AQUACULTURE

INSURANCE

Offshore risks, Onshore Risks and Recirculating

Aquaculture Systems (RAS)

2013

What is Aquaculture

Aquaculture is the farming of freshwater and saltwater

organisms including molluscs (shellfish, etc), crustaceans

(shrimp, prawns, crabs, etc.) and aquatic plants (mainly

seaweeds).

Unlike fishing, aquaculture implies the cultivation of aquatic

populations under controlled conditions.

Due to the decline of most commercial capture fisheries

globally, coupled with expanding populations and

competition for land use, aquaculture is seen as one of the

best solutions to meet the shortfall in fisheries products and

to meet the growing global protein demand.

Aquaculture Potential

Aquaculture, probably the fastest growing food-producing sector,

now accounts for almost 50% of the world’s fish and is perceived

as having the greatest potential to meet the growing demand for

aquatic food.

Given the projected population growth over the next two decades, it

is estimated that at least an additional 40,000,000 tonnes of

aquatic food will be required by 2030 to maintain the current per

capita consumption.

[ ] FAO (Food and Agricultural Organisation of the United Nations) Rome 2006

Fisheries – Technical Paper 500

State of World Aquaculture

Species Farmed

There are currently about 430 species being farmed globally.

Of these there are a few that are cultivated on a scale to make

them commercially interesting to investors, and insurers.

The following are some of the species we either currently

insure, or which we consider a target species for insurance

products:

Salmon, Sea Bass, Sea Bream, Tilapia, Trout, Tuna, Cobia,

Abalone, Oysters, Sea Cucumber, Sea Urchin, Scallops, Mussels,

Shrimp, Prawn, Crabs, Sturgeon (Caviar)

Type of Cover Provided

‘All Risks’ Policy

Policy covering all risks of mortality unless specifically excluded

Widest type of cover available

Not globally available

Generally only offered for large commercial operations with a good track record, using species and technology familiar to insurers

Named Perils Policy

Only those perils defined within the policy will be covered.

Onus is on the assured to prove that the loss was a direct result of an insured peril

Policy more commonly found in cases where either the country, the farming system, or the species are not familiar to insurers

The main policy coverage is stock mortality or loss. Additional

covers can be provided to cover live fish transits.

Benefits of Aquaculture

Insurance

Protection against a variety of natural hazards beyond control, with

basic compensation for the loss of harvests

More secure incomes, greater stability and social & economic

welfare in the farming community

Improved access to investment capital and capital to expand

including formal credit by reducing the risk of non payment of

loans for the lending institutions

Increased incentives to invest in the development of their farms and

the adoption of technologies - thus reducing the potential for claim

Financial security for the Contract between the Farmer and Buyer

“Peace of mind for Farmers & Investors”

Types of Farming

Operations

On shore systems operated with

fresh or sea water:

a) Indoor tanks, ponds, recycling

plants

b) Outdoor tanks & “raceways”

c) Natural or excavated ponds

Tidal enclosures with:

d) Partial water exchange at high

tide

or

e) Constant water exchange

Offshore systems:

f) Floating cages

g)Midwater cages positioned

between the water surface

and seabed

On-Shore Systems Tidal Enclosures Off-Shore Systems

High water line

Low water line

a b c d e f g

Offshore Aquaculture

Offshore cage aquaculture makes up the majority of risks currently insured.

Although most production globally is undertaken onshore, either in lakes or ponds, most high value saltwater species are farmed in offshore cage systems

When considering ‘offshore’ locations, we would also consider the farming of species in cages, within a lake or other water body, an offshore risk.

Off-Shore farming offers a number of advantages including –

• High water quality, and exchange

• Low occurrence of extreme temperature fluctuations

• Less competition with other resource users , and reduced energy costs (i.e. electricity for pumping)

Typical Tuna Farm

Typical Tuna Farm

Typical Salmon Farm

Typical Salmon Farm cont.

Offshore Farming

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Salmon Farm in New Zealand

Basic cage designs

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Pollution.

Plankton bloom / red tide.

Jellyfish attack / bloom.

Theft and Malicious Acts.

Predation, or physical damage caused

by predators or other aquatic organisms

(not sealice or other ectoparasites).

Storm.

Lightning.

Tidal wave.

Collision.

Offshore Perils

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Sudden and unforeseen structural failure

of equipment.

Freezing, Supercooling, Ice damage.

Deoxygenation due to competing

biological activity or to changes in the

physical or chemical condition of the

water, including upwelling and High water

temperature.

