Shipping Insurance Fraud? A Great Mystery Story "The Hijacking of a $100 Million Supertanker"

Fascinating read at BloombergBusinesWeek The Hijacking of a $100 Million Supertanker

photo by Chief Intelligence Specialist Raynald Lenieux, USN

"The Hijacking of the Brillante Virtuoso: A Mysterious Assault. An Unsolved Murder. And a Ship That Hasn't Given Up All Its Secrets"
by Kit Chellel and Matthew Campbell

Just read it.

It's a throwback to the old days when some older ships "mysteriously" sank.

Been a couple of movies along these lines, The Wreck of the Mary Deare and Claim.

Hat tip: Saturn 5

Some Countries Offering "Insurance" Money for Evading the Iranian Sanctions

Short report from PennEnergy on a couple of countries offering "insurance" money to support tankers which evade economic sanctions against Iran at India offers $50MM in coverage for Iranian tanker runs:

Indian oil transportation companies will be able to receive some limited coverage from the government for oil tankers making trips to Iran, according to Reuters. The recent sanctions imposed against Iran for its continuing efforts to develop its nuclear program, and as many Western nations fear nuclear weapons, have largely prevented Indian oil companies from finding insurance for their oil ships.
***
In response, the Indian government has offered to insure as much as $50 million for any "Indian flag carriers" traveling to Iran. This amount falls well short of the actual liability incurred by oil tankers on any given trip, but it comes to more than six times as much as the Japanese government has offered its companies, illustrating India's interest in continuing the flow of Iranian oil.

Insurance Insight provides some background:

The concern for Asian nations such as India, China and Japan has been that their ships, which are highly dependent on the International Group of Protection & Indemnity Clubs and its reinsurance programme, will be unable to sail if they cannot obtain cover.

Another Insurance Insight report on limitations placed by Japanese insurers on tankers carrying Iranian crude:

Japanese oil buyers will be forced to coordinate schedules after insurers warned they will cover only one tanker transporting Iranian oil at a time after the 1 July sanctions deadline.
***
According to Reuters, the three insurers together can provide only up to ¥30bn ($370m) at one time in hull and machinery cover, which protects vessels against physical damage, without relying on the European reinsurance market to hedge the risk.

This is enough to cover insurance for only one tanker travelling in the Gulf with Iranian crude oil, Insurance Insight understands.

So, India and Japan as "sanction busters?"

Earlier report here, where China is added to the list of Iranian oil carriers.

Somali Pirates: Insurance Executive Suggests, "Shoot the pirates"

TradeWinds.com reports on a speech given by an insurance executive that contains some blunt advice, at Shipping news - www.tradewindsnews.com:

Ready? Aim?  . . .

Aon K&R chief electrifies India Shipping Summit piracy session with ‘Don’t fire above their heads, put a bullet in their body’ call.

I'll bet there were a lot of panties in a twist after that advice was proffered at the India Shipping Summit.

Of course, it's all in the context. He also suggests armed guards on ships (well, of course, otherwise, how could pirate fire be returned!). He did couch the advice with a "if necessary," which will probably go unreported and unexamined, but which is really the key qualifier in his advice. Sort of when you are under pirate attack and "when all else fails," don't you know.

There is a video at the TradeWinds site.

Interesting Reading About Piracy at Sea and Maybe Terrorism, too

Interested in trends of worldwide maritime piracy? Here are some things to help:

Pirates during an assault

(1) You can begin with The “Radicalization” of Maritime Piracy: Implications for Maritime Energy Security by Dr. Donna Nincic of the California Maritime Academy:

At the same time, we are seeing a new and potentially more troubling trend occur: the increasing “radicalization” of maritime piracy in that pirate groups—especially in Somalia, but not limited to that country—are starting to cooperate at certain levels with terrorist entities in the region. Up until very recently, pirate gangs and terrorist organizations were thought to have mutually exclusive agendas. The fact that they seem to have arrived at some level of accommodation and mutually beneficial cooperation may presage more dangerous waters for the future.

See also a Lloyd's List warning about reports of Al Shabaab interest in learning "navigation":

At present, al-Shabaab taxes piracy groups that use areas under its control for holding vessels and crews until the ransoms are paid. However, intelligence experts say that there are strong indications that al-Shabaab is seeking to learn the basics of navigation with a view to entering the piracy game as a way of raising cash. Indeed, earlier this month the group’s members fought a gun battle with a piracy gang, demanding the pirates’ weapons and three South African hostages.

