship when JG died. The ship survived until April 1880 when, laden with timber and other freight and bound from Dublin to Runcorn she ran into dense fog when four miles North-East of Point Lynas and suffered a collision with a Spanish ship. She sank there and then. The harrowing part is that I have sailed over her grave many times and never knew it, until today. Bear with, bear with.
My Grandfather's Wreck

Great-great Grandfather’s wreck sits alone on the spot Where she’s sat for a century and more.
I have oft sailed the track where the little ship was lost Though I knew nought about it before.
What a fine little ship, what a gallant little ship, When I heard of the story, I cried:
Because she sailed, on, though now she is long gone, When the Old Man died.

Many years she’s been slumbering, fathoms deep, sound sleep; I have been wondering, now I know, now I weep,
Because she sailed, on, though now she is long gone, When the Old Man died.

At the time she was built, she’d be mortgaged to the hilt, That’s my guess, that that’s the way these things go; The Old Man, he was skint, he was living near to Flint, With a wife and a family in tow;
But he still did his best: Everything he did invest In the schooner, he placed all his pride,
And she sailed, on, though now she is long gone,
When the Old Man died.

Many years she’s been slumbering, fathoms deep, sound sleep; I have been wondering, now I know, now I weep,
Because she sailed, on, though now she is long gone, When the Old Man died.

She was launched for a trade where a profit could be made; She was loaded at Chester with cheese,
For Bordeaux, this I know, though the passage might be slow, Crossing Biscay in wintering breeze.
For the passage coming back she’d be loaded with cognac, Bound for Dublin; and there she would load Stout, For the Dee, home from sea, for to feed his family, Great Great Grandpa loved all of us, no doubt!

Many years she’s been slumbering, fathoms deep, sound sleep; I have been wondering, now I know, now I weep,
Because she sailed, on, though now she is long gone, When the Old Man died.

She sailed many a decade as she plied her honest trade, Many passages were entered in her log.
Then alas, my Cheshire Lass, so her time came to pass And she met a collision in fog.
To the bottom she did go, in the waters well I know: I have often sailed over her grave
And I never gave a thought; now I know I damn well ought As she marks how the Old Man was brave.

Many years she’s been slumbering, fathoms deep, sound sleep; I have been wondering, now I know, now I weep,
Because she sailed, on, though now she is long gone, When the Old Man died.

Barrie Youde

14FEB12

New Readers this week include:-

Richard Brough technical advisor to ICHCA
John M Pexton
Justin Skinner of Tindall Riley Marine
David Osborne of Raets Marine in London
Lucy Aspinall of the Shipowners Club
Kate Hughes of Thomas Miller
Steph Kleinloog of Norton Rose in Durban

Note from the Editor

Greetings from our on and off freezing winter here in the UK. There is a nice mixture of writing in this week's edition, some more wayward than others.

Next week we will run a rule over the 20FEB renewal results in P&I an industry where churning and volatilty has come to the fore in recent times.

Enjoy!

2. Lloyd’s List Viewpoint

Yourost recent opinion piece in Lloyd's List examined the Judgment in the British Marine/Lodestar Case

Not just about the Cash--QBE v. Dymoke and Others

For the marine insurance industry the late 1990s were times of merger and acquisition, good investment returns, asset inflation, the internet bubble and a sense that all around there was good money to be made for those who could imagine a richer future.

Even P&I the slow moving, non-profit making, long tail warden of shipping’s third party liabilities had its own version of the casino years, even though the mutual form of ownership was quite difficult to fasten onto by players looking to take the mutuals on or to take them over. Traditionally only when a Club got itself into difficulties or decrepitude was the acquisition and merger option used. There was no precedent for the third party takeover of a Club by way of demutualization. Until, that is, British Marine Mutual.

British Marine Mutual was an authentic part of the marine mutual world. It derived from origins in the 19th Century and it served coastal and short sea ships plying the waters of Britain and North West Europe. It was not part of the International Group of Clubs but able all the same to compete in the sector by pricing ships as it saw fit and also offering hull insurance to the same ships. By the standards of modern marine insurance, British Marine before its demutualization was small, solvent and rather old-fashioned. It did not enjoy the raffish or low rent reputation of some other P&I providers outside the International Group and was respected for the standards and professionalism of the people who worked there.

BMM was first demutualised with the help of venture finance then operated for a few years before being sold on the QBE insurance company. There was a certain change in the personnel who worked for BM, an infusion of new blood, but the organization continued to trade on in the marketplace throughout the last decade with reasonable fluency and success.

