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December 2018

International Group P&I Clubs 2018 / 19 - The excess loss of reinsurance programme

The European Union’s Emissions Trading System (EU ETS) was extended to cover emissions from shipping as of 1st January 2024.

The EU ETS is limited by a 'cap' on the number of emission allowances. Within the cap, companies receive or buy emission allowances, which they can trade as needed. The cap decreases every year, ensuring that total emissions fall.

Each allowance gives the holder the right to emit:

  • One tonne of carbon dioxide (CO2), or;
  • The equivalent amount of other powerful greenhouse gases, nitrous oxide (N2O) and perfluorocarbons (PFCs).
  • The price of one ton of CO2 allowance under the EU ETS has fluctuated between EUR 60 and almost EUR 100 in the past two years. The total cost of emissions will vary based on the cost of the allowance at the time of purchase, the vessel’s emissions profile and the total volume of voyages performed within the EU ETS area. The below is for illustration purposes:
  • ~A 30.000 GT passenger ship has total emissions of 20.000 tonnes in a reporting year, of which 9.000 are within the EU, 7.000 at berth within the EU and 4.000 are between the EU and an outside port. The average price of the allowance is EUR 75 per tonne. The total cost would be as follows:
  • ~~9.000 * EUR 75 = EUR 675.000
  • ~~7.000 * EUR 75 = EUR 525.000
  • ~~4.000 * EUR 75 * 50% = EUR 150.000
  • ~~Total = EUR 1.350.000 (of which 40% is payable in 2024)
  • For 2024, a 60% rebate is admitted to the vessels involved. However, this is reduced to 30% in 2025, before payment is due for 100% with effect from 2026.
  • Emissions reporting is done for each individual ship, where the ship submits their data to a verifier (such as a class society) which in turns allows the shipowner to issue a verified company emissions report. This report is then submitted to the administering authority, and it is this data that informs what emission allowances need to be surrendered to the authority.
  • The sanctions for non- compliance are severe, and in the case of a ship that has failed to comply with the monitoring and reporting obligations for two or more consecutive reporting periods, and where other enforcement measures have failed to ensure compliance, the competent authority of an EEA port of entry may issue an expulsion order. Where such a ship flies the flag of an EEA country and enters or is found in one of its ports, the country concerned will, after giving the opportunity to the company concerned to submit its observations, detain the ship until the company fulfils its monitoring and reporting obligations.
  • Per the EU’s Implementing Regulation, it is the Shipowner who remains ultimately responsible for complying with the EU ETS system.

There are a number of great resources on the regulatory and practical aspects of the system – none better than the EU’s own:

‍https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A02003L0087-20230605

‍https://climate.ec.europa.eu/eu-action/transport/reducing-emissions-shipping-sector_en

‍https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets/what-eu-ets_en‍

Dear Sir / Madam,

The arrangements for the renewal of the International Group General Excess of Loss (GXL) reinsurance contract and the Hydra reinsurance programmes for 2018/19 have now been finalized. These include the Collective Overspill Cover, Excess War Risks P&I cover and MLC cover.


For 2018 Group Reinsurance rates per GT will be as follows:

Pool Structure Changes:

Following a detailed review of the current pool structure during 2017, a number of changes to the current structure will apply for 2018. At present, the lower pool layer attaches from US $10 million to US $45 million, and the upper pool layer attaches from US $45 million to US $80 million.

With effect from 20 February 2018, the lower pool layer ceiling/upper pool attachment point will be lifted from US $45 million to US $50 million and the layer from US $80 million to the GXL attachment (US $100 million) will be absorbed into the pool and merged with the upper pool layer which will attach from US $50 million to US $100 million with an individual club retention of 7.5% across the layer.


Hydra participation:

Currently, the layer from US $80 million to US $100 million is reinsured 100% by Hydra. From 20 February 2018, following the changes to the pool structure outlined above, the Hydra reinsurance within this layer will be reduced to 92.5%, with the remaining 7.5% retained within the individual club retention layer. Hydra also currently reinsures 30% of the first layer of the GXL (US $100 million to US $600 million) which will remain unchanged for 2018/19.


Private placements:

The three multi-year private placements covering the first and second layers of the Group GXL placement (US $1 billion excess of US $100 million) will remain in place for the 2018/19 policy year.


MLC cover:

The market reinsurance cover (US $190 million excess of US $10 million) which was put in place with effect from 18 January 2017 as part of the solution developed by the Group clubs to meet shipowners' certification requirements under the financial security provisions of the Maritime Labour Convention, will be renewed for a further 12 months from 20 February 2018 with an increased limit of US $200 million at a competitive cost which will be included within the overall reinsurance cost.

Full details of the reinsurance will be set out in a Notice to Members in February as usual.

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