Glomar Explorer

This surely is a thriller!

At the height of the cold war in 1968, a Soviet submarine K-129 carrying nuclear missiles, nuclear-tipped torpedoes and cryptographic equipment sank in the Pacific somewhere off Hawaii. The desperate attempts by the Soviets to trace the sunken submarine proved futile. Surprisingly, the Americans located where the sunken submarine was embedded in the bottom of the sea. They were keen to take possession of the same and examine the nuclear missiles as also the cryptographic equipment. There was a problem though. The wreck of K-129 was at a depth of 17000 feet and the weight of the wreck was estimated at 2000 MT. It had never happened before — lifting an object as heavy as this from a depth of 17000 feet.

So, the CIA swung into action and decided that this had to be a hush-hush operation, lest the Soviets get wind of it. The entire operation had to be carried out under the guise of a scientific or commercial expedition. Thus was born Project Azorian costing US $ 4 billion in today’s value. The story created was that a private investor Howard Hughes, who owned Global marine Inc., a drilling & exploration company was going on a new exploration– deep mining of the ocean floor to extract Manganese nodules.

The GLOMAR EXPLORER was built in 1974 and was a massive drilling ship. She had specific stability equipment on board to make her static amidst the huge waves and heavy winds and also lift up the heavy secret cargo. How  was she supposed to pick up the wreck? Two huge gantries which could lift up to 7000 MT were installed on the vessel. The vessel had something called Clementine, a hydraulic operated grapple with 8 claws which could grab the wreck, lift it , then the bottom of the ship would open up revealing a ‘moon pool’, a huge storage space into which the wreck would be placed and then the bottom would close.

What is the connection between this real-life thriller and Marine insurance? Well, even though it was supposedly CIA-sponsored, Howard Hughes of Global Marine made it clear before the vessel was built, that without insurance cover to back-up the project, he would not be able to undertake this.Must have been a nightmare finding an underwriter capable of visualizing the risk, structuring a cover and finding sufficient capacity to underwrite this complex and secret risk. A traditional, bookish underwriter would have mulled over the following questions:

• Should it be  a Builder’s Risk policy?
• What later? A Hull & Machinery cover?- the stated usage of the vessel would be different from the actual use intended.
• Will the vessel have a Classification? Will there be P & I insurance? Incidentally, the vessel was classed by the American Bureau of Shipping.
• If the nature of operation came to be known, War risk or war-like situations could be a huge risk.
• The vessel would have to pick up the cargo i.e. the wreck of K-129. What will be the basis of valuation for the wreck? How will the agreed value be decided? This cannot be officially stated as the cargo as the cargo could be manganese nodules only.
• Cargo policies have an implied warranty about legality of adventure. Can this be classified thus?
• Will it be an annual policy or should the duration be longer?
• What specific conditions should be added and what about exclusions, deductibles?
• How about liabilities for the personnel on board, many of whom were not aware of the actual intent?
• How can this complex risk be rated  and how can sufficient reinsurance support be garnered for the same?

Easiest option would have been to avoid the risk citing its complexities and legalities, as there would be more and more questions and doubts only and no straight answers. Yet, discussions took place with only one insurer and in a matter of a few weeks, the entire insurance program was stitched up. Although the exact terms, conditions and premiums will never be known, the fact which is known is that the insurer was AIG.

Now what happened to Project Azorian, as it was called? Glomal Explorer got to work and Clementine using its giant claws grabbed the wreck of K-129 and the lifting started, slowly, slowly, ever so slowly. When the wreck was lifted to around 7000 feet, two of the grabs broke, the wreck snapped into two parts — one sank back into the ocean while the other was retrieved. It is said that the most valuable cryptographic equipment sank yet again and what was retrieved were a few missiles and the bodies of some Soviet submariners. The truth will never be known. It is also stated that insurance claims were paid– possibly for the damaged grabs and loss of a portion of the precious cargo —– the wreck itself.

Mystery apart, the main purpose of my writing this post is as a continuation to my earlier post New Normal… in underwriting. Some of my readers found the thoughts mentioned there quite radical and felt that status quo will not be, should not be and cannot be challenged. Though the Glomar Explorer example does not represent a ‘normal’, it certainly represents the heights to which a marine underwriter can rise if he can visualize the risk and then paint it into a beautiful policy which appeals to the buyer, is more than adequately priced, does not cause a predictable loss to the painter and brings in loads of premium. If he simply passes the risk, he will remain a bystander, if he sells only conventional products he would be a shopkeeper but if he is able to create products suited to clients’ tastes, he will be an artist of signature paintings.