London P&I Club Chairman calls for international action on ports of refuge - 10/07/2014

The Association’s result for 2013/14 was an overall surplus of US$6.6m, lifting our free reserves to US$160.6m.

Key drivers involved were, as usual, claims experience and investment performance. In relation to retained claims, after the moderation experienced in the 2011/12 and 2012/13 policy years, there was an increase in the year now under review. Although there was some continuing moderation of our day-to-day attritional claims, that was more than countered by greater activity at the higher severity end of the retained claims spectrum.

Investment performance contributed US$24.4m of income and gains in 2013/14. The strong return reflected positive performance across the asset classes, notably the equity component. The allocation was broadly the same as in earlier years and in line with the Committee’s risk appetite; it also reflects the vigilant and disciplined approach that the Board of our quota share reinsurer in Bermuda takes to its work.

During 2013/14 there was steady growth in the entry of ships with the Association, from existing as well as new Members; in particular, our mutual Membership increased by about 2m gt to 43m gt – and our Charterers business continued to make solid progress. The continued expansion of the Association’s Membership is encouraging, but is subject to controlled risk selection, to ensure alignment with our overarching objective, to provide a very high quality of P&I service, from a secure financial base.

The International Group’s claims Pool is of central importance to the unique level and breadth of cover that the Association and other Pool members are able to provide. Maintaining the integrity of the Pool and its mutual principles is, therefore, something in which the Committee takes a close interest and is something we considered during the year when reviewing the implications of a claim brought by another Club. The claim involved removal of the wreck of a mobile offshore drilling unit, one leg of which had collapsed during positioning in preparation for drilling.

It attracted interest in part because of the specialised nature of the operations being undertaken, and this triggered a review of the existing boundaries of pooling, as well as of
the detailed drafting of the Pooling Agreement provisions dealing with specialist craft. One of the Committee’s particular concerns was the danger that similar incidents could, under the existing arrangements, potentially strain mutuality and the good working order of the pooling system, to the detriment of Members. We were therefore reassured when a review by the International Group concluded that the risk highlighted by the case in question did not appear suitable for pooling in the future and that there would be an amendment to the Pooling Agreement for 2014/15, to exclude such drilling units from eligibility going forward. However, the case also illustrated a broader issue to do with the borderline between poolable and non- poolable risks and reinsurance arrangements for the latter.

There may be the potential, in some circumstances, for the lines to be blurred, so the matter is one which will receive further attention over the next 12 months, with a view to avoiding erosion of the foundations on which the Pool is built, enabling to it deliver the substantial benefits to Members referred to above.

Several developments involving the imposition of compulsory insurance requirements on shipowners were once again considered by the Committee during the year. One involved the Wreck Removal Convention, which is due to come into force in the near future. Having reviewed the key features and requirements, we agreed that once it takes effect, the Association should be able to issue the certification required to enable Members to meet its compulsory insurance provisions. We also noted with interest that the Convention gives some statutory weight to the importance of proportionality on the part of governments in responding to an accident involving the wreck of a ship.

My report 12 months ago referred to the compulsory insurance requirements under the Maritime Labour Convention, for crew repatriation in the event of shipowner insolvency. This was a risk in respect of which the Committee agreed to extend the Association’s cover, but the issue was finely balanced and an important factor in the decision that we reached involved the relatively limited per ship exposure. Since then, we have started to consider further developments with the potential to increase the exposure, through the addition of a requirement for cover for unpaid wages. It appears that the requirement will be subject to a four-month limit, but the exposure, particularly in the context of aggregation, could be very substantial. There are other proposed amendments to the Convention which will also need to receive attention, but the question of how this latest insurance requirement should be dealt with, and whether it is something with which Clubs would be able to assist – or should assist with – is an important issue which will be considered further during the current year.

During 2013/14 there were significant developments in the major pollution claims resulting from the loss of the Prestige off Spain in 2002. Moreover, there was another stark reminder of the challenges associated with finding a safe haven for ships in distress which, more than a decade after the mistakes which led to the Prestige breaking up, continue to create the risk that a maritime casualty will develop into a much greater disaster than need or should be the case.

The judgment of the Spanish Court in the Prestige case was issued in November and it was very pleasing that the ship’s Master, Captain Mangouras, was at last acquitted of the allegation of environmental crime; and that the Chief Engineer was acquitted of all charges. However, the judgment surprisingly upheld a disobedience charge against Captain Mangouras, while another less than satisfactory aspect involved the dismissal of the charges brought against the Spanish State official responsible for the decision to deny the ship access to a place of refuge and for ordering her out to sea where she sank. Appeals against parts of the judgment are to be expected and since related proceedings are pending in London and the US, this long-running episode is not yet at an end.

It is in the context of the passage of time – nearly 12 years since the Prestige– that it is particularly disappointing to receive reports of other shipping casualties where efforts to mitigate pollution or other risks have been hampered by a reluctance to provide the ships involved with a place of refuge. In the recent past, there was the case involving the containership, MSC Flaminia; and even more recently there has been news of the concerted and protracted attempts required to try to find refuge for the stricken chemical tanker, Maritime Maisie. There is no easy answer – it is understandable that communities in areas of coastline where refuge may be sought will be reluctant to be put at the risk of pollution. But as the Prestige illustrated and as the risks potentially posed by other ships highlight, there remains a compelling need for further concerted international action in this area. As a part of that, the efforts of the International Group, including its outreach programme and ongoing work to engage with governments and authorities over issues involving both places of refuge and the removal of wrecks, is of importance and is something which the Committee follows with much interest. This is just one example of the important work undertaken by the International Group for the benefit of its Members – the effectiveness of which I am convinced has been, and should continue to be, enhanced by the longstanding strength of and commitment to the cohesion of the Group by the member Clubs.

Regulatory issues also received detailed consideration at each of our Committee’s meetings during the year.

We now have a new, and it is believed firm, date for the implementation of Solvency II, being 1 January 2016; and while we have already made substantial progress in our preparations, work in this area will inevitably intensify during 2014 and 2015.
Finally, I would like to thank my Vice-Chairmen, the Chairman of our Finance & Audit Committee and all my fellow Committee members for their work, support and commitment over the last year.

in 08/07/2014