Any other change in concentration of the

normal chemical constituents of the water,

including change in pH or salinity.

Disease.

On-shore Farming

The on land rearing of Stock can be achieved by raising stock in –

• Ponds with and without a supplementary water supply

• Raceways (long rectangular tanks)

• Fibreglass and or Concrete Tanks

Water Supply –

• Pumped water supply

• Water circulation systems including temperature control, current, oxygenation

and filtering

• A number of safeguards and backup systems can be integrated into the system

• Stocking density tends to increase in proportion to the complexity of the system

used

Flatfish farm in Spain

SA Abalone Farm

Shrimp ponds

Onshore Perils

Theft and Malicious Acts.

Predation, or physical damage caused by predators or other aquatic organisms (not ectoparasites).

Flood.

Tidal Wave.

Storm Damage.

Subsidence, Landslip, Structural Failure, Breakage or blockage of any part of the water supply system.

Drought.

Fire.

Lightning.

Explosion.

Earthquake.

Freezing, Frost damage, Frazil ice.

Mechanical breakdown or Accidental damage to machinery and other installations.

Electrical breakdown, Failure or interruption of the electricity supply, Electrocution.

Deoxygenation due to vegetation, microbiological activity or high water temperature.

Any other change in concentration of the normal chemical constituents of the water, including supersaturation with dissolved gases and change in pH or salinity.

Disease.

Recirculating Aquaculture

Systems (RAS)

Modern RAS facilities enable full control of the aquaculture

environment, from temperature, water flow, oxygen levels and

water quality.

Onshore recirculating systems are fully enclosed within a climate

controlled production building.

Water is treated through mechanical filtration, sterilised through

ozonation or UV treated, biofiltered, and oxygenated.

RAS Design

RAS continued

RAS facilities offer the following benefits for aquaculture:

Reduced influence of external factors (weather, air pollution,

diseases) on the production process

Optimum control of the culture environment – feed supply,

water temperature, water quality, oxygenation, organic loads

Biosecure production facility

On-site laboratory monitoring water quality and wellbeing of

the fish

Minimal waste discharge

Year round production of fish of consistent quality

RAS continued

RAS systems are now well understood and widely used in areas

where there are water pressures and the economics of the

species supports this method of farming, or where there are

environment concerns over open or offshore aquaculture

systems.

RAS systems have a high initial construction cost and have

higher running costs than other production systems,

however costs are coming down all the time

RAS Species

RAS Risks

Due to the high stocking densities required to make RAS

systems economically viable, when systems fail, this can

quickly result in a loss

Disease, once introduced to a system can spread rapidly unless

systems are designed appropriately. Difficult to eradicate

RAS systems are dependant on a good electricity supply, pump

operation and oxygenated water. A failure in any of these can

quickly result in losses. Appropriate back up and monitoring

systems are essential.

Human error is one of the most frequent causes of loss in RAS

systems. Trained and experienced personnel are essential.

Correct protocols must be developed and followed.

Features of Aquaculture

Claims and Loss Adjusting

Claims tend to be large and complex, especially when dealing with disease losses

Claims require specialist loss adjusters familiar with aquaculture

Losses are difficult to quantify accurately in terms of biomass present at the time,

natural mortality rates, and possibility of multiple loss events

Can involve high level of moral hazard dependent on basis of valuation and market

conditions

Farm records and audit trails can be incomplete or misleading

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Pricing

Every single aquaculture operation is different, and requires an individual rating

approach

When considering biological systems, not only must the natural hazards be

appreciated, but also the risks of disease, failure of life support systems, and moral

hazard due to widely fluctuating sales price, often generated by oversupply or the

price of raw materials (feed)

Rating matrices have been developed for types of operations, geographical location,

and species, however due to the ever changing nature of the industry, these are

having to be constantly reviewed and developed to cater for new species,

technology, and emerging producers

Rates are high, as are deductibles, reflecting the high risk nature of the class, and

reflecting the volatility of the claims pattern.

Rating

Typical rates range from 2% to 6% and deductibles of 25% per pond or

unit, to 20% or 30% per site

As well as proposal forms, surveys are now typically used far more to

assess both the physical risk to the site, and biosecurity.

High resolution mapping and GIS to map the are now used to estimate

risk profile.

Exposure tools such as NATHAN (Munich Re Natural Hazards

database) and Swiss Re CatNet are also used to assess risk

QUESTIONS?

Contact Details:

Daniel Fairweather

Email: fairweatherd@willis.com

Telephone: +44 (0) 20 3124 8436

Mobil: +44 (0) 7984 646 269