Issue 35 - Spring 2005
UK Club A rating reaffirmed
Standard & Poor's, the credit and insurer financial strength rating organisation, has reaffirmed its A rating of the UK P&I Club. S&P has maintained its outlook for our Club as "stable".
We have ranked consistently in the top flight of International Group P&I Clubs for more than a decade since Standard & Poor's began assessing marine mutuals in 1994.
Standard & Poor's decision to maintain a 'strong' rating for the UK Club is a continuing vindication of our long term strategy of maintaining a robust financial base for delivering high quality service to Members.
Their assessment is based on an interactive rating process. This process is more detailed and more prospective than ratings based purely on public information. Ratings based on public information only are identified by the subscript 'pi' e.g. Api
The major factors quoted by Standard & Poor's when rating the Club were its views of the Club's capitalisation, financial flexibility, competitive position, industry risk/operating performance and investment policy.
A summary of the Club finances is provided in the Publications section of the website. An electronic copy of the 2004 Report & Accounts can also be downloaded from that section.
......................................................................................
2005 policy year reinsurance arrangements
In this article the changes to the UK Club reinsurance arrangements for the 2005 policy year are explained.
For the 2005 policy year, the club retention for all the clubs in the International Group will increase from $5 million to $6 million. The Group Pool will thus be revised to cover claims between $6 million and $50 million. Whilst this upper limit is the same as 2004, the Pool will consolidate from three layers to two: $6 million - $30 million (lower Pool) and $30 million - $50 million (upper Pool). The upper Pool layer will be reinsured into the new Group captive "Hydra" (see below).
Swiss Re
In February 2000 the UK Club entered into a ten-year contract with the Swiss Re subsidiary European Reinsurance Co. of Zurich.
Reinsurance recoveries under this contract are triggered by a fall in the Association's solvency ratio as measured by total funds to outstanding claims at the end of each financial year. Claims are recoverable regardless of the reason for the fall in the solvency ratio, whether this is caused by increased claims, or by adverse performance on the underwriting account or investment.
The contract is due for review at the five year point on 20th February, 2005. Against this background discussions have been held with Swiss Re to review the contract with a view to negotiating an improvement in the protection provided for the five years starting on 20th February, 2005.
These negotiations have now been concluded and Members will shortly be advised by circular of the details of the policy.
Prices for 2005
The structure of the Group Excess of Loss programme has remained fundamentally unchanged this year. Its starting point is in excess of the $50 million upper limit of the Pool retention providing four layers of reinsurance protection totalling two billion dollars. The first layer of $500 million is 25 per cent co-insured by the Group clubs but the remaining layers are 100 per cent reinsured to the commercial market.
The Group Excess Loss programme was renewed at last year's expiring cost. In terms of cost per ton for ships entered in the International Group clubs the rate is almost exactly half of what it was ten years earlier (see graph below) despite the increase in the cover limit since then.
For most owners the individual rates charged for the reinsurance have slightly reduced. Only the rate on passenger ships has risen above that of ten years ago.
 During the year the Reinsurance Sub-Committee of the Group managers (RISC) undertook an analysis of oil spill claims data since 1990 to ascertain whether there was still a differential between the clean-up costs in the USA and the rest of the world.
The origin of the surcharge system dates back to the enactment of the US Oil Pollution Act 1990 (OPA 90) which did not give the ship operator the same degree of certainty and limit as given under the Civil Liability Convention.
The analysis showed that while there was no single ratio for cost per barrel of a US spill relative to a non US spill there was very clear evidence that at given levels the cost of clean up in the US was up to four times more expensive than in the rest of the world. However, the additional premiums required for pollution cover in respect of voyages to the United States were reduced overall by 7.5 per cent. The clubs will continue to keep the voyage surcharge system under review. Members will have been advised separately of these rates in the recent Club circular 1/05.
Special war risks cover
The excess P&I war risk cover limit was increased from $400 million to $500 million this year whilst also achieving a reduction in premium for owners entries from 1.73 cents to 1.59 cents per gross ton. As previously this cover is for claims in excess of the ship's "proper value" (see Rule 5D), or the sum recoverable from war risk underwriters if that is greater.
