P&I Basic understanding of risks covered, risk assessment and the underwriting process

1. P&IBasic understanding of risks covered, risk assessment and the underwriting process André Kroneberg Gard AS The Nordic Association of Marine Insurers

2. Agenda • The P&I risks • The Risk assessment • The Underwriting process • Additional liability covers The Nordic Association of Marine Insurers

3. Agenda • The P&I risks • The Risk assessment • The Underwriting process • Additional liability covers The Nordic Association of Marine Insurers

6. The risk picture The Nordic Association of Marine Insurers

7. Discussion • What P&I risks (third party liabilities) are relevant for: • A Ship owner? • A Charterer? The Nordic Association of Marine Insurers

8. History of P&I • 1688: Lloyds insurance market for ship/cargo insurance • Early 1800: Mutual hull clubs • Pre 1836:Limited need for sophisticated liability insurance • Post 1836:Gradually evolving liabilities – collision/persons • 1855:Britannia mutual P&I Club • 2014:13 mutual P&I Clubs – 90% of world market, International Group The Nordic Association of Marine Insurers

9. Mutual P&I insurance means: • The Members are the owners of the P&I Club • The Members of the Club are both insurers and insureds • There are no third party owners to earn a profit • The Members are liable to pay such additional premiumas is necessary to balance the books or build reserves • Members who leave the Club are still liable to pay such additional premium unless they pay a ’release call’ The Nordic Association of Marine Insurers

10. The standard P&I Cover • Crew and passenger • Cargo • Collision/Damage to fixed and floating objects • Pollution • Wreck removal

11. The standard P&I Cover • High limit of cover: • Oil pollution: USD 1 BN per event • Passengers and crew: USD 3 BN per event • Additional limit available through Member’s legal obligation to pay overspill call • Standard deductibles: • Crew: USD 5,000.- per event • Cargo: USD 17,000.- per event • Pollution: USD 17,000.- per event • Collision: USD 17,000.- per event • Wreck removal: USD 5,000.- per event The Nordic Association of Marine Insurers

12. Rule 27 – Liabilities in respect of crew • Liabilities arising out of injury to, or illness or death of a member of the Crew • Crew agreement or other contract of service or employment? The Nordic Association of Marine Insurers

13. Rule 34 – Cargo liability • Liabilities relating to cargo intended to be or being or having been carried on the Ship • Legal liability for loss, shortage, damage in respect of cargo carried • Terms no less favourable to the Member than those laid down in the Hague or Hague-Visby Rules (mandatory terms are covered) The Nordic Association of Marine Insurers

14. Rule 36 – Collision with other ships • The Association shall cover liability to pay damages incurred as a result of a collision with another ship, if and to the extent that such liability is not covered under the Hull Policies on the Ship • RDC – 1/4, 4/4 The Nordic Association of Marine Insurers

15. Rule 37 – Damage to fixed an floating objects • The Association shall cover liability for loss of or damage to any fixed or floating object by reason of contact between the Ship and such object, when not covered under the Hull Policies The Nordic Association of Marine Insurers

16. Rule 38 – Pollution • The Association shall cover liabilities, costs and expenses (excluding fines) arising in consequence of the discharge or escape from the Ship of oil or any other substance or the threat of such discharge or escape The Nordic Association of Marine Insurers

17. Rule 40 – Liability for obstruction and wreck removal • The Association shall cover costs and expenses relating to the raising, removal, destruction, lighting and marking of the Ship or of the wreck of the Ship or parts thereof or of its cargo lost as a result of a casualty, when such raising, removal, destruction, lighting and marking is compulsory by law The Nordic Association of Marine Insurers

18. Rule 51 – General limitation of liability • Where the Member or a Co-assured is entitled to limit his liability pursuant to any rule of law, the maximum recovery under a P&I entry is the amount to which the Member or the Co-assured may limit his liability The Nordic Association of Marine Insurers

19. Rule 55 – Terms of contract • The Association shall not cover under a P&I entry liabilities, losses, costs or expenses which would not have arisen but for the terms of a contract or indemnity entered into by the Member, or by some other person acting on his behalf, unless the terms have previously been approved by the Association The Nordic Association of Marine Insurers

