Analyze hull insurance business of pvi insurance corporation in 2019 2021

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

T ABLE OF CONTENTS

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 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

Transportation plays a critical role in the thorough integration of countries into theglobal economy, contributing to the promotion of commerce and the enhancement oftrade cooperation between countries and regions In particular, sea transport accountsfor the majority of the proportion of import and export trade goods, which is anessential method to ensure the stability of the international circulation and tradeexchange process However, to have successful sea journeys and minimize risks andlosses, shippers, ship owners, banks, and other related parties frequently participate

in marine insurance services, with special attention paid to hull insurance, as thenumber 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 relativelylarge, both material damage and related costs

As a result, we conduct extensive study into the legislation, necessary theoreticalknowledge, and the perfection of the professional system with this type of insurancewill have a substantial impact on insurance companies' and insurance companies'commercial performance, ship owners, carriers, charterers, and even other partiesconcerning the consignment transported by sea

To apply the knowledge of the subject “Risk management and Insurance” intopractice, and concurrently obtain our background in this professional field, Group 6

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 thearticle 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 themarketplace It covers a broad range of damages on a vessel's hull, machinery, andequipment, which in turn gives the vessel owner a level of confidence and security inoperating 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 DownClause)

- Liabilities for colliding with objects other than a normal ship (Fixed and FloatingObjects)

- 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

In special cases, the Insurer can not appoint their adjuster to the site, the insured isallowed to invite the adjusters in the area of accident provided these adjusters areaccepted 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 thesum insured In this case, the insurer will pay all

Claim amount will be paid by money, not in kind The type of currency applied forclaim settlement is currency used to collect premium

When the insurer compensates, the insurer has the right to deduct the sum of moneycollected by the insured when the insured settles the remaining property or getsrecovered from the third party

After paying the claim amount, the insurer has the right to collect money from thethird 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 carelessactions of insured However, the Insurer is responsible for loss caused fromnegligence or errors of the captain, crews or navigator during the process of

When insuring for ships and freight, the insurer is not responsible for the followinglosses :

- The ship does not have full safety conditions at the time of departure, exceptfor the case when the ship has inside defects even though the insured has paiddue attention

- Cargo on board is flammable and explosive or has other dangerous stuffwhich is not suitable with regulations for carrying These types of cargo arenot advised to the Insurer

If there is no other agreement in the insurance contract, the insurer is not responsiblefor 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 amountappointed under the percentage in total claim amount The reduction of claim amountincludes 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 theregulated extent

The target:

- The Insurer will not pay for too small losses in comparison to total insuredvalue The loss amount is not equivalent to claim settlement based on timeand costs aspects

- There is a part of the rate from the sum loss amount for the Insured It meansthe Insured bears a part of liability in loss

At the time being, due to the high competition in the market, insurance companiesrarely apply the reduction of loss in order to hold clients This will be applied tospecial 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 Công ty cổ phần Bảo hiểm Dầu khí Việt Nam

-English : PetroVietnam Insurance Joint-stock Corporation

-Short name: PVI

-Phone number : 024 37342299

-Fax number : 024 37342929

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 itscorporate 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 ofthis financial rating organization) PVI has been rated B+ (strong capacity) byAMBest 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 mayget a higher rating

2019 2020 2021

Current Assets 18,629 18,376 19,381 Sale Revenue 10,315 9,416 9,682

Cash and Cash

Real Estates 1,088 817 782 Net profit 873 820 685

Total Assets 22,083 22,078 22,561 Profit after tax 702 622 520

Account

Payables

14,858 14,678 15,118 Profit After Tax

(From Associates)

Ordinary Share 2,342 2,342 2,342 Financial Ratios 2019 2020 2021

Share Premium 3,508 3,608 3,608 Gross Profit Margin

- Asset structure

Total assets at the end of 2021 reached 22,560 billion, up 12.4% compared tolast year Most of them are short-term assets (accounting for 84.36% of TTS), inwhich short-term financial investment assets and short-term receivables are themain ones, accounting for respectively 35.3% and 45% TTS

PVI's financial investment is mainly term deposits (accounting for more than 80%),the rest is PVI's investment in stocks, bonds, and capital contribution Therefore,financial investment has low risk; the provision is small, reaching 130 billion out of9,660 billion in financial investment assets

Short-term receivables reached VND 10,486 billion by the end of 2019 (accountingfor 45% of TTS), mainly receivables related to reinsurance assets (accounting for82% of total receivables), including provision for reinsurance fees andindemnification reserve for reinsurance

