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Navios Maritime Holdings Inc. Message Board

  • trubulator12345 trubulator12345 Nov 20, 2012 11:04 AM Flag

    My take on the insurance news

    I have yet to hear the call/read a transcript, and I suspect that an 8k will tell us lots more. However, what this looks like is a typical insurer-initiated settlement of what has turned out to be a costly, poorly underwritten mess. Having followed insurers for the last 15 years or so, I can tell you that what probably happened was the insurer wanted to clear its book, contacted NM, and then the negotiations began. It looks to me like AF & Co. got quite a lot of upside from the deal: lump sum today, some continued coverage (albeit minor), and compelte upside to any bump in day rates on the fleet that went into default. The questions left in my mind are the details of the NMM part of this and the availability of coverage on new charters.

    Stepping back a bit, I think this is a good development. NM has the flexibility of having a big pile of cash up front and gets any upside from here. It crystallizes the insurer payout at what is, if not the bottom, close enough that it does not matter. We speculate on future day rates at our peril, but if you look at the orderbook and the reate of scrapping, my guess is that fleet expansion will be approximately zero next year net of scrapping and non-deliveries and the orderbook beyond 2013 is negligible. I expect we will see numerous shipyard bankruptcies/wind-downs, although some on the margin could survive by turning themselves into breakers. All of this tells me that over the next 12 to 36 months we will see rationalization of the bulker supply/demand balance, and this will be enforced by all of the traditional shipping banks retreating or exiting the market.

    The open question is whether NM will be able to insure new charters (I suspect the answer is no). This has always been a differentiator for NM/NMM and the loss of the ability to insure would be unfortunate. However, as another poster pointed out, it does not really matter at this point of the cycle. You really only need to insure against default when rates are high and there is value at stake in a downturn. I suspect we are years away from that point in the cycle, so its a moot point for the forseeable future.

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    • My take is simple: if share price goes below $3, I will buy more.

    • I agree. Remember this "insurer" was setup by the Belgian government to support the Belgian shipping industry when Belgium was seriously into the coal trade, and it clearly outlived its usefulness and probably was one of those government things that you can't kill, like Fannie Mae over here or National Flood Insurance. Navios inherited it when they bought Kleimar, and it appears that they were savvy in exploiting it. I wouldn't worry about the lack of insurance going forward. First, as I pointed out in another post, it has little value in the upswing of the cycle and, let's face it, fat lot of good it did for the stock price these past few years, no? They got what they needed out of it. Yes, in seven or so years they'll have to figure out a new way to protect their backsides on the next journey from peak to trough, but they've got some time.

    • I would interpret it the same way. The insurer feeling the pressure to remove liability for future default payments from their balance sheet. A good position for AF to be in when negotiating restructured deals for NM and NMM. The market reaciton is bonkers, IMO.

      • 1 Reply to keebon
      • An interesting post. It never occurred to me about not needing insurance at this point in the shipping cycle. But why would an insurer deny a policy today when the risk is so low? It seems like such a very low risk proposition to them. Perhaps, at this stage of the cycle the premiums have been coming down and so the risk/reward ratio becomes unattractive and the insurer begins becoming choosy about which risks it will accept. Any thoughts?

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