The piracy gangs are resisting the approaches for navigational tuition, knowing that the Islamic gangs have a habit of entering an area and then seeking to take complete control. So while the arrival of what are in effect Islamic terrorist gangs into the Gulf of Aden and beyond has yet to be seen, there will be a new and more extreme piracy operation in the future.

Bab al Mandab Strait

There was a report from back in September that Al Shabaab was calling for a "sea jihad." And another report that al Qaeda had called on Al Shabaab to "block the Red Sea":

THE Yemen-based wing of Al-Qaeda, in a recording posted on the Internet on Monday, called on Somali insurgents to help gain control over a narrow strait at the mouth of the Red Sea to block US shipments to Israel.

The wing's deputy leader, Saeed al-Shehri, urged Somalia's al Shabaab Islamist insurgents to help return the Bab al Mandab strait, which separates Yemen from the Horn of Africa, 'to the lands of Islam'.

'At such a time the Bab (al Mandab) will be closed and that will tighten the noose on the Jews (Israel), because through it America supports them by the Red Sea,' Shehri said in the audio recording posted on a website often used by Islamist groups.

(2) From Bergen Risk Solutions, "Somali Piracy and the Monsoon Season" (pdf), warning that though we may be entering a monsoon season that might slow Indian Ocean piracy, the Gulf of Aden and other less impacted areas might not see much of a decline in Somali pirate operations.

(3) A piece from The African about why the South African Navy has not joined in the anti-piracy force off Somalia (reprinted here). The main answer is money, of course, followed by fleet size and a lack of motivation:

South African Navy: SAS Amatola (F145) on sea trials.

According to diplomatic sources, several European countries have indicated their willingness to at least partly finance South Africa's participation in the international effort to combat piracy. This would include the integration of marines into the naval task force and training in Djibouti or Mombasa.

"It is in line with South African foreign policy ideals of 'Africa for the Africans', and yet there is absolutely no African presence here," said one source.

(4) Another pdf - this time from a marine insurance carrier, Allianz, on "Piracy: An ancient risk with modern faces":

Allianz piracy study highlights how ship-owners can respond to increased risk.

Ship security measures from the Allianz study

As the threat of piracy off the Horn of Africa continues to grow, this report provides an overview of recent developments in piracy, focusing on how ship-owners can address the risk through both active risk management and suitably tailored 'war' insurance policies for ships in risk risk areas.

In addition, the study points out that crews entering dangerous waters must be prepared to handle an attack, and it calls for a more coordinated solution to the recent wave of piracy.

AGCS also identifies a number of practical responses that crews can take when passing through piracy zones, and the study also points out that whilst piracy may be on the rise off Somalia and other parts of Africa, it is declining in other areas, but still poses a real threat to shipping and trade.

(5) An article from the U.S. Naval Institute's Proceedings magazine on how an over emphasis on fighting Somali pirates might cause us to miss the larger maritime security issue of which the Somali pirate situation is but a "symptom" in Steven Carmel's The Big Myth of Somali Pirates.

(6) And finally, my own post on the spread of Somali piracy at Assessing the Containment of Somali Pirates .

That ought keep you busy for a few minutes.

MV Arctic Sea "Found" and "Crew Rescued?"

Mail Online says Missing cargo ship Arctic Sea found and crew rescued following pirates' 1million ransom demand:

It is believed the freighter had been tracked for several days by the Russian navy, with assistance from Nato.

Yesterday, Russian defence minister Anatoly Serdyukov said the crew were 'alive, healthy and not under armed guard'.

He went on: 'Debriefing is under way to clarify all aspects of the disappearance and loss of signal from this vessel.

'In the coming hours we will explain what happened with it, why communications with it were lost, why it changed its itinerary.'

Secrecy surrounding the recovery of the vessel has added to the mystery of its fate.

Theories include a Russian mafia or business dispute, hijacking by pirates, or the stowing of a highly valuable 'hidden cargo' on board.

Telegraph Online is a little clearer: "Mystery as missing cargo ship Arctic Sea found without hijackers":

The missing cargo ship Arctic Sea and its crew have been found by a Russian warship off west Africa, but mystery still surrounds its disappearance as it was not under the control of armed hijackers or pirates.

As I noted here, I smell insurance fraud. Unsuccessful insurance fraud.

Other posts on MV Arctic Sea can be found by clicking on the label MV Arctic Sea.

