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Global Shipping( Marine Adventure) : Risk & Marine Insurance

Marine Insurance: H&M, Cargo, P&I

Surge of Shipowners Liability by the Convention etc., coveredby P&I Insurance

Impact on P&I Costs Prospects on P&I Insurance

Role of P&I and Special Aspects on P&I

Risk of Ship Financing on owners Marine Insurance Ship Financiers Check up points

Ship Financiers Insurance( Mortgagee Interests Insurance)

Objective

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One Market

No Barrier for the Open Competition

Cycle Business : Highs and Lows,

90% Global Trade by Shipping

Serious Decision on the Investment

International Governance under GlobalRegimes/Conventions

Global shipping

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Source : KMI, Joins.com

Cycles of shipping Bubble Highs & Lows

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Changing the risk profiles to shipping.

Anti-Shipping Trend is Growing : More Liabilities onto the shipping.

Up Sizing of the Ship

Pressure on Green Management on Ships Operation & Design.

The Shift in the Global Shipping/Shipbuildingbase from the West to the East

Complexity of Shipping Chain-Chartering and FFA

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Risk & Insurance for Marine Adventure

Vessel - Hull & Machinery ---H&M-War & Strike ------W&SInsured Value-Insurance Terms & Conditions

Terms & Conditions( Policy) Insured Value/Agreed Value Trading Limit War & Strikes Insurance

CargoCargo Insurance---CARGO INSURANCE

Liabilities --- P & I Insurance(Marine Mutual)Crew-Cargo- FIFO- RDC-Passenger and others-Oil Pollution-Wreck Removal* Protection & Indemnity( P & I )

Assured/Co-Assured

Terms & Conditions( P&I Rules)

Mutual or Fixed Unlimited or Limited

Liabilities / LLMC

CIF Value( Insured Value)

Terms and Conditions

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Global Marine Insurance Premiumby line of Business

Source : IUMI, report 2010

29.0%

51.5%

6.6%

12.9%

Total reported : 22.9 USD billion

Global Hull

Transport/Cargo

Marine Liability

Offshore/Energy

Total estimated including not reported : 23.6 USD billion

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The Shipowners Liabilities

Covered by P&I Insurance

P&I (Protection & Indemnity Insurance) providedliability cover

95% of the worlds ocean going tonnage entered

with P&I Clubs.

Providing liability cover for the owners, charterers,incidental to owning, use and operating of the ships.

Each club controlled by each club members. +13 Group P&I Clubs Cartel-IGA

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Role of P&I ClubsLiability Cover and Financial Gtee

For the entered tankers : CLC, OPA 1990(Cert. of Financial Responsibility)

For entered non-tankers : Bunker Convention,

For the entered Ships Wreck Removal Convention 2001,Ship Recycling Convention, Ballast Water Convention.

For the entered Ships - HNS

Rotterdam Rules

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Limitation of Liabilities &Intl Legal Regimes for the Maritime Claims

Hague Visby Rule 1968 HamburgRule1978Rotterdam Rule 2009

Ship Recycling Convention, 2009Ballast Water Convention, 2004

Passenger

Property/Personal Injury/death LLMC1976Protocol 1996Wreck Removal Convention 2007

Oil Pollution

*Environment and Safety

Athens Convention 1974, Protocol 1996Shipping/Sea Transportation

CLC1992FC1992, Suppl. Fund Protocol, 2003Bunker Convention 2001HNS Convention 1996

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Compulsory Insurancefor the Liabilities in the Intl conventions

Maintain compulsory insurance or financial security. Allow the claimant to bring direct action against the insurers

for compensation.

the Convention provides for a ship owner to be strictly liable fordamage caused by . CLC,1969)+1971 IOPC(Fund) LLMC 1976, 1996 Bunker Convention,2001 NHS (Convention On Hazardous and Noxious Substances)

Convention,1996 Wreck Removal Convention,2007

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Conventions creek

LLMC Protocol, 1999

CLC 1992 + Supplementary FC, 2003

Wreck Removal Convention 2007

Rotterdam Rules 2009

Bunker Convention 2001 ( Nov. 21, 2008)

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LLMC 1976, 1996 Protocol13 May 2004 in force ( Limitation of Liability for Maritime Claims)

GRTNon-Passenger Property Damage Passenger

76LLMC 96LLMC 76LLMC 96LLMC 76LLMC 96LLNC

Less 333,000

2,000,000

(SDR)

167,000(SDR)

1,000,000(SDR)

*46,666SDR or

25,000,000 SDR

whichever

the less

*1,000

Passenger

25mill SDR

*250,000SDR ~

400,000SDR

Whichever

the less

175mill SDR

501~2000+500/ton

(1,583,000SDR)+167/ton

(5,093,500SDR)2,001~3,000

+800/ton

(24,400,000SDR)

