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The company, which was first to market with its bunker fuel price insurance product last year, received approval this week from the Guernsey Financial Services Commission (GFSC) for its new parametric freight rate policy, giving charterers the alternative of ‘double protection’ against freight rate rises and marine fuel price hikes.

Paratus Maritime was established in 2019 by Gus Majed, a frontline oil trader for 24 years, starting out on the risk management desk at Shell Trading & Shipping, and eventually moving to Vitol and Hess Energy. He also co-founded Vitol’s derivative business along with the global commodity trader’s present CEO, Russell Hardy. The Paratus team includes oil trading, banking and insurance experts and numbers Majed’s ex-partners at Vitol, Dr Richard Ward, former CEO of Lloyd’s of London, and Harry Theochari, who recently retired as Global Head of Transport Law at Norton Rose Fulbright, on its advisory panel.

Paratus Maritime, part of the Paratus Group, is a Class 3 regulated insurer, licensed by the GFSC. In bringing its new insurance product portfolio to market, it is working with Gibson Shipbrokers and insurance broker Price Forbes, which is part of the Ardonagh Group.

The aim of both insurance policies is to deliver price protection in an uncomplicated, ‘no strings’ way: a shipowner sets his freight rate or bunker price point and when that is triggered by market price movements, the insurance policy will pay out. ‘The power of the product is its simplicity: you pay the premium, you know what it will cost you and it does what it says,’ comments Majed.

For Paratus Maritime’s founder, the catalyst for the development of a bunker price insurance product was the realisation that for many shipowners, risk mitigation in the form of traditional hedging tools was not a panacea for their price exposure. Bunker price uncertainly and volatility surrounding the introduction of the IMO 0.50% sulphur cap in January last year and the subsequent impact of the pandemic on global energy demand and oil prices, which saw WTI prices head into negative territory, reinforced Majed’s viewpoint.

As he explains, hedging instruments ‘suddenly became a huge liability and that’s what led me to come to the firm conclusion that derivatives for consumers no longer work – you have to be a very deep [derivatives] specialist and there has to be a simpler, cleaner and better way of doing things.’

Majed has had first-hand experience of bunker fuel hedging but the pandemic has up-ended many risk management strategies. ‘We were ultimately getting nowhere on the hedging side because [owners] had been sold hedges that had blown up in their faces – hedging was anathema to them.’

Even before the market turmoil caused by coronavirus, Majed had been mulling the idea of bunker price insurance after coming across a US subsidy which offered protection against a loss of corn revenue for farmers in the mid-west, and also for milk. However, a key selling point of bunker price – and now freight rate – cover for shipping is that the industry really ‘gets’ insurance, says Majed.

‘Owners know their business – and what’s the one thing they all deeply know and trust? It’s insurance.’

Duncan Ross is heading the distribution for the Paratus policies at Gibson, and he confirms that some shipping companies have traditionally been – and continue to be – firmly resistant to hedging their fuel purchases. This is not necessarily because of any inherent distrust of hedging tools or a case of ‘once bitten, twice shy’. As he explains, some companies operate on a spot basis and can’t guarantee lifting, while others act as commercial managers, buying on behalf of other owners, and don’t want to take on that level of risk.

While aviation has historically hedged between 60%-100% of its fuel purchases, only 3% of the shipping fleet does so. This, suggests Majed, is partly to do with its often complex and fragmented ownership structures.

‘And even if they wanted to hedge, they may not be given the lines to do so – and some of the banks have now completely withdrawn from the commodity markets,’ he highlights.

‘So we have turned it round and said we are going to empower them to manage their balance sheets better, and give them a product that is agnostic to credit and that anybody around the world can use.’

The new policies offered by Paratus are tax-deductible, subject to jurisdiction, and without the overheads of derivatives, and Majed says shipping groups are already approaching the company for master policies.

Based on market feedback so far, Duncan Ross says that he believes owners will use the insurance products to supplement or complement their existing hedging strategies, but he thinks that over time they will switch over more of their hedging portfolios to insurance.

Majed emphasises the flexibility of the Paratus policies: they can provide cover for just part of a month or for an annual term, and can also be applied on a per vessel or fleetwide basis. According to Ross, owners could be looking for insurance for a specific month, such as when time charters are coming to an end, but others are also looking to purchase continuous cover. At this stage, potential clients are broadly looking 4 to 6 months forward, he says.

The GFSC has also given Paratus Maritime permission to offer cover for LNG, in addition to European and Asian marine gasoil and very low sulphur fuel oil (VLSFO), so policies will also be able to cover the growing dual-fuelled vessel sector.

Cover could be offered on high sulphur fuel oil purchases (for scrubber-equipped tonnage) on a case by case basis, but Majed is keen to emphasise that the focus of Paratus Maritime is primarily on cleaner bunker fuels.

Looking at insurance premiums, Majed offers a ‘ballpark figure’ of 0.5%-3.0% of charter costs, but he emphasises that costs vary due to factors such as price point ‘triggers’ and the term of a policy.

The Paratus group also includes Paratus Resources, which, he says, will be shortly launching into areas such as jet fuel, renewables and metals.

Ultimately, Majed concludes, the insurance products offer an alternative and innovative tool in the risk management ‘armoury’ and, importantly, will allow owners to get on with the business of shipping.

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