But reading the recent decision in QBE v Dymoke and others by Mr Justice Haddon-Cave it is clear that something had gone very wrong inside the organization, that leading staff were planning to leave British Marine and to take a good deal of the business and the personnel with them and to start up a rival venture to British Marine. Like most people working in the industry, they were under employment contracts with QBE which required them to stay out of the market for a period of months following any departure, to refrain from using the intellectual property of the organization and to eschew the "tapping up" of any of the existing staff as recruits for the new venture. It seems from the Judgment that the three leaders of the new venture fell at the latter hurdle, the Judge characterising the evidence given by Dymoke and others as "risible". Injunctions, damages and heavy costs followed.

P&I is a rather close community. Communications are ordinarily rather formal and explanations are few. Management bungles are as prevalent as they are in any part of the marine insurance world, an industry which is based upon people, their skills and their place in the market. But never apologise, never explain is a kind of credo.

So in the In the annals of P&I there has been nothing quite like the litigation between QBE and its former employees working for British Marine. The decision casts a strong light onto the world of small ships P&I, the plan by Dymoke and others to set up a rival venture to British Marine and the steps preparatory to this goal.

You could, as I have said elsewhere, construct a very good play s of the plotters, the partial sightedness of the bystanders, the wavering of loyalties, the narrow calculations of the interested individuals, the want of vigilance and fiduciary rigour of senior figures, the unhappiness of a small historic unit of the marine insurance world incorporated into the tender corporate mercies of a very large insurance organisation.

There cannot be many judgments in the English law reports which feature the organograms of a company as well as the team sheets for a rival venture. Only a few lines of the judgment even mention Robert Johnson, the Chairman of British Marine (now retired). A little more space is devoted to Colin O'Farrell, whose evidence the Judge much preferred.

The Judgment also casts light on the nature and difficulty of starting up new ventures in the London Market. In a deeply saturated and price competitive market, starting up a new proposition is something of an ordeal. There are the hurdles and requirements of the FSA which more or less ensure that a swift start by a new outfit without baggage is impossible.

There is the ponderous planning of supporting insurers and reinsurers which consist of rounds of approvals and approval hurdles. There is the desire for start ups which consist of tens of millions of premium income at the get go, rather than the rows of noughts which appear on day one of any genuine start up business plan. The result is there are very few start ups and the game is played between large, sometimes very stodgy insurance organizations on the basis of "what’s mine is mine". In this game the deployment of employment contract conditions, gardening leave, non-competes and non recruitment is highly strategic.

For individuals presently toiling uncongenially in an insurance organization, the lessons of the case are many and some surprisingly clear: A start up should consist of something new which breaks with the past. Large employers have their own culture of expectations --they expect to hang on to their operations lock stock and barrel unless they have a very good reason to sell them. They do not expect their staffs to mutiny, be they ever so poorly managed, and find it difficult to identify and to deal with senior managers with poor people skills.

With the 20th of February renewal date hoving into view it remains to be seen how the story of BML will play to the thousands of its small ship clients. They have appeared to go along with equanimity to the demutualisation of the old British Marine Club, to the subsequent acquisition of the unit by QBE and to its incorporation into a large London market insurance operation.

But you have to ask whether the story of British Marine since all the changes is much of a testimonial to the winning virtues of demutualisation. The mutual ideal, we should remember is a matter of values and belief and the role of insurance and insurance people in the shipping world. It is not all about the cash.

Read the Judgment here:-

http://www.bailii.org/ew/cases/EWHC/QB/2012/80.html

3. Atlantic Mutual's Relics

Many thanks to Reader Alan Danvers in Miami for sending in this item in the Wall Street Journal:-

For more than a century, Atlantic Mutual Insurance Co. covered yachts, steamships laden with gold, and even a seemingly indestructible passenger liner called the RMS Titanic.

Then last year, the company itself sank--leaving behind a treasure trove of nautical memorabilia that is now up for sale.

Yet unlike the high-profile Titanic auction scheduled for April --it aims to unload 5,500 artifacts raised from the wreck, including teacups, passengers' personal items and chunks of the hull, in one big lot--New York officials face the task of figuring out how to gin up interest for the low-profile Atlantic Mutual collection.

Currently stashed in the offices of an art gallery here, the relics include model ships, maritime paintings, barometers, telescopes, sextants, gold nuggets and even a copy of the insurance policy for the Titanic's hull (Atlantic Mutual cut a $100,000 check to cover its share of claims.) But the most valuable bit of loot may be the 342 leather-bound volumes that represent possibly the most extensive record of U.S. maritime disasters.

Read the full article here:-

http://tinyurl.com/76fb597

4. Piracy Developments

Noelle Wong, in anticipation of the Business of Risk Management Conference on 29FEB12 in Hong Kong has sent in the thoughts of one of the speakers, Michael G. Frodl of C-Level Maritime Risks, warning of recent piracy developments in the Gulf of Guinea:-

In the action off Nigeria, in the Gulf of Guinea, on Feb 9th, pirates attacked and successfully hijacked an oil tanker 80NM (about 92 miles) off of Cotonou. The farthest offshore attack, successful or not, had been conducted so far.