+400/ton

(12,200,000SDR)

3,001~30,000+333/ton

(10,574,000SDR)

30,001~70,000+250/ton

(20,574,000SDR)

+600/ton

(48,400,000SDR)

+125/ton

(10,093,500SDR)

+300/ton

(24,200,000SDR)

OVER 70,000+167/ton

(SDR)

+400/ton(SDR)+83/ton(SDR) +200/ton(SDR)

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Liability on Oil Pollution : CLC & IOPC(FC)

1992 Civil LiabilityConvention

2003 SupplementaryFund Protocol

1992 Fund Convention

Shipowners Insurers/P&I

Clubs

Oil

receiversafter seatransport

1992 Fund:

IOPC Fund

Supplementary

FundTHIRD

TIER

SECOND

TIER

FIRST

TIER

Oil

receiversafter seatransport

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Max. Amounts of Compensationunder the Convention

TANKERSGROSS

TONNAGE 1969 CLC1992 CLC

(Post-Nov 2003)1992 FUND

(Post-Nov 2003)Supplementary

FUND

5,000 1 6.7 302.7 1118

25,000 5 25.5 302.7 1118

50,000 9.9 49 302.7 1118

100,000 19.8 96 302.7 1118

140,000 20.9 133.9 302.7 1118

US$ Million, as at Feb. 2009 / Source: ITOPF

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Wreck Removal Convention, 2007

Permits state party to take measures on the wreck within EEZ.

Limit Liability pursuant to any applicable regime.

( No specific Reference)

Liabilities in conflict with other IMO conventions, such as CLC,HNS and Bunker Oil Pollution

LLMC 1976, exclude rights of limit on wreck removal.

Compulsory Insurance over 300 grt

SCOPIC( Special Compensation of P&I Club)

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4,419teu MSC Napoli( 62,000dwt),18 Jan. 2007, off the U.K. coast.

Towed-Beached-Oil Spilt-OilRemoval- Salvage & Clean

up Operation-Break up ofthe Wreck-Disposal.

How much costs forthe wreck removal/Salvage operation ??

30 months , $149 mill??

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P&I Costs of wreck Removal

PY Vessel Name Type Build G/T Location Date Loss Amount(USD)

2006 Rokia DelmasContainerRo-RoCargo Ship

1985 32924

France LaPalilice46-08N,01-

25W

2006.10.2475m

2006 MSC Napoli 4,419 tonF. Container

1991 53409 English Channel 2007.01.18 149m

2007 New Flame Bulk carrier 1994 268241km south ofEuropa Point,Gibraltar

2007.08.12 135m

2008 Fedra Bulk Carrier 1984 35886Europa Point,Gibraltar

2008.10.10 30m

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Potential Loss/Liability of 14,500TEU??

Worst case scenario (based on Emma Maersk/Munich Re figures)

Cargo (14,500 TEU X USD100,000)

Containers (14,500 TEU X USD4,000)

P&I (eg. Life/pollution/salvage)

Hull

USD 1,450,000,000

USD 58,000,000

USD 145,000,000

USD 500,000,000

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Impact on P&I Costs?

Claims Pressure--- Less Number of Claims, Bigger Amount ofpayments.

More Free Reserve required( Solvency II)

Competition on the new building ships ratings to avert Churn

effect due to Increase of Ships Demolition.

More Commercial than MutualUnder the Strong Cartel - Restrict on the free move of themembership :

Release calls( European Commission- Anti-Trust Investigation)Two years long anti-trust investigation by EU confirmed IGACartel with no Improvement. ( Aug. 2012)

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What impact on the P&I Management?

Non-profit mutual operation>> More commercial P&IManagement

O/s and paid claims+ reinsurance costs+ Pool claims+management expenses= P&I Calls+ Free Reserves +Investment income

13 Clubs Pooling and Reinsurance Scheme(IGA Reinsurance rating increase)

Increase of Claims Payment:Increased crew wage & Cargo ValueLiability Claims generated from the NewConventions/Legal case.

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General Increase

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2000-2010(11 years) : 333.6% of

accumulated increase of the P&I

Ratings : av. Increase per a year : 21%

2005-2009(5 years) : 168%(accumulative increase) :

av. Increase per a year:33.6%

* 2013 PY ??