The market continues to exclude claims caused, either directly or indirectly, by a chemical, biological, bio-chemical, or electro-magnetic weapon, or by the use of any computer or computer system as a means for inflicting harm. However, the Group Pool is again providing cover for crew risks and legal costs relating to P&I liabilities excluded by this "Bio-Chem" exclusion. The cover is limited to $30 million any one event or occurrence and in the aggregate for each entered ship.
This cover is explained in greater detail in Club circular 3/05. Part of both of these covers is provided in accordance with the requirements of the US Terrorism Insurance Act of 2002 (TRIA). Although no additional premium is charged for coverage for "acts of terrorism", a premium of 0.25 cents is deemed to be attributable to the US risk in accordance with TRIA.
Overspill
Despite the high limit afforded by the Group Excess of Loss programme, $2,050 million, our Board has for some time thought it prudent to protect against the exposure to claims that might exceed that figure. Since claims in excess of $2,050 million fall back on the Group Pool we are liable for the Club's share of that Pool exposure. That share is based on the proportion of tonnage provided by a club to the overall pooled tonnage. That exposure has been reinsured in the market with a limit of $200 million.
Hydra
The decision to raise the limit of the Pool retention in 2004 from $30 million to $50 million led to a 20 per cent reduction in the Group Excess of Loss reinsurance premium. However, such decisions involve a transfer of risk back to the Group clubs and need to be resourced accordingly, hence the net price effect for the clubs was neutral.
The Group segregated account captive, Hydra, the establishment of which has now been agreed by the Boards of all the clubs in the International Group, will commence underwriting from 20th February, 2005.
Hydra, acting through the relevant segregated accounts, will reinsure each club in the International Group in respect of that clubs' liabilities, first, in the layer $20 million excess of $30 million within the Pool's retention of $50 million and, second in the Group's 25 per cent co-insurance of the first layer of the general excess loss contract of $500 million excess of $50 million. Hydra will buy reinsurance protection in respect of its 25 per cent share of claims falling in the co-insured layer in the amount of $500 million in the aggregate excess of $50 million.
Charterers
The Club's recent circular 2/05 "2005 Policy Year" announced three changes to cover in respect of a charterer's entry on the Group reinsurance cover. This cover should be distinguished from the "alternative" charterers covers outside the Group reinsurance arrangements that are available to Members.
Firstly, the "Deemed to Limit" provision currently contained in Rule 5(B)(ii) will be removed. Secondly, the aggregate limit for pollution risks of $300 million will be removed. Finally, cover will be subject to a maximum combined single limit of $350 million for all risks (pollution and non-pollution) per charterer's entry.
RISC
Since 2003 the International Group managers' reinsurance subcommittee (RISC) has worked with a team of external actuarial and insurance consultants to review its reinsurance strategy and the cost effectiveness of that cover.
The consultants have developed a sophisticated risk model to achieve a better understanding of the shape of the overall exposure faced by the Group and, ultimately, individual clubs.
It is used as a basis both for reviewing the cost of the Group's Excess of Loss reinsurance programme that protects the Pool exposure, as well as the potential cost of the recently assumed risk via the increased Pool retention to $50 million. |
......................................................................................
In pursuit of high fitness standards
 We last reported the progress of the Club's Pre Employment Medical Examination programme (PEME) in UK Club News five years ago. During this time the programme has flourished. More than thirty ship operators are participating in the programme, with a further three Members having joined in the last four months. There are now twenty-six accredited clinics based in twelve countries worldwide and more clinics are to be announced in 2005.
During last November, the Club's PEME director Sophia Grant visited India to carry out a full assessment on the six clinics in Mumbai and New Delhi. Dr Sally Bell an independent medical auditor was also in attendance. Since accreditation to the programme in 1999 and 2003, these six clinics have completed in excess of 3,000 crew medicals. Of those tested 4.8 per cent were deemed unfit for sea duty.
The PEME programme promotes more rigorous testing and better standards of health amongst seafarers. The Club has laid down a series of guidelines for all accredited clinics to follow. The regular auditing process ensures all accredited clinics involved in the PEME programme adhere to these guidelines.
