Renewal Bulletin No. 08/24 - Britannia

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

- 7,50% targeted increase of expiring ETC premium

- Capital Distribution of 18% of the net premium (ie. ETC premium net of Reinsurance costs), approximately 12% on gross ETC Premium.

- The minimum deductible will be increased to the following levels:

o Crew: USD 10,000

o Cargo: USD 22,500

o All others: USD 15,000

‍

FDD

- No targeted minimum increase

- Removal of the USD 7,500 reverse deductible and USD 150,000 cap. New Club’s as per Rules FDD deductible to read 1/3 of the total cost, without maximum, up to policy limit.

Following the recent meeting of The Britannia P&I Club's Board of Directors on 19November, please find below the detailed highlights and developments:

Financial strength:

- The finances of the Britannia Club continue to be significantly above the level required to meet the S&P’s ‘AAA’ capital rating (and exceptional liquidity benchmark).

- The year to date has seen a further strengthening of these finances, with better than expected investment returns of approximately USD 50 million.

‍

Premium adjustments:

- The Board is targeting a minimum rate increase of 7.5% on expiring (P&I - Class3) ETCs to ensure the Club achieves long term sustainable balanced underwriting.

- The Board agreed that, to reflect significant societal and claims inflation, from2025/26 minimum P&I deductibles will increase as follows: crew USD 10,000 (previously USD 7,000); cargo USD 22,500 (previously USD 19,500); and all other USD 15,000 (previously USD 13,500).

- In order to simplify the Britannia Group's FD&D offering and improve price adequacy, the Board has therefore decided to remove the USD 7,500 excess and the USD 150,000 cap. Under the new scheme,there will be no FD&D deductible in place with cover commencing from the ground up but with the Member bearing one-third of the total costs and Britannia Club two-thirds up to the policy limit.

- No targeted increase is reported for Class 6 (FDD), with Members being renewed based on their individual record.

Capital distribution:

- The Board agreed a further capital distribution to be paid to Class 3 mutual members' vessels renewing on 20 February 2025. The distribution amounts to 18%of net premium (approximately 12% on a gross ETC). The Net premium as aboves aid, is defined as the Estimated Total Call (ETC) premium, decreased by the International Group reinsurance costs.

- The capital distribution will be credited against the first instalment due for the 2025/26 policy year. On the Britannia Group's current book, this amounts to USD 30 million and brings the total capital distributed to Class 3 mutual members since 2017 to USD 160 million.

Release Calls:

- The Board set the following release calls percentages for P&I:

2022/23: NIL

2023/24: 5%

2024/25: 7.5%

2025/26: 15%

- The Boards set the following release calls percentages for FD&D:

2022/23 NIL

2023/24 5%

2024/25 10%

2025/26 20%

‍

This Newsletter, and our information archive, can also be accessed at www.locktonplferrari.com

Lockton P.L. Ferrari & CO S.r.l.

Lockton P.L. Ferrari – A Member of the Lockton Group of Companies This newsletter is intended solely as an overview of the marine market and does not constitute any form of advice. It is based on sources believed to be accurate at the time of printing and we cannot be held liable for the omission of any information within the newsletter.

No items found.

Renewal Bulletin No. 08/24 - Britannia

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

Renewal Bulletin No. 08/24 - Britannia

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