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Nov 7, 2024
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Lockton P.L. Ferrari

Renewal Bulletin No. 03/24 - UK P&I CLUB

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

 

P&I

-         6,5% general increase for the policy year 2025/2026

-         Increase in all deductibles (up to $50,000) of 10% (with a minimum increase of $1,000)

 

Following the Club's recent Board meeting in Singapore on 4 November 2024, please find below the detailed highlights and developments:

Premium adjustments:

-         For the 2025/26 renewal the Directors agreed a General Increase of 6.5%. In setting this figure the Directors considered the overall claim inflation and the recent increase in numbers of high profile claims reported to the pool.  

-         To help address attritional claim inflation the Directors also mandated an increase in all deductibles (up to $50,000) of 10% (with a minimum increase of$1,000).

 

Investment performance:

-         Investment markets performed well for the UK P&I Club during the year. At the halfyear, the Club's investment return was higher than expected for the full year and therefore, assuming no major financial market up heaval, a positive return is expected for the portfolio.

 

Underwriting results:

-         Significant uncertainty in the Club's year-end underwriting result, as most claims are reported in the second half of the year.

-         By contrast, the Club's claims costs for the first half of the 2024 policy year are encouragingly lower than in recent years.

 

Club’s strategies:

-         The UK P&I Club relaunched a Loss Prevention framework early in 2024 as “Safety& Risk Management” covering five critical towers: Fleet Quality, Loss Prevention, Industry Collaboration, Crew Wellbeing and Environment

-         A survey of members and brokers was conducted during the summer: the encouraging results will also help the club to improve its business strategy in a number of areas.

-         The Club will launch a new website later this month.

 

Industry Issues:

-         The UK P&I Club would like to point out that the restrictions imposed by the UK and EU on cargoes to and from Russia have increased the obligations on insurers and therefore more in-depth investigations and enquiries will be carried out.

 

Release Calls:

-         The Board agreed the open year release calls at:

2022: 5%

2023: 7,5%

2024:10%

2025: 15%

Renewal Bulletin No. 03/24 - UK P&I CLUB
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