The Indian audits consisted of a complete visual inspection of clinic facilities, with photographs taken for the Club's records. This was followed by a thorough discussion with the clinic's staff. Dr Bell completed an extensive audit questionnaire. The recommendations for enhancement of facilities and the Club's best practice suggestions were subsequently sent to each clinic.
Demand for Indian seafarers by Club Members meant four prospective clinics were visited in Kolkata, three in Mumbai, one in Delhi and one in Goa. The clinics that are to join the programme will be announced in 2005.
Last year a further two clinics were accredited in the Philippines. They have completed in excess of 500 medical examinations to date. In October that year Budapest joined the PEME programme. Further visits are planned for this year to Croatia and Poland.
PEME has proved its value to Club Members. In the last five years one in twenty crewmen examined were classed medically unfit for work at sea. In monetary terms the average cost of an individual illness claim is nearly $7,000 in comparison to the average cost of an individual medical of $82.
Statistics show that the programme is fulfilling its objective to screen out preexisting illnesses before employment. Hepatitis B, hearing loss and abnormal liver function are the three main causes of rejection.
The PEME programme has become a key element in the Club's loss prevention scheme. PEME is reducing rising crew medical costs and ensuring that our Members have healthier crew and safer ships. James Brewer writing for Lloyds' List highlighted the extent of the Club's PEME programme: "In the global P&I arena, other schemes have been set up… but no other organisation is thought to operate in a scale approaching that of the UK Club programme."
Ship operators are invited to contact the PEME team for information on the programme at peme.ukclub@thomasmiller.com There is extensive information on the PEME programme available on our website. The PEME brochure can be downloaded at www.ukpandi.com
The PEME team is made up of:
Sophia Grant - Programme Director
Saidul Alom - Processor
Stuart Last - Team administrator
|
......................................................................................
Chasing down failures & faults
Karl Lumbers, Director of Loss Prevention and Ship Inspection, provides an annual report to our Board every January on behalf of the ship inspection team. This presentation is part of the Board's continuing interest in the quality of Members' ships and their operation whose risks we share together under the mutual system.
In the course of 2004, 456 ships were visited by the Club's five ship inspectors. Although this was slightly less than last year, it brings the total number of inspections since the scheme was started, in 1990, to 7,669.
Ship visits are carried out on an individually random basis by the Club's own inspectors. The overall pattern of ship inspectors visits is intended to achieve a sample of results that is fairly representative of the profile of the Club as a whole. These spot checks last roughly four hours and concentrate on aspects of the ship and its operation that could produce liability claims.
Ship visits in 2004 took place in the Netherlands, Belgium, Turkey, Japan, France, USA, South Korea, United Arab Emirates, Singapore, China, Italy, India and Taiwan.
Visits included a higher than average proportion of bulk carriers and general cargo ships as these types had experienced more Port State Control detentions than their share of the Club's fleet would suggest.
Visits broadly reflected the Club's age profile with the exception of ships aged over 25 years old. Steps have been taken in the latter half of 2004 to institute "routine" condition surveys on these older ships .
The inspections are heavily focused on loss prevention and are designed to avoid duplicating the work of classification societies. If there is serious concern over quality standards on a vessel, a full condition survey will be instigated by the inspector but this will be carried out separately by an independent surveyor.
Of the 456 ships inspected in 2004, 203 were given a high rating with no critical comment. Some 241 ships required comment to a greater or lesser degree, but only 12 of the ships inspected received adverse reports, the same as experienced in 2003. The majority of comments were made under the headings of "Service and Maintenance" and "Safety Standards". Of the twelve ships with adverse reports, eleven were required to have full condition surveys. The majority were over fifteen years old but were not characterized by any particular flag state.
Condition Surveys
It is Club policy that ships aged over ten years be surveyed at the time of entry. Although pre-entry surveys are preferable, this is not always practical, so most surveys are conducted within a specified period 'post entry'.
However, ships aged over 20 years are strictly surveyed prior to entry. Deficiencies revealed during the handling of a claim can make currently entered ships the subject of a condition survey. Also surveys are prompted by serious defects being noted by Club's ship inspectors during a visit or reactivation following a period of lay up or a change of classification society.
During 2004, 206 surveys were initiated for a variety of reasons.