MV Arctic Sea: The Mystery Continues

Spiegel Online has a nice round up of everything that is unknown about the MV Arctic Sea at Pirates, Mercenaries Or Smugglers?: Missing Russian Ship Reportedly Spotted. This includes a report of an unconfirmed ransom demand for the ship and another report of a second attack on this ship:

The German business daily reports that the ship was apparently hijacked, and that a ransom of around $1.5 million has been asked for. However, these reports remain unconfirmed. Meanwhile a spokesperson for Antonio Tajani, the European commissioner for transport, told news agencies that the ship had actually been the victim of two attacks -- one off the coast of Sweden, and another off the coast of Portugal. But, he said, it seemed as though the attacks had nothing to do with "traditional piracy" or "armed attacks on the high seas."

For those of you interested in seeing older reports posted as this story has unfolded (oldest post last), you can visit the links here, here, here, here, here and here.

And, if there aren't enough unknowns, the "found" reports may be premature - according to the Russians as set out here:

The Arctic Sea, which disappeared with a 15-strong Russian crew on board more than two weeks ago, was spotted about 520 miles off the Cape Verde islands yesterday, according to French officials.

But today Russian news agency Itar-Tass reported that it was still unconfirmed whether the sighted ship was the Arctic Sea.

More here:

According to the Itar-Tass news agency in Russia Alexander Karpushin, the country's ambassador in Cape Verde, had been unable to clarify the situation.

He told the Vesti news channel: “I met with the country’s authorities, in particular with the chief of the general staff of Cape Verde’s armed forces, who did not confirm the information that the ship had been detected.”

The Russian maritime website, Sovfrakht, also reported the ship's tracking system was broadcasting signals from the Bay of Biscay at 8.30am today.

The Bay of Biscay? As you can see from the map, there is a distance between "somewhere off Cape Verde" and "in the Bay of Biscay."

I'd pay attention to where the Russian Navy is heading.

Let the fun continue.

UPDATE: A report that there was a ransom demand:

A Finnish police officer told the AFP news agency on Saturday that a demand had been made in connection with the Arctic Sea, a 4,000 tonne Finnish-owned cargo ship.

Detective chief superintendent Jan Nyholm said: "Yes, it is true that there has been a demand for ransom, which is money.

"The demand has been made to the company which owns the ship, Solchart Management in Finland."

Markku Ranta-Aho of Finland's National Bureau of Investigation told national YLE radio that the demand was addressed to the Finland-based company that owns the Arctic Sea, but would not give further details or say where the ship might be located.

UPDATE2: Videos of interest:
Ransom demand:

Ship may not be valuable, crew is:
A good question How on earth has the 'Arctic Sea' vanished?. And some more thoughts on this mess as a Warning Shot.

Pirates of the Baltic and a Missing Ship

Interesting, if cryptic, tale of an apparently missing ship Russian Navy Joins Search for Freighter Attacked by Pirates:

Russia’s navy and Federal Security Service, the primary successor to the Soviet-era KGB, are searching for a Finnish ship with a Russian crew that disappeared in the Atlantic Ocean en route to Algeria.

Radio contact with the freighter Arctic Sea was lost on July 28, according to a statement posted on the navy’s Web site today. The ship, which sails under the Maltese flag, had 13 to 15 crewmembers on board, the navy said.

The Arctic Sea, operated by Oy Solchart Management AB, was scheduled to arrive in Bejaia, Algeria on Aug. 4, the Sovfracht maritime news Web site reported yesterday. The ship, built in 1991, has 4,706 deadweight tons capacity, the navy said.

Report of alleged Baltic pirate attack here.

And an earlier report of this ship going missing off Portugal here from reader 1657 from Galloping Ghost who also has a report at "Baltic Pirates? Anyone?"

Very curious.

I wonder who has the insurance coverage?

UPDATE: Healthy but not extreme winds off Portugal:


UPDATE2: I think I got all the kinks out of the links.

Sea Piracy: Insurance Company Offer Advice to Ship-Owners

As noted in an earlier post, Allianz Global Corporate & Specialty (AGCS) offers up a risk analysis of sea piracy in a free booklet available here:

In a study released today entitled “Piracy: An ancient risk with modern faces”, AGCS suggests that special ‘war’ insurance policies should be used to meet the needs of ships in high risk areas. AGCS also identifies a number of practical responses that crews can take when passing through piracy zones, and the study also points out that whilst piracy may be on the rise off Somalia and other parts of Africa, it is declining in other areas, but still poses a real threat to shipping and trade. “Anybody who has been involved with actual pirates knows the grim reality they live in and the damage they can inflict,” states AGCS Global Marine Head Arthur E. Moossmann.