20. Discussion • Under what type of contracts with third parties may a ship owner or charterer be exposed to contractual liabilities in excess of background law/applicable conventions? • Liner trade (containers, roro) • Spot trading (wet, dry bulk) • Offshore trade (supply and anchor handling) • In general • What types of contractual liabilities can you think of under the various contracts? • Cargo, crew, etc.? The Nordic Association of Marine Insurers

21. Agenda • The P&I risks • The Risk assessment • The Underwriting process • Additional liability covers The Nordic Association of Marine Insurers

22. Risk assessment • Fleet • Number, age, type, class, flag • Crew • Number and nationality, contracts • Cargo • Type and value • Trade • Port call frequency, US exposure, deep sea/short sea • Owners • Finance, history, claims record • Management • Technical and crew • Insurance requirements • Terms and conditions – exclusions, deductibles, collision? The Nordic Association of Marine Insurers

23. Gross incurred claims – P&I Mutual2008 - 2012

24. Discussion • Make a P&I risk assessment of following: • Cruise vessel – 2,000 passengers, Miami based, Caribbean trade • Container vessel – 10,000 TEU capacity, worldwide trade, deep sea • Offshore anchor handling vessel – North Sea trade • Identify the most important risk factors? • Give a rough estimate of the relative difference in P&I premium? • Make assumptions as necessary The Nordic Association of Marine Insurers

25. P&I premium – the mutual formula BudgetOutgoings BudgetIncome ReceivedfromReinsurers ReinsurancePremiums InvestmentIncome Adm.expenses DeferredCalls Claims AdvanceCalls

26. P&I premium – the mutual formula ActualIncome ActualOutgoings BudgetOutgoings BudgetIncome ReceivedfromReinsurers ReinsurancePremiums ReceivedfromReinsurers ReinsurancePremiums InvestmentIncome InvestmentIncome Adm.expenses Suppl.Calls Adm.expenses Claims Deferred Calls DeferredCalls Claims AdvanceCalls AdvanceCalls

27. Deferred Call – debited during following year 25% Advance Call – debited during Policy Year The P&I premium call system (Gard) 100% 80% The Nordic Association of Marine Insurers

28. Release calls • Release calls (Gard, Oct. 2012) • For the 2010 policy year: nil • For the 2011 policy year: 10 per cent • For the 2012 policy year: 50 per cent • For the 2013 policy year: 50 per cent • Upon payment of such Release Calls, the Member shall be released from all liabilities for further Deferred Calls and Supplementary Calls. The Nordic Association of Marine Insurers

29. Overspill calls • Overspill Call • a call levied by the Association for the purpose of providing funds to pay part of an • Overspill Claim. • Overspill Claim • that part (if any) of a claim (other than a claim arising in respect of oil pollution) • incurred by the Association or by any other party to the Pooling Agreement under the • terms of entry of a ship which exceeds or may exceed the Group Reinsurance Limit. • Levying of Overspill Calls • The Association shall not levy on any Member in respect of the entry of any ship an • Overspill Call or Calls in respect of any one Overspill Claim exceeding in the • aggregate two and a half per cent (2.5%) of the Convention Limit* of that ship. • *International Convention on Limitation of Liability for Maritime Claims 1976 (Art. 6 paragraph 1 (b)) The Nordic Association of Marine Insurers

30. IG Reinsurance program 2013High limits of cover available through a sophisticated re-insurance Source: International Group of P&I Clubs (www.igpandi.org)

31. Agenda • The P&I risks • The Risk assessment • The Underwriting process • Additional liability covers The Nordic Association of Marine Insurers

32. The Underwriting process – 4 steps Client Management Pre-entry Cover Management Renewal Post-entry Main activities:- Marketing - Risk evaluation- Quotations- Declines- IGA? Main activities :- Cover questions- Quotations- Claims- Contract reviews- Documentation updates Main activities:- Premium policy- Budgets- Quotations- Non-renewals Main activities:- Notice of cancellation- Inform mortgagee- Premium adjustments The Nordic Association of Marine Insurers