Out of the 206 initial surveys, Managers' recommendations for repair were issued to 64 ships. Follow-up surveys were then carried out on these vessels to check on repairs carried out.
The importance of pre-entry surveys was shown in 2004 when it was necessary to decline entry to eighteen of the thirty-nine ships surveyed. Ships which have been recently acquired by Members often reflect the standards of the vessels' previous management. The response from Members to these recommendations has been encouraging and confirms their high standards.
Long term objectives of ship quality
The primary role of the ship inspection department, set up in 1990, was to address the unacceptably high level of structural failure claims found by analysis of the Club's large claims in 1988 and 1989. This table shows that whilst the dramatic reduction of structural failure claims in the early 90's has not been repeated, the trend of this type of claim in the Club continues in the right downward direction, with only 9 such large claims being caused by structural failings on the ship in 2003 compared with 56 at its peak in 1990.
For more information please email the ship inspection team at: shipsurveys.ukclub@thomasmiller.com or visit the Loss prevention section of www.ukpandi.com | |
......................................................................................
Profile on new Directors
Agenor Junqueira Leite: Agenor Junqueira Leite is Managing Director (Shipping) for Transpetro. In 1973, he graduated from Rio de Janeiro Federal University and more recently completed an MBA. He is a member of the Engineering Council of Rio de Janeiro and of the Brazilian Society of Naval Architects and Marine Engineers. | 
Costis Kertsikoff: Costis Kertsikoff is Vice President (Marketing) and Director of Eletson Corporation.
He joined the chartering department in 1996 having graduated from Princeton and MIT. Mr Kertsikoff is a member of the Intertanko Council and the Intertanko Hellenic Forum Committee.
|
David Lim: David Lim is Group President & Chief Executive Officer for the Neptune Orient Lines Group. He is a Member of Singapore's Parliament and served in the Singapore Cabinet for five years, most recently as Acting Minister for Information, Communications and the Arts. Mr Lim was also previously the CEO of the Port of Singapore Authority. |
Tokinao Hojo: Tokinao Hojo holds a degree in Political Science and Economics from Waseda University and he is now Deputy Chairman of Mitsui O.S.K Lines. |
......................................................................................
Retiring Directors:
The Board bade farewell to three retiring Directors, Gregory Hadjieleftheriadis (Eletson Corporation), Kensatu Saito (Transpetro) & Kunio Suzuki (MOL).
The fourth vacancy arose from the untimely passing away of our Director and colleague Dato' Hj. Mohd. Ali Bin Hj. Yasin.
A full listing of the UK Club Board of Directors is provided in the 2005 List of Correspondents/Rules & Bye-Laws. It can be found on page 1 of the Rules & Bye-Laws section of that booklet. Alternatively, the About P&I section of the UK Club website also carries this listing together with more photographs.
......................................................................................
Area Group Communications & Service
Our Club continually reviews service and communications to ensure the best possible response and support for Members. At the start of this year some organisational changes were made.
New area group organisation
The European claims service is being managed in three regional groupings – Europe 1, Europe 2 and Greece. Europe 1 is under the direction of Andrew Jones. The area groups in Europe 2 are under the direction of Phil Nichols, who has returned to front line claims service after successfully assisting Thomas Miller to achieve its second three-year certification for quality under ISO. Charles Fenton is the Area Director for Greece.
A number of the London-based area groups have combined to form more comprehensive claims handling groups within the regional groupings. Only those area groups shown in the panel below are affected. Members' contacts and the geographical focus of these groups remain unchanged.
Each of the new area groups will be headed by an Area Director and are assigned at least one senior claims director to focus delivery of the Club's experience and expertise to all Members.
Improving e-mail communication
Members are strongly recommended to direct all claims and other area group service issues to team mail addresses. Messages can lie unseen in a personal mailbox if the executive is absent from the office as those mailboxes are not monitored.
The new List of Correspondents/Rules & Bye-Laws 2005 now lists team mailboxes in place of personal e-mail addresses for all area groups. Using the team mailbox will ensure that all enquiries are dealt with, even in the absence of individual claims handlers. However, the Club does not wish to discourage personal communication and so the personal e-mail addresses are still published on the Club website's Making Contact section.
