Ship owners facing increasing risks over charterers’ default

In order to protect owners' vital revenue streams, Marsh has, therefore, launched its Charter Default product.

Backed by insurers, including Chaucer, and a leading investment bank, the broker said it provides a mix of fixed recovery guarantee and credit insurance, tailored to the shipowner's particular requirements.

Covering both outstanding debt at the time of an insolvency and the loss of future revenue for a set period, the product de-risks important revenue streams, thereby assisting owners to attract better terms from lenders by reducing counterparty credit risk.

Nick Roscoe, a managing director in Marsh's global marine practice, said: "The risk of ship charterers defaulting has increased since the global financial crisis. Companies with ships on charter are exposed to loss of revenue if their charterer folds or administrators force a renegotiation of terms. This product provides a secure framework for owners to grow their business with new clients and in new economies."

"Our Charter Default product is a real financial market innovation that addresses a core concern of shipowners around the world. It not only will protect owners' balance sheets but will also provide additional comfort for their key business stakeholders," Mr Roscoe added.

Working with insurers, Marsh has developed specific policy wordings that provide a range of options to suit the credit insurance needs of shipowners of all sizes and complexity. In particular, Marsh has secured significant additional capacity through a proprietary credit insurance policy with Lloyd's syndicate, Chaucer.

Policies are tailored to the needs of individual owners with flexible indemnity provisions and event triggers. These policies are designed to lock in anticipated profit and protect owners' capital investment in their ships.

In addition, shipowners will be able to buy a fixed recovery guarantee, issued by a leading investment bank, that provides a pre-selected level of cover payable upon the insolvency of the charterer. In order to offer as much claims certainty as possible, the owner will need only to prove the trigger event has occurred in order to secure payment.