Howden, Fidelis MGU strike deal to transfer oil from tanker off Yemen

A mission by the UN to negotiate the removal of oil from the FSO Safer can now go ahead, thanks to the successful binding of insurance coverage for a ship-to-ship transfer, Howden has announced. 

Howden acted as broker and Fidelis MGU was a lead underwriter, with 13 “on risk” insurers taking part in the deal to prevent one of the largest man-made environmental disasters in history.

FSO Safer is an Ultra Large Crude Carrier (ULCC), built in 1976 and converted a decade later to become a floating storage and offloading facility (FSO) for fuel.

The stricken ship is carrying some 1.14 million barrels of light crude oil.

FSO Safer has been moored off the Yemeni coast since 2015, during which time the ongoing civil war in Yemen has prevented essential maintenance work or repairs on the vessel, creating fears of an environmental catastrophe.

Over the past eight years the ship’s structural integrity has deteriorated, leaving the ship vulnerable to breaking up, and, without a functioning system to pump inert gas into its oil tanks, the vessel could explode at any time.

“This is the perfect example of the power of insurance to be a force for good in the world,” said David Howden, CEO, Howden.

“By de-risking the investment required and mitigating the risks involved in this complex and delicate operation, insurance is playing a central role in preventing one of the largest, man-made disasters the planet will have ever faced,” he said.

London market broker Howden was appointed by UN Development Programme via a public tender process to identify the insurable risks and arrange insurance cover for the non-standard ship-to-ship (STS) operation.

“Whenever the insurance industry has the opportunity to play its part in vital efforts on behalf of the environment, it must step up,” said Richard Brindle, group CEO and chairman, Fidelis MGU, which acted as a lead underwriter.

“This is one such opportunity and we are very pleased to be able to work alongside Howden, UNDP and our industry peers to provide the protection necessary for the successful outcome of this important project,” Brindle added.

The insurance is supported by significant engineering expertise, mobilised to move the oil, and includes naval architects, chemists, surveyors and oil spill response organisations, as well as government entities and the UN.

The coverage both for FSO Safer for the duration of the STS operation and for the replacement vessel, the VLCC Nautica, was bound in the Lloyd’s, London and protection and indemnity (P&I) markets.

“Following the success of the Black Sea grain corridor, this pioneering coverage again shows insurance play a leading role in helping society not just respond to disasters, but prevent and prepare for them,” said John Neal, CEO of Lloyd’s.

“It’s encouraging to see the knowledge and expertise held in the Lloyd’s market being used to protect what matters most – in this case, our natural environment and the economic activities our world relies on,” Neal added.

The insurance negotiations have resulted in thirteen different underwriting entities being “on risk”, while more than 100 individual underwriters have been involved in the risk assessment of an exceptionally specialised set of policies for the operation further complicated by the fact that the FSO Safer sits in high-risk waters, as designated by the Joint War Risks Committee.

Insurance has played a pivotal role in de-risking the operation, which is highly complex and covers a range of environmental, geopolitical and humanitarian risks. Coverage has been placed to respond to a wide array of hazards that could arise over the course of the operation, including pollution from the transfer, explosion of the gas on the ship, personal security of the individuals involved in the operation and the removal of the Safer wreck. The entire process is expected to take several months.

The UN-led operation involves the transfer of the oil to a replacement vessel, Very Large Crude Container (VLCC) Nautica, and the towing and scrapping of the FSO Safer at a green salvage yard.

The most immediate danger of an oil spill will be prevented once the oil has been transferred to the replacement vessel. The UN Development Programme is undertaking the emergency phase of the operation to remove the oil.

FSO Safer is 362 metres long, three-and-a-half times the length of a football pitch. She holds over a million barrels of oil – four times the amount spilled by the Exxon Valdez. A catastrophic spill will not only pollute the environment, but also destroy livelihoods in coastal communities and endanger food and medical supplies in a war-torn region already suffering chronic shortages.

Achim Steiner, administrator of the UN Development Programme, commented: “FSO Safer is an ecological and humanitarian timebomb. Without urgent intervention, the damage to the environment, lives and livelihoods could be immense.

“Insurance became a critical element of enabling this salvage operation to proceed. Without it, the mission cannot go forward. UNDP has been broadening and deepening its work with the global insurance community over recent years.

“That collaboration is delivering impact in many ways. We are especially grateful to Howden for facilitating this process with the insurance industry on this critical initiative to ensure that coverage has been secured in the most challenging of contexts.”

David Howden added: “As unique as the FSO Safer operation is, there are a whole host of scenarios where insurance plays a crucial role in protecting our planet and its inhabitants. I hope that, as an industry, we can all be inspired to do everything within our power to help build a more resilient future.”