Area Groups L2 & L6 are now Area Group L2/L6 under Martyn Haines
Area Groups L3 & L5 are now Area Group L3/L5 under Peter Jackson
Area Groups L7 & S1 are now Area Group L7/S1 under Susanne Murphy |
......................................................................................
Lloyd's List Maritime Asia Award
 The seventh Lloyd's List Maritime Asia Awards dinner was held in Hong Kong on 4th November 2004. The UK Club found itself amongst distinguished company at the awards with over 300 luminaries of the maritime industry in attendance at the gala dinner to witness the prize giving.
The UK Club won the "Best Marine Insurance Provider" Award against finalists Gard and the Swedish Club. This maintains the Club's unbeaten record; it has won the "Best P&I Club" award since its inception in 1999 through to 2001 and the new category of "Best Marine Insurance Provider" last year in Shanghai.
The UK Club sponsored the "Best Tanker Operator" award at this event, which was awarded by the judging panel to World-Wide Shipping Ltd. Nick Sansom from Thomas Miller (South East Asia) Pte. Ltd, the Club's representatives in Singapore, presented the award.
Other awards were made to Club Members NYK Bulkships for 'Best Bulk Operator'; Maersk Sealand for 'Best Main Line Operator' and MOL for 'Ship of the Year' based on innovation, environmental, efficiency and safety standards. Pacific International Lines won the 'Best Intra-Asia Operator', Fleet Management 'Best Shipmanager' and Anglo-Eastern 'Best Manning Agent'. Frank Lu of Yang Ming was entered into the 'Hall of Fame'.
The award winners are decided by an independent panel of judges from a shortlist of companies nominated by Maritime Asia and Lloyd's List readers.
......................................................................................
Recent donations
 At the January 2005 Board meeting in Madrid, the Club authorised a donation of $25,000 to the IMO Relief Fund for victims of the Asian Tsunami. The total funds raised by IMO were passed on to the United Nations in April. The IMO Secretary-General Efthimios E. Mitropoulos made a particular request they be used specifically for the restoration of the maritime infrastructure and to support the reconstruction of the fishing industry in the region affected.
The UK Club also made a Christmas donation to the Mission to Seafarers. This donation was in place of Christmas cards. This organisation that cares for seafarers of all nationalities and creeds, in some 300 ports around the world.
The organisation maintains a network of chaplains, lay staff and volunteers who offer seafarers a welcome, friendship and practical and spiritual help. Details of their work can be obtained on the web at: www.missiontoseafarers.org and email: pr@missiontoseafarers.org
New appointments
We are delighted to welcome Paul Pelling to the UK Club. He joined us in September 2004 after a successful career of some twenty-four years as a marine broker. He was a specialist P&I broker with expertise in business production and placement and enjoyed an active relationship with Thomas Miller as a producing broker. Paul joins the UK P&I Club as a senior underwriter dealing with business from the Asia Pacific region. Paul has many active interests but his real passion is sailing. Paul was a British sailing champion and can now be found teaching his three children how to sail.
Jonathan Goldthorpe joined Millers in 2004 as the P&I Chief Financial Officer. As a qualified accountant and investment analyst he is responsible for all financial aspects of the Club. Jonathan previously held financial roles in the energy and insurance industries, working for companies such as Norwich Union, Ernst and Young and TXU. He has been working in the finance industry since completing his economics degree at Durham University.
Jonathan lives with his wife and two young children, his interests include modern art and architecture.
Damian Mustard joined the Underwriting Department from ITIC in 2004. He is a deputy underwriter supporting the Club's Greek Members. Damian is a qualified South African lawyer and has an LLM in shipping law. In South Africa Damian played tennis at a competitive level – achieving a national ranking of 13.
As well as tennis Damian played baseball for the South African Defence Force and his other hobbies include travel, golf, cricket, touch rugby and wine tasting.
......................................................................................
Selected Circulars
Members should be aware that there have been a number of recent circulars from the Club pertaining to regulatory changes which have deadlines for compliance. Some of these circulars refer to compliances that are essential if Members are to preserve cover going forward in the 2005 year.
1st March 2005: Japanese compulsory insurance requirements
From 1st March 2005 all ocean-going non-tank vessels of 100 gross tons or more must comply with the requirements of compulsory insurance when calling at a Japanese port.
