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Nov 19, 2021
Lockton P.L. Ferrari

General Increase Bulletin No. 12/21

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:

19th November 2021

P&I Mutual and Fixed entries

  • A +15% general increase.
  • All Owned deductibles below US$ 50,000 increased by a minimum of US$ 2,500 per deductible except for crew and other people related claims below US$ 50,000 which will be increased by a minimum of US$ 5,000 per deductible.

FDD Mutual and Fixed Entries

  • A +7.5% general increase.

In the accompanying Pre-Renewal Report the club describes 2021 as “one of the most challenging years on record”.

Commenting upon the Board decision for renewal at 2022 the following main factors have been noted as forming the basis of their decisions,

- a further increase in the cost of Pool claims, with the result that the aggregate value at the half-year point is more severe than the historically high-level of last year. The club considers that the inescapable conclusion is that the elevated experience on the Pool will continue into the future, particularly now that global trade has returned to pre-pandemic levels of activity.

- an increased frequency and severity of retained COVID-19 related crew claims.

- inflationary pressures on retained claims.

- subdued investment returns through the year to date.

In summarising the above factors playing on the P&I club system the club notes that they been exacerbated by the fact that mutual premium rates remain generally inadequate across the P&I sector coupled with the uncertainty surrounding future investment performance means that Clubs can no longer rely on this to subsidise underwriting deficits.

Accordingly, the Board considers and concludes that responsible action to increase premium rating levels to a sustainable position will be required in order to halt any longer- term decline in capital and to preserve the financial equilibrium of the Club with remedial action been required to resolve the legacy of the recent “soft” marine insurance market and elevated Pool claims experience.

In substance this is translated into the following decisions.

P&I Mutual and Fixed Premiums – a +15% increase in premium rates at the forthcoming renewal. Of this rise, the Directors have decided that 7.5% is directly attributable to the costs of meeting the Club’s contribution to the escalating value of IG Pool claims. They have therefore mandated that this contribution will be applicable to all mutual P&I Members, irrespective of their Record and performance.
The remaining 7.5% is attributable to the Club’s own retained claims experience and the need to increase premium levels to ensure sustainable underwriting in the future.

The Managers have advised that they will nevertheless also continue to robustly review all Member’s premiums and terms in order to ensure that premiums are further adjusted to properly reflect performance and exposure going forward. Members with adverse loss records, will have their rates and terms adjusted in excess of these minimum requirements.

Deductible increases are set out above. In addition, Members’ rates will also be adjusted to incorporate any changes in the costing and structure of the International Group General Excess of Loss Reinsurance Programme.

FDD Mutual and Fixed Premiums – a +7.5% general increase in premium rates, with the FD&D Rules deductible remaining unchanged. Premiums will however further be adjusted to reflect individual Members’ claims performance and exposure.

This Newsletter, and our information archive, can also be accessed at

P.L. FERRARI & CO S.r.l.

General Increase Bulletin No. 12/21
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