Other Profits 1.0 1.0 0%

Source: Interpretation of PVI’s Financial Reporting by PetroVietnam Securities

Incorporated PSI

- Business results in 2021

In 2021, PVI's revenue from insurance and non-insurance activities reached VND9,682 billion (2,82%yoy), consolidated pre-tax profit reached VND 686 billion (-16.4% YoY) respectively PVI's profit after tax reached VND 520 billion

The cost of working capital in 2021 was recorded at VND 4,960 billion (up 4.44%YoY) mainly due to the increase from reinsurance ceding activities In 2021, PVIsettled more than 570 thousand loss cases with a total compensation amount of up to2,500 billion VND (more than 83 thousand claims for losses in the oil and gas fieldwith the amount of 550 billion VND billions dong)

2.1.2 Introduction to Hull Insurance Business

As a leading marine insurer, PVI Insurance is a trusted partner of Vietnam’s largestmarine fleets operating both on in-land waterways and international ocean shippingroutes with wide experience in providing insurance services in the fields ofshipbuilding, ship repair, operation of ocean vessels, mobile drilling units, floatingstorage units and floating production storage units

The processing procedure of insurance in general, as well as hull and P&I inparticular, include the following stages: exploitation, assessment, and indemnificationfor loss and damage, together with the stage of prevention and mitigation of losses.These stages are interrelated and have important implications for the effectiveness ofhull insurance The division into such specific work stages, along with theinterrelation of all these stages

helps us to accurately assess the effectiveness of each stage, in order to complete theoperation of the company.

● Exploitation stage

Steps in the insurance exploitation stage

- Step 1: Receive information from customers

- Step 2: Research, analyze and risk assessment

- Step 3: Propose an insurance plan

- Step 4: Negotiate and accept insurance

- Step 5: Issue insurance policy

- Step 6: Monitor and receive new solutions

Exploitation result

During PVI’s years of operation in the market, PVI has affirmed its leading position inthe whole market with a stable market share and great growth potential The exploitation

Table 2-1 Exploitation result of hull insurance at PVI from 2019 – 2021

(unit: billion VND)

Contract

(Source: PVI Maritime Department)

From 2019 - 2021, the situation of performing hull insurance and P&I insurancebusiness has been very positive Gross insurance premiums have increased steadilyover the years There was a sharp increase in the growth rate of premium up to 48.21%

in 2018

● Loss prevention and mitigation stage

Preventing and mitigating loss can be done by applying many measures, such as keeping customers’ files and calculating expenses for this work

Table 2-2 Result of preventing and mitigating loss of hull insurance

(unit: billion VND)

Expense for preventing

and mitigating loss of

hull insurance

Source: PVI Maritime Department

The results of the Company's loss prevention and mitigation are reflected in the budgetfor prevention and reduction of loss, which was in regulation with the current law, andincreased in conjunction with gross insurance premium

● Assessment stage

The first problem that insurance companies in general and PVI in particular, areconcerned with is the assessment stage If the exploitation stage creates a premise forthe implementation of the next two stages, the loss assessment stage is an important

step in bringing trust to PVI's customers, which will create favorable conditions for the final stage of the hull insurance - the stage of compensation settlement.

Table 2-3 Assessment results of hull insurance business at PVI from 2019 – 2021

Source: PVI Maritime Department

The cost of assessment per case has decreased gradually over the years This provesthat the Company always pays attention to the inspection work, for example: theexpertise of the assessors has been improved and the assessor team has beenstrengthened nationwide

In the maritime sector, the market value of ships also fluctuates by a relatively largemargin, so most marine insurance policies are either fixed-price or agreed-uponpolicies Accordingly, the contract value is agreed by the insurer and the insured as

the actual value of the insured property Once the value has been agreed, it cannot bechanged 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 VND512.69 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 from48.2% in 2019 to 13.7% in 2020 and to 10.6% in 2021 due to the economic downturnand increased freight rate that shipping companies had to bear As a result, revenuegrowth rate slowed down while industry average came at 24.2% per year

At that time, this segment is encountering some difficulties due to the TransportationIndustry in particular and the Shipbuilding Industry in general since the economiccrisis in 2019 up to 2021 Shipbuilding firms’ orders were delayed, leading to aslowdown in growth rate of the insurance premium The 1,680 registered transportvessels 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