THEN, on Monday (13th), an as yet unnamed cargo was attacked at 110NM (or about 126 miles) off of Lagos by pirates - who failed to hijack her successfully, but subjected her to what would become lethal gunfire. Most of the crew retreated to a safe room, while a skeleton team stayed on the bridge. Many of the latter were wounded in the ensuing fracas, and the Captain and his Chief Engineer later died of their bullet wounds.

In India, off Kerala, the Italian tanker Enrica Lexie, with its complement of Italian Navy armed personnel serving as "ride-ons", reported it had come under fire from "pirates" just outside Indian territorial waters off Kerala; but not without its share of controversy.

Indian Authorities claim that the so-called "pirates" were Indian fishermen mistaken for pirates on the attack --during which 2 were killed by "ride-on" Italian Navy personnel, who are now facing murder charges, as is the ship's master.

We then realized the events were linked - that the specter of Somali piracy has inspired new aggressiveness on the part of pirates off West Africa, while it's inspired new fears in merchant vessels and their armed guards off West India. And that in both areas, things are going to get a lot worse before they get better - lots of people we think will die in the process.

Read Frodl's piece here:-

http://www.amiando.com/RiskMan.html?page=682542&rand=idOv9#EventUploadPanel

The Conference is due to look not only at piracy, but also bribery and corruption practices, oil pollution
legislation in China, vetting procedures from Intertanko’s Vetting Sub-Committee Chairman, UN/USA sanctions, Hedging strategies and a review of Risk Management Audits.

http://www.amiando.com/RiskMan.html?page=566526

5. Nanosecond Trading

Courtesy of the Browser we ran across this very scary item by Brandon Keim which appears in the latest edition of Wired. This can't end well we think:-

The afternoon of May 6, 2010 was among the strangest in economic history. Starting at 2:42 p.m. EDT, the Dow Jones stock index fell 600 points in just 6 minutes. Its nadir represented the deepest single-day decline in that market’s 114-year history. By 3:07 p.m., the index had rebounded. The "flash crash," as it came to be known, was big, unexpected and scary--and a new study says flash events actually happen routinely, at speeds so fast they don’t register on regular market records, with potentially troubling consequences for market stability.

The analysis involved five years of stock market trading data gathered between 2006 and 2011 and sorted in fine-grained, millisecond-by-millisecond detail. Below the 950-millisecond level, where computerized trading occurs so quickly that human traders can’t even react, no fewer than 18,520 crashes and spikes occurred. The study’s authors call those events "financial black swans", though they’re so common that the black swan label probably doesn’t fit anymore.

Moreover, those events fell into patterns that didn’t fit market patterns seen at other time scales. It’s as if computerized trading has created a new world, one where the usual rules don’t apply, populated by algorithms and only dimly understood by the people who made them. The extent to which that world influences our own-- perhaps making events like the 2010 flash crash more likely, or causing markets to be generally more volatile--is an open question.

"There’s this whole world below 650 milliseconds. It’s like landing on another planet," said Neil Johnson, a complex systems specialist at the University of Miami and co-author of the study, released Feb. 7 on arXiv. "It’s an enormous part of the market which is out of human reach. We have a glimpse of the kind of ecology that’s going on down there."

Full Wired Article:-

http://www.wired.com/wiredscience/2012/02/high-speed-trading/

arXiv Paper:-

http://arxiv.org/ftp/arxiv/papers/1202/1202.1448.pdf

6. And Finally...

Thanks to Frazer Hunt for these jokes on the way that men and women manage to communicate with each other:-

Best diet yet!!

A woman asks her husband at breakfast time, "Would you like some bacon and eggs, a slice of toast, and maybe some grapefruit juice and coffee?"

He declines. "Thanks for asking, but I'm not hungry right now. It's this Viagra," he says. "It's really taken the edge off my appetite."

At lunchtime, she asked him if he would like something. "How about a bowl of soup, homemade muffins or a cheese sandwich?"

He declines. "The Viagra," he says, "It’s really spoiled my need for food."

Come dinnertime, she asks if he wants anything to eat. "Would you like a juicy rib eye steak and some scrumptious apple pie? Or maybe a rotisserie chicken or tasty stir fry?"

He declines again. "No," he says, "it's got to be the Viagra. I'm still not hungry."

"Well," she says, "Would you mind getting off me? I'm starving."

P.S.

Milk and eggs

This is a story which is perfectly logical to all males:

A wife asks her husband,

"Could you please go shopping for me and buy one carton of milk, and if they have eggs, get 6."

A short time later the husband comes back with 6 cartons of milk.

The wife asks him, "Why did you buy 6 cartons of milk?"

He replied, "They had eggs."

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