Somali Pirates: Raising Insurance Rates

As exotic as it may seem to a landlocked teenager in Nebraska, merchant shipping is a business, just like the corner gas station or the local insurance agency.

And, just like those businesses, when cost go up, those increased costs are passed along to the customer. In this case, we're talking an increase in insurance rates to be charged to shipping companies because the Somali pirates have raised the costs of doing sea business in the sea lanes off Somalia, as set forth
here:

The cost of insuring shipping against piracy has increased 20-fold because of attacks on shipping off Somalia and Nigeria. Insurance broker Marsh said attacks on vessels doubled in the first quarter of the year, triggering massive insurance claims and the huge rise in premiums. Marcus Baker, head of marine insurance at the broker in London, said ships that had been paying a premium of 0.05% of the value of their goods a year ago were now being charged as much as 0.1%. Experts told Bloomberg that owners of tankers and container ships were also spending as much as $40,000 (£24,000) per passage on security guards. Baker said: "Piracy is a pretty challenging piece of risk to underwrite."

Somali Pirates: Insurance issues

Reported in the Times Online "Piracy insurance hinges on number of raiders":

The surge in piracy off the coast of Somalia could trigger legal disputes between marine and war risk insurers, a leading QC has warned.

Jonathan Gilman, QC, said that piracy could be covered by either type of policy - depending on the number of pirates involved. If 12 or more pirates are involved in an attack, according to Mr Gilman, the incident is likely be classified under the Public Order Act 1986 as a riot. These are covered by war risk insurers rather than by marine insurers. However, if the attack involves fewer than a dozen pirates, the incident would typically be covered by marine insurance.

Mr Gilman - editor of Arnould's Law of Marine Insurance, published by Sweet & Maxwell - said that because it was often very difficult to verify accurately the number of pirates involved in an attack, it could lead to legal conflicts. He said: “Piracy is normally covered by marine insurers, the exception being where the incident is legally a riot. There have been House of Lords decisions where it was held the word ‘riot' in insurance policies is to be given its strict criminal law meaning, so that the critical question is likely to be whether the number of pirates is 12 or more. It may be very difficult to assess accurately the exact number of pirates involved in any particular incident, which may result in disputes between marine and war risk insurers.

You gotta love this stuff.

Follow Up: Lehmann Timber Finally Safe in Port

According to this, the unlucky crew of the ship Lehmann Timber (captured by pirates, ransomed, adrift at sea after an engine failure, rescued by USS Momsen) has been towed safely into port in Oman.

The U.S. Navy has released photos of the assistance rendered:

An SH-60B Seahawk assigned to the "Saberhawks" of Helicopter Anti-submarine Squadron Light (HSL) 47, embarked aboard the guided-missile destroyer USS Momsen (DDG 92), takes supplies to the German cargo ship MV Lehmann Timber after the ship suffered engine problems and became stranded in a storm. Momsen is providing food and water to the ship until a tug arrives. Pirates recently released the crew of the Lehmann Timber after the owners paid a $750,000 ransom. Momsen is deployed to the U.S. 5th Fleet area of responsibility supporting maritime security operations. U.S. Navy photo (Released)

and from
here:

USS Momsen (DDG 92) and its embarked helicopter detachment provides assistance to Motor Vessel Lehmann Timber after it experienced a main engine casualty leaving it unable to operate at sea. Assigned to Combined Task Force (CTF) 150, Momsen is providing food and water at sea to motor vessel’s crew, who were recently released by pirates.

UPDATE: In a related press release, Lloyd's insurance market has a pirate related note, "Protecting against the modern-day pirates":

As levels of piracy rise, so ship owners can expect insurance premiums to go up, with Ken Alston of risk specialist Marsh saying this was an eventuality to be ‘expected’. He added that the scale of the additional premium being charged at the moment is ‘unlikely to have an impact on the consumer’ but if the number of incidences increases, this may change. In May 2008, the Joint War Committee added the Gulf of Aden, located between Somalia and Yemen, to a list of places at high threat of hull war, strikes, terrorism and related perils. It is now comparable to the likes of Iraq in terms of insurance risk, according to the committee.