[ad_1]
Large amounts of international trade and many limits and amounts insured on marine insurance contracts are negotiated in a currency other than the Australian Dollar (A$).
Fluctuating exchange rates between currencies are common as most companies involved in this field implement forms of hedging or risk management to reduce the likely impact on their business.
When rapid and significant variances occur simultaneously, the best hedging and risk management plans may not be sufficient to completely eliminate the impact on an organization.
This bulletin highlights some of the exchange rate issues that can affect marine insurance coverage.
currency and trade
The currency of the United States of America (US$) is recognized as the international currency of commerce, shipping and, to a lesser extent, aviation. Some other currencies, notably the euro, are represented in trading contracts, but the US dollar is dominant.
Purchase and sale contracts often specify the trading currency of choice in US dollars, which ultimately leads most traders, sellers or buyers who are not US residents to a foreign currency transaction and the risk of exchange rate fluctuations.
Business plans, projects, and actual transactions that set profit or transaction margins at an expected exchange rate level can be undermined or wiped out when rapid exchange rate fluctuations occur.
Probably sea action
(when foreign currency or overseas shipments are suspended)
Hulls – Re-evaluations may be desirable when machinery/parts costs increase.
Freight – Limits of liability may need to be reviewed and sales and shipments monitored to ensure an explosion in numbers does not come as a surprise to the insured at the time of the adjustment.
Limitations of Liability – may need to be checked.
claim impact
Claims requiring payment in foreign currency will need to be converted from A$ which will affect the insured’s claims record. The exchange of components and parts sourced overseas may have inflationary effects due to exchange rate fluctuations.
insurer capacity
Insurers-per-per-peril capacities are often set annually after treaty reinsurance renewals. Rapid and significant fluctuations in exchange rates can lead to short-term capacity bottlenecks in the case of risks with large limits or insured sums in foreign currencies.
When rapid and significant exchange rate fluctuations occur, care should be taken to accurately assess and respond to any adverse impact on insurance coverage.
Disclaimer: This bulletin is for informational purposes only and does not constitute legal advice.
This is Auto Posted article collected article from different sources of internet, EOS doesn’t take any responsibilities of this article. If you found something wrong in this article, please tell us.
[ad_2]