The newly amended Japanese Law on Liability for Oil Pollution Damage imposes strict, joint and several liability on the shipowner and charterer of the vessel for damage caused by a bunker spill. The insurance required under the new law must include coverage for damage caused by bunker pollution and coverage for the expenses of wreck removal. The amounts of insurance cover must be sufficient to meet both personal claims and other claims in accordance with the limits provided under the 1976 LLMC.
A Member's Certificate of Entry will be accepted as compliance with the new requirements. However, the Certificate of Entry must be an original and Members must report the status of insurance with a report form. It must be filled out and faxed to the relevant District Transport Bureau before noon on the previous working day before the entry of the vessel in a Japanese port or entry into certain designated sea areas.
The Japan Ministry of Land, Infrastructure and Transport (MLIT) has posted details about the reporting procedure on its website: http://www.mlit.go.jp/english/maritime/insurance_portal3eng.htm.
In view of the short period between the deadline and 20th February policy year start date, the MLIT has granted a two month grace period (from 20th February to 20th April).
During this period, non-tank vessels trading to Japan will satisfy the compulsory insurance requirements if they have on board an original copy of the Certificate of Entry for the expired policy year AND a faxed copy or photocopy (including a printed pdf copy) of the Certificate of Entry or the Confirmation of Renewal for the new policy year. From 20th April 2005, an original copy of the Certificate of Entry for the new policy year must be carried on board.
With regard to the requirements on reporting, these remain as previously advised.
1st January 2005: Panama Canal – Shipboard oil pollution emergency plans
Ships with the capacity to carry 400 metric tons or more of oil as cargo and/or fuel are required to submit to the Panama Canal Authority (ACP) for approval a Panama Canal Shipboard Oil Pollution Emergency Plan (PCSOPEP) before transiting the Canal. These SOPEP requirements are in effect from 1st January, 2005.
Owners must submit a PCSOPEP to the ACP for review and approval. The verification service is free of charge.
The ship's agent can perform the role of an Authorised Person. Alternatively, several US and local firms have also offered to provide this service. If a Member is required to sign a contract, it is recommended that the Managers be consulted to confirm that such contract conforms to the Group guidelines.
14th January 2005: Insurance Mediation Directive (IMD)
If you use an intermediary to place your insurance with the Club and that intermediary is domiciled in the European Economic Area (EEA), this directive will require that intermediary to be authorised to carry out intermediary activities by the regulatory authority of its domicile.
The Club has a legal responsibility to ensure that intermediaries domiciled in the EEA have the necessary authorization to transact business with it. Intermediaries based in the EEA introducing business to the Association will be expected to confirm that they are authorised in the country of their domicile for IMD purposes and, where appropriate, that they have a "passport" (freedom of services authorisation) to do so.
In order to simplify the process the Group clubs have agreed a common approach. Regulated intermediaries will be expected to confirm that they have the necessary approval from the regulator of their domicile by including an appropriate form of certification. The circular suggests some appropriate wordings.
Members and others affected by the IMD should determine how it applies to them and how they need to comply with it.
20th February 2005: Evidence of Certification for ISPS
Since 1st July 2004, all passenger ships and cargo ships (including high speed craft) of 500 gt or more have to carry an International Ship Security Certificate (ISSC) to evidence their compliance with the mandatory requirements of the ISPS Code and with the requirements of SOLAS Chapter XI-2.
Under Rule 5K (as amended for 2004) Members are required to maintain valid statutory certificates in relation to the ISPS Code. The Club may need copies of ISSCs when dealing with serious or security related claims or considering requests for Club guarantees. The Club required sight of valid ISSCs as a general condition of renewal in 2005.
| Copies of all Club circulars going back to the 1995 policy year can be downloaded from the UK Club website: www.ukpandi.com. |
......................................................................................
UK CLUB NEWS is published by
Thomas Miller & Co. Ltd.
International House
26 Creechurch Lane
London EC3A 5BA
Tel +44 20 7283 4646
Fax +44 20 7283 5614
Editor: Nick Whitear
Tel +44 20 7204 2334
Fax +44 20 7621 9761
e-mail: nick.whitear@thomasmiller.com
|
