INTRODUCTION 3 CHAPTER I. Theoretical Framework of Hull Insurance 4 1.1. Definition and subject matter 5 1.1.1. Definition 5 1.1.2. Subject matter 5 1.2. Claim Settlement 5 1.2.1. Types of Losses in Hull Insurance 5 1.2.2. Loss Adjustment 6 1.2.3. Principles of Claim Settlement in Hull Insurance 6 1.2.4. Exclusion in Hull Insurance 6 1.2.5. Reduction in Indemnity 7 CHAPTER II. Introduction to Hull Insurance Business of PVI Insurance Corporation and The Hull Insurance Case 8 2.1. Introduction to PVI corporation and Hull Insurance Business 9 2.1.1 PVI corporation 9 2.1.2. Introduction to Hull Insurance Business 13 2.2 The Hull Insurance Case 18 2.2.1 Risk and Loss of Hull Insurance case 19 2.2.2 Application in the case of Hull Insurance between PVI and the ship owner for the fishing vessel QB93494TS 20 2.2.3 Analysis of claim indemnity payment 21 CHAPTER III: Recommendations for Hull Insurance Business of PVI Insurance Corporation 23 3.1 Evaluation of the Hull Insurance Business of PVI Insurance Corporation 23 3.1.1. Opportunities 23 3.1.2. Challenges 23 3.2 Orientation for PVI Insurance Corporation and related organizations 24 3.2.1 In terms of the corporation 24 3.2.2 In terms of the Head Corporate 24 3.2.3 In terms of the governments 25 3.3 Recommendations of Hull Insurance Business of PVI Insurance Corporation 25 3.3.1 Exploitation 25 3.3.2 Preventing losses 26 3.3.3 Compensation 26 CONCLUSION 27 REFERENCES 28
FOREIGN TRADE UNIVERSITY FACULTY OF INTERNATIONAL ECONOMICS *** ASSIGNMENT Risk management and insurance Analyze Hull Insurance business of PVI Insurance Corporation in 2019 - 2021 Class: TMAE308(GD1-HK1-2223).1 Instructor: Mrs Hoang Thi Doan Trang, MA Hanoi, September 2022 TABLE OF CONTENTS INTRODUCTION CHAPTER I Theoretical Framework of Hull Insurance 1.1 Definition and subject matter 1.1.1 Definition 1.1.2 Subject matter 1.2 Claim Settlement 1.2.1 Types of Losses in Hull Insurance .5 1.2.2 Loss Adjustment 1.2.3 Principles of Claim Settlement in Hull Insurance 1.2.4 Exclusion in Hull Insurance .6 1.2.5 Reduction in Indemnity CHAPTER II Introduction to Hull Insurance Business of PVI Insurance Corporation and The Hull Insurance Case 2.1 Introduction to PVI corporation and Hull Insurance Business .9 2.1.1 PVI corporation 2.1.2 Introduction to Hull Insurance Business 13 2.2 The Hull Insurance Case .18 2.2.1 Risk and Loss of Hull Insurance case 19 2.2.2 Application in the case of Hull Insurance between PVI and the ship owner for the fishing vessel QB-93494-TS .20 2.2.3 Analysis of claim indemnity payment 21 CHAPTER III: Recommendations for Hull Insurance Business of PVI Insurance Corporation 23 3.1 Evaluation of the Hull Insurance Business of PVI Insurance Corporation 23 3.1.1 Opportunities 23 3.1.2 Challenges 23 3.2 Orientation for PVI Insurance Corporation and related organizations 24 3.2.1 In terms of the corporation 24 3.2.2 In terms of the Head Corporate 24 3.2.3 In terms of the governments 25 3.3 Recommendations of Hull Insurance Business of PVI Insurance Corporation 25 3.3.1 Exploitation 25 3.3.2 Preventing losses 26 3.3.3 Compensation 26 CONCLUSION 27 REFERENCES 28 INTRODUCTION Transportation plays a critical role in the thorough integration of countries into the global economy, contributing to the promotion of commerce and the enhancement of trade cooperation between countries and regions In particular, sea transport accounts for the majority of the proportion of import and export trade goods, which is an essential method to ensure the stability of the international circulation and trade exchange process However, to have successful sea journeys and minimize risks and losses, shippers, ship owners, banks, and other related parties frequently participate in marine insurance services, with special attention paid to hull insurance, as the number of vessels is rapidly increasing, the volume is large and modern, and the risk of a collision is also increasing If the loss occurs, the damage value is relatively large, both material damage and related costs As a result, we conduct extensive study into the legislation, necessary theoretical knowledge, and the perfection of the professional system with this type of insurance will have a substantial impact on insurance companies' and insurance companies' commercial performance, ship owners, carriers, charterers, and even other parties concerning the consignment transported by sea To apply the knowledge of the subject “Risk management and Insurance” into practice, and concurrently obtain our background in this professional field, Group decided to choose the topic "Analyze Hull Insurance business of PVI Insurance Corporation in 2019 - 2021" Because of time constraints and limited resources, some of the information in the article is from prior years, and the text may have numerous flaws We would like to solicit PhD Hoang Thi Doan Trang for useful feedback and recommendations so that we can continue to improve the information we provide We sincerely thank you! CHAPTER I Theoretical Framework of Hull Insurance 1.1 Definition and subject matter 1.1.1 Definition Hull insurance is one of the main types of marine insurance policies available in the marketplace It covers a broad range of damages on a vessel's hull, machinery, and