Reinsurance arrangements for the 1997 policy year

Circular No. 13/96 January 1997

TO THE MEMBERS

Dear Sirs,

REINSURANCE ARRANGEMENTS FOR THE 1997 POLICY YEAR UNITED STATES OIL POLLUTION COVER EXCESS OIL POLLUTION COVER WAR RISK INSURANCE MOBILE OFFSHORE UNITS CERTIFICATES OF ENTRY

We refer to Circular No. 7/96 relating to premium ratings for the 1997 policy year. At the time of writing the circular it was too early to report on reinsurance arrangements for the 1997 policy year. The purpose of this circular is to update Members with regard to reinsurance arrangements and the placing of additional insurances.

Owners’ entries

The reinsurance programme for 1997 is now being placed. The market reinsurance contract has been increased to USD 2,000 million (1996: USD 1,500 million).

Clubs will assume a vertical share of 15 per cent of the first USD 500 million tranche of the reinsurance for non-pollution claims and 15 per cent of USD 500 million for oil pollution claims. (For the current year the Clubs assume a vertical share of 15 per cent of the first USD 750 million tranche for non-pollution claims and 15 per cent of USD 500 million for pollution claims.)

The reinsurance structure for the 1997 policy year will be as follows:

²) The limit applies to the aggregate of owners’ and demise charterers’ liability (see Rule 53.1 and Appendix III of the Rules for Ships).

Charterer’s entries - Traditional charterer’s cover

The reinsurance structure is identical to that of last year and will be as follows:

²) With regard to oil pollution cover for any vessel, the limit is whichever is the lesser of USD 100 million or USD 50 million in excess of the owner’s relevant limitation figure each entry any one occurrence subject to an aggregate limit of USD 300 million any one occurrence any one vessel in the event the vessel being covered by more than one charterer in one or more associations participating in the reinsurance arrangements of the International Group of P&I Clubs. If there are more than three charterers in a chain with aggregate liabilities in excess of USD 300 million an average formula will be used to apply the limit of USD 300 million any one occurrence each vessel.

Charterer’s entries - Comprehensive charterer’s liability cover

For the 1997 policy year the upper limit of the comprehensive charterers’ liability insurance will be USD 150 million. Sub-limits of USD 25 million, USD 50 million or USD 100 million will be maintained.

UNITED STATES OIL POLLUTION COVER

Exclusion and reinstatement of cover

The exclusion from cover under Rule 53.2 of oil pollution liabilities arising out of an incident to which the US Oil Pollution Act of 1990 ("OPA 90") is applicable in respect of ships capable of carrying oil in bulk as cargo will continue for the 1997 year.

However, cover can be reinstated if the Member agrees to make declarations in the manner set out in Appendix III paragraph 4 - US Oil Pollution Cover - to the Rules for Ships. The declaration procedure for the 1997 policy year is identical to the procedure which applied for the 1996 policy year.

The Association will assume that those Members who agreed to the declaration procedure for the 1996 policy year also agree to the declaration procedure for the 1997 policy year. Thus the cover will be automatically reinstated unless by 20th February 1997 the Association has been notified to the contrary. Members who did not agree to the declaration procedure for the 1996 policy year but who wish to reinstate the cover for the 1997 policy year must agree to the declaration procedure prior to 20th February 1997.

Voyage cap and surcharge

The voyage surcharge system for tankers is designed to cover the costs to both the Excess Loss Reinsurers and the Pool in relation to the clean up of spills in US waters. For 1997, the International Group has decided that the surcharge per gross ton per voyage will be US cents 16 for Marpol tankers and US cents 18 for those that are not (1996: US cents 24 for Marpol tankers and US cents 27 for those that were not). The limit of the number of voyages which will attract the surcharge will be 20 as in the current year.

Owners of ships of 3,000 gt or less, may opt to pay either a fixed rate of USD 10,800 per annum or USD 540 per voyage and USD 9,600 or USD 480 respectively for Marpol tankers. These owners will be charged on a per voyage basis unless a request is made to the Association, prior to 20th February 1997, to be charged on a fixed rate basis. No lay-up returns will be allowed.

Owners of parcel tankers will pay the rates applicable to ships of 3,000 gt or less, except for voyages where more than 5,000 tons of persistent oil are carried in which case they will pay the voyage premium based on the ships’ full tonnage. As is the case for owners of ships of 3,000 gt or less, owners of parcel tankers on voyages carrying less than 5,000 tons of persistent oil can opt to be charged on a per voyage or fixed rate basis. A parcel tanker is a ship constructed or adapted primarily to carry cargoes of noxious liquid substances in bulk, and capable of carrying at least 10 grades simultaneously, having been issued with an international certificate of fitness for the carriage of dangerous chemicals in bulk. Ships qualifying as parcel tankers will still be required to declare their US voyages and in addition to state that no more than 5,000 tons of persistent oil cargo have been carried on each voyage.

As was the case for the 1996 policy year, the Association reserves the right to determine whether loading or discharging or transferring cargo at several ports or places constitutes a single voyage or more than one voyage. For the purpose of payment of premium a Member will be charged half the rate specified above if loading or discharging takes place solely at Louisiana Offshore Oil Port (LOOP) or solely at a place, other than a port, approved by the US Coast Guard within the US exclusive economic zone.

EXCESS OIL POLLUTION COVER

This cover is not afforded by the Association but placed directly with market underwriters. Oil pollution cover of USD 200 million in excess of USD 500 million will be available for 1997. Members who require further details should contact their brokers or the Association.

WAR RISKS INSURANCE

As in previous years, the Association has arranged cover to provide an additional layer of insurance for P&I War Risks which are excluded from cover solely by virtue of the provisions of Rule 58 of the Rules for Ships. The limit of the cover is USD 100 million per vessel per event with a deductible of USD 50,000 per event.

The cover excludes any P&I liability or loss which is recoverable under the Marine War Risks form or which is covered under any other insurance the Member may have.

Further details concerning the conditions under which this cover is granted are to be found in Appendix I, paragraph 5 of the Rules for ships.

MOBILE OFFSHORE UNITS

This cover is placed jointly with Assuranceforeningen Skuld. Indications are that the overall limit will be USD 400 million any one event, depending on market capacity.

CERTIFICATES OF ENTRY

The following provision is incorporated into all Certificates of Entry:

"This Certificate of Entry is evidence only of the contract of indemnity insurance between the above named Member(s) and the Association and shall not be construed as evidence of any undertaking, financial or otherwise, on the part of the Association to any other party.

In the event that a Member tenders this Certificate as evidence of insurance under any applicable law relating to financial responsibility, or otherwise shows or offers it to any other party as evidence of insurance, such use of this Certificate by the Member is not to be taken as any indication that the Association thereby consents to act as guarantor or to be sued directly in any jurisdiction whatsoever. The Association does not so consent."

Yours faithfully, ASSURANCEFORENINGEN GARD -gjensidig-

John G Bernander Managing Director