Reinsurance arrangements for the 2003 policy year; OBO's rated as dry and tankers rated as clean; United States oil pollution cover - Member Circulars

Circular No. 7/2002 February 2003

TO THE MEMBERS OF ASSURANCEFORENINGEN GARD -gjensidig-

Dear Sirs

Reinsurance arrangements for the 2003 policy year OBO’s rated as dry and tankers rated as clean United States Oil Pollution Cover

We refer to Circular No. 2/2002 relating to premium ratings for the 2003 policy year. When that Circular was issued it was too early to report on reinsurance arrangements for the 2003 policy year. The purpose of this Circular is to update Members with regard to reinsurance arrangements and the placing of additional insurances. With regard to the special war risks P&I cover, we refer to Circular No. 6/2002.

REINSURANCE ARRANGEMENTS FOR THE 2003 POLICY YEAR

Owner’s Entries There are some changes in the structure of the reinsurances for the 2003 year compared to the 2002 year. Whilst the Group’s General Excess Loss Contract remains limited to USD 2 billion, changes have been made to the proportion of the contract retained by the Clubs. For the 2002 year, the Clubs retained a vertical tranche of 10 per cent of the first USD 500 million and 15 per cent of USD 70 million excess of USD 30 million. For the 2003 year, the Clubs will retain 25 per cent of the first USD 250 million of claims in the aggregate excess of USD 30 million any one vessel any one event.

The reinsurance structure for the 2003 policy year will be as follows:

Club retention USD 5 million(1) Pool USD 25 million (in excess of USD 5 million) General Excess Loss cover USD 2 billion (in excess of USD 30 million)(2) Oil pollution USD 1 billion(3)

In addition 25 per cent of the first USD 250 million of claims in the aggregate excess of USD 30 million any one vessel any one event.
Cover above USD 1,500 million is on the basis of one reinstatement.
The limit applies to the aggregate of owners’ and demise charterers’ liability. (For further details, see Rule 53.1 and Appendix III of the Rules for Ships.)

Charterer’s Entries - Traditional Charterer’s Cover

The reinsurance structure for charterer’s entries reinsured through the Pool is identical to that of last year and will be as follows:

Club retention USD 5 million Pool USD 25 million (in excess of USD 5 million) General Excess Loss cover USD 300 million (in excess of USD 30 million)¹ Oil pollution USD 100 million²

(¹) The cover, with the exception of cover for oil pollution, afforded to those insured under a charterer’s entry and to charterers’ co-assured under an owner’s entry as described in Rule 78.4 of the Rules for Ships, will be whichever is the lesser of USD 50 million in excess of the owner’s relevant limitation figure and USD 300 million each entry any one occurrence or, in the case of cargo claims, any one cargo voyage. (For further details, see the Rules for Ships, Appendix II.)

(2) With regard to oil pollution cover for any vessel, the limit is whichever is the lesser of USD 100 million and 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 three charterers 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. (For further details, see the Rules for Ships, Appendix III.)

Charterer’s Entries – Comprehensive Charterer’s Liability Cover

For the 2003 policy year the upper limit of the Comprehensive Charterer’s Liability insurance is optional with a maximum limit of USD 500 million per event. Members are reminded that the Notice of Cancellation of War Risks Cover, given by our Circular of 17 October 2001, is still in force, although the maximum war risk limit of USD 100 million has now been deleted. A separate Circular has already been sent to Members who have taken out this cover.

Extended Cargo Liability Insurance, Deviation Liability Insurance, Comprehensive Carrier’s Liability Insurance, Tour Operator Passenger Liability Cover and Extended Crew Cover These covers are still available with limits as agreed with the individual Member. The War Risks Notices of Cancellation, given in September 2001, is still in force and additional premiums may apply for trade in “conditional areas”. A separate Circular has been sent to Members who have taken out any of these covers.

OBOs RATED AS DRY AND TANKERS RATED AS CLEAN

Also for the 2003 policy year, it has been decided to assess OBOs and clean tankers on a quarterly rather than an annual basis. If at any time during any quarter the ship trades with dirty products, then the full dirty tanker reinsurance cost applies for that quarter. The applicable quarters are 20 February to 20 May, 20 May to 20 August, 20 August to 20 November and 20 November to 20 February

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 2003 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 2003 policy year is identical to the procedure which applied for the 2002 policy year.

The Association will assume that those Members who agreed to the declaration procedure for the 2002 policy year also agree to the declaration procedure for the 2003 policy year. Thus the cover will be automatically reinstated unless by 20 February 2003 the Association has been notified to the contrary. Members who did not agree to the declaration procedure for the 2002 policy year, but who wish to reinstate the cover for the 2003 policy year, must notify the Association that they agree to the declaration procedure prior to 20 February 2003.

Voyage Cap and Surcharge

The voyage surcharge system for tankers is designed to contribute to the costs of the General Excess Loss Reinsurers in relation to the additional cost of the clean up of spills anticipated in US waters. For 2003, the International Group has decided that the surcharge per gross ton per voyage will be US cents 12.60 for Marpol tankers and US cents 14.28 for those that are not. To qualify for the Marpol tanker category, a tanker must be equipped with segregated ballast tanks in accordance with the requirements of Regulation 13 of Annex 1 to Marpol 73/78. The limit of the number of voyages which will attract the surcharge will be 20 as in the current year.

Owners of ships of 1,000 GT or less may opt to pay either a fixed rate of USD 2,856 per annum or USD 143 per voyage and USD 2,520 or USD 126 respectively for Marpol tankers. These owners will be charged on a per voyage basis unless a request is made to the Association, prior to 20 February 2003, to be charged on a fixed rate basis. No lay-up returns will be allowed.

Parcel Tankers

Owners of parcel tankers carrying 5,000 tons or less of persistent oil cargoes will pay the rate applicable to ships of 3,000 GT as in the current year. This means either USD 428 per voyage or a fixed rate of USD 8,560 per annum for non-Marpol tankers and USD 378 per voyage or a fixed rate of USD 7,560 per annum for Marpol tankers. However, where parcel tankers are carrying between 5,001 and 10,000 tons of persistent oil cargoes the owner will pay the rate applicable to ships of 7,500 GT. This means either USD 1,075 per voyage or a fixed rate of USD 21,500 per annum for non-Marpol tankers and USD 941 per voyage or a fixed rate of USD 18,820 per annum for Marpol tankers. As is the case for owners of ships of 1,000 GT or less, owners of parcel tankers on voyages carrying 10,000 tons or less of persistent oil cargoes can opt to be charged on a per voyage or fixed rate basis. No lay-up returns will be allowed.

Owners of parcel tankers carrying more than 10,000 tons of persistent oil cargoes will pay the voyage premium based on the ship’s full tonnage.

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 the quantity of persistent oil cargoes which has been carried on each voyage.

General

As was the case for the 2002 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.

If you have any questions, please contact the P&I underwriting department in Gard Services.

Yours faithfully, GARD SERVICES AS As agent only for Assuranceforeningen Gard - gjensidig Claes Isacson Chief Executive Officer