equipment, which in turn gives the vessel owner a level of confidence and security in operating their yacht/ship on international waters 1.1.2 Subject matter - The ship, the machinery and the equipment - Some liabilities, normally collision liabilities with another ship (Running Down Clause) - Liabilities for colliding with objects other than a normal ship (Fixed and Floating Objects) - Salvage Charges and General Average Contributions 1.2 Claim Settlement 1.2.1 Types of Losses in Hull Insurance Loss is damage, broken status happened to the insured objects under the risks In the marine insurance, there are two following loss types: - Based on loss severity: Two types ● Partial loss: damage to a part of insured objects ● Total loss: damage to the total value of insured objects - Based on liability classification ● General average ● Partial average 1.2.2 Loss Adjustment When the accidents happen to the insured objects, the insured must inform the insurer and ask for the loss adjustment The adjuster is appointed by the Insurer The adjuster may be the person of Insurer if loss happened in the domestic area, he may be a person under the authorization (correspondence of Insurer) for loss happened overseas In special cases, the Insurer can not appoint their adjuster to the site, the insured is allowed to invite the adjusters in the area of accident provided these adjusters are accepted by the State authorities 1.2.3 Principles of Claim Settlement in Hull Insurance Claim settlement amount of the insurer is limited within sum insured Special cases are ones when the total cost of minimizing and protecting costs, adjustment cost, fees for General Average under the coverage are higher than the sum insured In this case, the insurer will pay all Claim amount will be paid by money, not in kind The type of currency applied for claim settlement is currency used to collect premium When the insurer compensates, the insurer has the right to deduct the sum of money collected by the insured when the insured settles the remaining property or gets recovered from the third party After paying the claim amount, the insurer has the right to collect money from the third party for the liability to compensate for the loss within the amount paid 1.2.4 Exclusion in Hull Insurance Losses of insured objects which are not covered The insurer is not responsible for loss caused from intentional acts or too careless actions of insured However, the Insurer is responsible for loss caused from negligence or errors of the captain, crews or navigator during the process of management and control of ships When insuring for ships and freight, the insurer is not responsible for the following losses : - The ship does not have full safety conditions at the time of departure, except for the case when the ship has inside defects even though the insured has paid due attention - Cargo on board is flammable and explosive or has other dangerous stuff which is not suitable with regulations for carrying These types of cargo are not advised to the Insurer If there is no other agreement in the insurance contract, the insurer is not responsible for loss due to war or army activities, strike, riot, requisition, confiscation, arresting, destroying or under the order of army force or under the decision of State authorities 1.2.5 Reduction in Indemnity The reduction of claim amount is applied to refuse the indemnity with the amount appointed under the percentage in total claim amount The reduction of claim amount includes two types: - Franchise: when the loss happens, the loss reaches the regulated percentage, the Insurer has to pay all - Deductible: The Insurer will deduct the fixed percentage for the loss over the regulated extent The target: - The Insurer will not pay for too small losses in comparison to total insured value The loss amount is not equivalent to claim settlement based on time and costs aspects - There is a part of the rate from the sum loss amount for the Insured It means the Insured bears a part of liability in loss At the time being, due to the high competition in the market, insurance companies rarely apply the reduction of loss in order to hold clients This will be applied to special cargo and high loss frequency CHAPTER II Introduction to Hull Insurance Business of PVI Insurance Corporation and The Hull Insurance Case 2.1 Introduction to PVI corporation and Hull Insurance Business 2.1.1 PVI corporation Overview -Vietnamese : Tổng Cơng ty cổ phần Bảo hiểm Dầu khí Việt Nam -English : PetroVietnam Insurance Joint-stock Corporation -Short name: PVI -Address : PVI Building, Pham Van Bach - Cau Giay - Hanoi -Phone number : 024 37342299 -Fax number : 024 37342929 -Website : www.pvi.com.vn Organizational structure of Company Source: Company Law, OJK Regulation No 32/POJK.04/2014 Financial capacity of Company - Credit rating PetroVietnam Insurance Joint Stock Corporation (PVI) has officially announced its corporate credit rating Accordingly, the credit rating of B+ (strong financial capacity) is assessed to be equivalent to the BBB (reliable financial capacity) of Standard & Poors (many countries have officially agreed on the conversion of the rating system of this financial rating organization) PVI has