33. The application for a new entry • Name of Assureds/co-assureds incl. capacity • The name of the ship(s), year built, IMO no., port of registry, flag, Class, gross tonnage • Mortgagees? • Number and nationalities of the officers and crew, including information on the terms of employment • Whether cover is required for collision with other ships and damage to fixed and floating objects • Passenger capacity • Trading areas and planned cargoes • Date of entry • Above basis for production of documents such as Certificate of Entry, debit notes, certificates, Letter of Undertakings etc. The Nordic Association of Marine Insurers

34. P&I Renewalsgeneral increase + adjustment for loss record The Nordic Association of Marine Insurers

35. The International Group of P&I Clubs • 13 Member Clubs • P&I cover for approximately 90% of the world’s ocean-going • tonnage • Re-insurance function • Claim sharing agreement • Representative function • Promote shipowner’s interests • Exchange of information • Sharing information on matters of common concern

36. The International Group Agreement- Change of Club • Shipowner authorises Holding Club to release terms, conditions and net loss record to New Club • New Club reviews and accept/decline entry on same terms as proposed by Holding Club • New Club becomes a Holding Club only after a full Club year of entry (20/02-20/02) The Nordic Association of Marine Insurers

37. The International Group Agreement- Competition • Adding a new vessel to an existing fleet • “Free business” between Holding Clubs only • New Clubs must ask Holding Clubs for terms • A new fleet (commercial management) • “Free business” for all Clubs • First entry with a Club – “Holding Club” status The Nordic Association of Marine Insurers

38. Agenda • The P&I risks • The Risk assessment • The Underwriting process • Additional liability covers The Nordic Association of Marine Insurers

39. Four main, stand-alone P&I covers (Gard)

40. History back to the early 1970s Ship-owner Members started with drilling rigs Non-poolable risk - need for special insurance Floating Production & Storage Units, Drilling Rigs and Accommodation Units P&I Cover for Mobile Offshore Units The Nordic Association of Marine Insurers

41. Comprehensive Charterers Cover • Risks covered include: • P&I risks • Damage to Hull • GA contribution • War risks • Maximum limit: USD 750 million

42. Additional, bolt-on liability insurance

43. Gard’s Comprehensive Carriers Cover Cargo (legal) liability under a TT BoL Cargo and third party (legal) liability Cargo and third party (legal and contractual) liability, regardless of BoL Cargo liability – geographical/contractual deviation Geographical deviations (e.g. bunkering on non-customary ports) Contractual deviations (e.g. del of port other than stated in BoL) Delivery of cargo without BoL or similar document (subject to LOI) Standard P&I Cover Comprehensive Carriers Cover (CCC) The Nordic Association of Marine Insurers

44. Liabilities in respect of crewwhilst on leave(e.g. compensations for death, disability, medical expenses) Liabilities in respect of other personsin-tort or under contract (e.g. site teams, maintenance teams) Liabilities to third parties due to the acts and omissions of crew and other personnel – in-tort or under contract (e.g. site team at yard with liability exposure under a yard contract) Liabilities to close relatives tothe crew (spouse and children) Gard’s Extended Crew Cover

45. Liabilities and risks not covered by standard P&I: Specialist operations Contractual liabilities Towage Operation of subsea equipment Divers Gard’s CGL and Offshore Contractual Liability - Cover for offshore and specialist vessels

46. “A day in the life of an underwriter”- request for insurance from a new ship owner Questions: To what extent would the P&I cover comply? Any need for additional liability insurance? What further information would you request for rating purposes? • Good people all, • We are a newly started Ship owning company who will take delivery of 4 newly built car carriers, each with a capacity of 6100 cars, by the end of Q2 2015. As a result, we are in urgent need of taking out proper insurance for our activities carried out as ship owners. • Please see below list of liability interests we wish to insure which we kindly ask for your response to: • Liability for cargo (while on board vessel) – (legal and contractual) • Liability for crew – (legal and contractual) • Liability for pollution • Liability (to third parties) for collision and striking • Also, to what extent could you include cover for the following; • Liability for cargo when not onboard vessel e.g. if we agree to take on responsibility to transport cargo “door-to-door” incl. transport by train and/or truck and warehousing • Liability for crew when not onboard ship but away on training course and/or excursion and/or underway to get to and from vessel to home • Deviation from contractual route for bunkering etc. • Kind regards, • Cpt.Schettino • CEO • Schettino’sShipowning Company The Nordic Association of Marine Insurers