( a mandatory Increase in P&I Ratings )

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13 IG P&I Clubs-U/W results 2005-2009source: Elysian-insurance (Unit: US $.million)

Growth ofCall Income : + 718 mill(+132%)143.6 mill/a year, av.+26.4% per a year

U/W Results : -978 mill , av.-195 mill/year

Overall Results :-302 mill, av.-60mill/year

Claims: +113 mill, (+129%) av.22.6 mill/year.+25%/year

General Increase :2005-2009 : av. 33.6% per year oraccumulated +168% Increase av. 21%/year

2000-2010 :av.21%per year oraccumulated +336% Increase(av.30.5%/year)

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Impact on (P&I) Insurance

Continued Increase of Claims & U/W Losses PY 2008: Six Clubs Un-forecasted Cash Call : more than

abt.US$700 mill.

Continued Increase of Premium (Call) under Mutualoperation

Burden of Reinsurance Costs : Cruise

$250,000~350,000/year/ship, VLCC $250,000, Aframax

$150,000 ( US Poll. Surchage $100,000 extra)

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ProspectsOn the Liability( P&I )insurance

Much More New Convention awaiting for emerge

Less Exemption / Immunity to be granted for the

Shipowners. Harsh Claims handling by the P&I Clubs.

More retention/deductibles demanded by the Club/Pool More Burden on the Shipowners Liability.

Increase of P&I Costs /reinsurance/ Burden on P&I costs to the shipowners will continue.

(General Increase Supplementary Call)

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Solutions for the less exposureOn the Maritime Liabilities

A No patent Solutions to Stop the Maritime Liability Claims.

B Be alert on the Evolution of the Intl Regimes,

C Keeping up Precedents and Change of Regulations.

D Strengthen the Precedents and Change of Regulations.

F Lobbying and Collective Resist on the adverse legislationagainst the ship owners interests( by the Clubs )

G Learn how to wisely deal such Liability Matters viaP & I Clubs and other measures.

H Improve your Terms & Conditions of the Insurance.

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Risks of the Ship Financing

Whether the Insurance Cover is adequate enough to

protect Mortgage and the Proprietary Rights

Whether the Terms and Conditions of the Insurance

Contract are met with the financiers requirement

Whether the Insurance Contracts are remain valid during

the period of the financing Contract

Whether the assureds meet his obligation to the

Underwriters

Whether the Financier's Insurance is attached as agreed

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Whether fully covered by your H&M Insurance??

1) Breach of expressed or implied warranties , I.e. any breach of tradinglimit or war exclusion zone

2) Whether Insured Amount is properly maintained to cover the actualmarket loss

3) Partial or Non-coverage on Insurance due to (non-disclosure, mis-representation)

4) Withdrawal/suspension of Class, change of flag, suspension of class,change of ownership ( automatic termination of H&M)

5) Un-seaworthiness, Over loading, Unqualified crew( Properly

unmanned)

6) Cause of the claims must be proven--proximately cause

7) Claims not to be Time barred.

8) Breach of deviation

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Whether Fully Coveredby your P&I Insurance ( Liabilities)

1) Breach of SOLAS(Int'l convention for the safety of life at sea) regulations,ISM( Int'l safety management code). ISPS(Int'l code for the security ofships and port facilities), Club Rules, Circulars, breach of other Clubsinstruction,/ flag state requirement

2) Cancellation of P&I Insurance due to non-payment of calls( Premiums)

3) Part of prejudiced coverage due to the deficiencies of Condition survey

4) Breach of Class rules . Failure on maintenance of class,

5) Willful misconduct, Illegal Acts

6) Refusal of the claims payment due to Pay to be paid rule

7) Excessive coverage over USD1billion for any one oil pollution case.

8) Contract of carriage for the excessive package limitation on the Hague

Visby rule31

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Ship Financiers Insurance andRisk(Continued)

A named assured( or co-assured): introduced a joint and several liability forpayment of premium, with operator, lessees, bare boat charterers on policies.

P&I Call payment is not simple, as they would require futhter payment ofsupplementary calls and Overspill calls in the future.

P&I claims will be paid or not viewing any breach of club rules, breach ofcargo and trading limits, condition surveyors findings, full disclosures to theClub on all material facts, the Cesser of Insurance, the paramount Pay to bepaid rule

Mortgagees Interest Insurance(MII)

Mortgagees Additional Peril Insurance: Pollution, All P&I risks

Mortgage Rights Insurance( Political risks Insurance for Mortgagees)

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Ship Financiers Insurance

Mortgagees additional perils (pollution) insurance :Excess coverage for

Oil Pollution for over USD1Billion.

Mortgagees additional perils( All P&I Risks) insurance : P&I War Cover:

P&I provide excess USD500mill war/terrorism cover in excess of

Hull(W&S): Passenger liability cover( P&I limit USD2billion per

incident), :Large cruise carriers

Mortgage Rights Insurance, the Political Risks Insurance forMortgagees.

Pre-Existing Lien Insurance

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Q&A

Many thanks for your attention!!bspark@kpiclub.or.kr

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