been rated B+ (strong capacity) by AMBest From the analytical perspective, both of the above ratings are considered to be positive, meaning that if the financial market continues to be favorable, PVI may get a higher rating - Business efficiency Table 1-1 PVI Financial Ratios From 2016 To 2019 (unit: billion VND) Balance Sheet 2019 2020 2021 (billion VND) Statement of 2019 2020 2021 Comprehensive Income Current Assets 18,629 18,376 19,381 Sale Revenue 10,315 9,416 9,682 Cash and Cash 493 390 488 Net Sale 5,911 5,495 5,628 7,795 7,391 8,042 COS 5,162 4,740 4,960 9,942 10,238 10,486 Gross Profit (from 750 756 669 Equivalence Short-term Investment Short-term Receivables Insurance Business) Inventory 34 17 18 Financial Income 770 690 653 Other Current 365 339 348 Financial Cost 135 148 151 3,455 3,702 3,180 Interest Expense 0.332 0.882 0.332 353 317 281 Administration 512 478 486 Assets Non-current Assets Intangible Fixed Assets Expense 10 the actual value of the insured property Once the value has been agreed, it cannot be changed unless another agreement is reached or the insurer can prove it is fraudulent Financial Performance of Hull Insurance This sector accounted for 14.6% of total revenue of PVI in 2021, equivalent to VND 512.69 billion Figure 2-2 Market share based on gross hull insurance premium in 2021 (Source: AVI, PVI, PSI’s compilation) In 2021, PVI was the second leading firm in this segment with 28.54% market share, running after Bao Viet at 29.33% Revenue growth rate of this sector declined from 48.2% in 2019 to 13.7% in 2020 and to 10.6% in 2021 due to the economic downturn and increased freight rate that shipping companies had to bear As a result, revenue growth rate slowed down while industry average came at 24.2% per year At that time, this segment is encountering some difficulties due to the Transportation Industry in particular and the Shipbuilding Industry in general since the economic crisis in 2019 up to 2021 Shipbuilding firms’ orders were delayed, leading to a slowdown in growth rate of the insurance premium The 1,680 registered transport vessels operating are providing a stable source of customers for insurance service The market segment’s leaders include PVI with 29.1% market share, Bao Viet (28.0%), Bao Minh (14.3%), Pjico (11,2%), and the rest 18 Table 2-4 Revenue, Claim Ratio of Hull Insurance Hull Insurance 2019 2020 2021 Revenue (VND Billion) 1,266 1,544 1,762 Growth (%) 56.62% 21.99% 14.10% Claim ratio (%) 46.01% 28.29% 38.85% Premium retention rate (%) 54.3% 48.0% 49.58% Source: AVI, PVI, PSI’s compilation 2.2 The Hull Insurance Case Hull insurance not only gives fishermen peace of mind to reach out to sea, but also the only "lifebuoy" to help them overcome unfortunate events and accidents However, for many different reasons, the majority of cases where ships are unlucky to have accidents are denied compensation by insurance companies In this case study of Mr Tran Cong Khanh – the ship owner of the fishing boat number QB 93494TS (440CV) which unfortunately caught fire and burnt out, struggled to claim compensation Because the fishing boat is not only a means of livelihood for the whole family, but it is also the most valuable asset of his family after more than 20 years at sea Figure 3-1 The situation of Mr Tran Cong Khanh’s ship after the accident 19 On the evening of January 12, 2019, Mr Khanh returned the ship to anchor at village 5, Quang Lien commune to go home to rest, he planned early the next morning he would call traders to sell the caught seafood Unfortunately, around 11pm on January 12, 2019, the ship caught fire, due to an electrical short (according to the investigation results of the Quang Trach District Police - PV) Almost the entire ship and the seafood caught and not yet sold was burned The ship was purchased at PVI Quang Binh Insurance Company (hereinafter referred to as PVI Company), with the insurance value of 1.3 billion dong He quickly informed PVI Company of the compensation procedures After months of carrying out the loss assessment at the request of the insurance company, PVI Company refused to compensate, on the grounds that the ship's loss was not covered by insurance and insurance was not responsible for this loss Specifically, PVI Company believes that, based on condition A on the rules of hull insurance (according to Decision No 663/QD-PVIBH, dated May 10, 2018) of the General Director of the company, the case of a ship on fire Khanh “is not covered by insurance and falls under the exclusion of liability insurance (Section 5.2.3): “Vessels berthed at berths are not securely anchored or crews on duty to take care of the ship and maintain the ship not perform their duties and/or leave the ship alone” 2.2.1 Risk and Loss of Hull Insurance case PVI Insurance Principles Pursuant to "Condition A - Rules for Fishing Hull Insurance - Issued together with Decision No 663/QD-PVIBH dated January 10, 2018 of the General Director of PVI Insurance Corporation citing a number of regulations of Article Exclusion of insurance liability as follows: “Article 5.2 Insurance PVI is not responsible for insuring losses caused by the following reasons: 5.2.1 Natural wear and tear of the ship's hull, machinery or equipment 20