of insuring a poor risk. The validity of this proposition is tested 

 first, by an exaniination of the criteria upon which hull insurance 

 risks are rated and second, by a comparison of the insxirance cost between 

 vessels with best ajid vessels with vrorst loss record. 



1. Rating^' of vessels ibr hull insurance . Accordinf^ to information 

 obtained from maritime insurers, the criteria upon v;hich the exiJectation 

 of loss from a commercial fishing vessel is estimated are the age, gross 

 tonnage, port of operation of the vessel, the safety equipment on board, 

 the type of fishing in which the vessel is engaged, the quality of offi- 

 cer personnel and crew, the f jjiancial indebtedness and credit standing 

 of the insured owner, and the past loss ejqjerience of the vessel and its 

 ovnner. jU. though emphasis on each criterion may differ fixin port to port 

 and from insurer to insurer, the above list may be considered as includ- 

 ing all major factors in estimating the ej^joctation of loss. However, 

 the ultiitiate evaluation of these criteria in determining the physical 

 and moral hazard involved rests on the undervjriter' s judgment, which is of 

 paramount importance in this type of risk. 



The insui'ance rate may be considered as an index which measures the 

 expectation of loss, A rate of 5 percent means that the expected loss 

 (including all costs) is likely to average no more than five dollars 

 per one hxindred dollars of insurance at stake. Hence, a rate lovjer than 

 the above would mean lower expectation of loss and a higher rate would 

 mean a higher ejcpectation of loss. Classification of vessels by age 

 groups indicates that there is a direct relationship between insurance 

 rates and age of /essels if: all three areas (table 27). This means 

 that, other criteria being of equal importance, the expectation of loss 

 increases with the age of the vessel. For instance, during 1950-5U a 

 New England vessel owner was payirig, on the average, $^ in premium per 

 $1,000 of insurance for a vessel 10 years old or younger and $8? for 

 the same amount of insurance for a vessel 31 years old or older. 

 Insurers seem to have relied considerably on the vessel's age in esti- 

 mating the expectation of loss. 



V/hile age of vessel mgy represent the probability of loss at least 

 as far as the physical hazard is concerned, gross tonnage principally 

 represents the amount of insui^ance at stake. Assuming equal probability 

 of loss, the higher the arroount of insurance at stake, the larger the 

 amount to be chai'ged as premium, in spite of a lower insurance rate. 

 For example, a vessel with only $50,000 insurance and a rate as high as 

 7,0 percent will yield a $3,500 premium while a vessel with $100,000 

 insurance and a rate as low as 5.0 will yield a $5,000 premiiun. Thus, 

 although a larger vessel represents a larger amount of insurance at 

 stake, there is an inverse relation between rate and gross tonnage in 

 all three areas (table 27). For instance, during 1950-5U a New England 

 o;mer paid, on the average, $69 in premium per $1,000 of insurance for a 



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