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Dec 16, 2021
Lockton P.L. Ferrari

General Increase Bulletin No. 15/21

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:

16th December 2021

P&I entries

  • A +12.5% general increase.

FDD entries

  • A +15% general increase.

The recent Board meeting has concluded by setting a +12.5% general increase to be applied onexpiring P&I premiums whilst a +15% general increase on expiring FDD premiums at 20thFebruary 2022. In addition, rates will be adjusted to reflect any changes in the cost of theInternational Group reinsurance programme, whether up or down. Members with adverse recordswill in addition have rates and terms increased to reflect as appropriate record and/or riskexposure.

In commenting and elaborating upon the background to the decisions made by the Board the clubinforms,

  • The Club had a P&I combined ratio well above 100% in 2020, and with a claims level in2021 beyond what was expected an even higher combined ratio is anticipated.Approaching the end of the policy year, it is becoming clear that 2021 deficits in the P&Imarket are likely to be the worst since early 1990’s. Whilst exposures in relation toenvironmental, crew and third parties have continued to rise, the premium level has clearlyfallen behind. The Club has seen a notable increase in claims frequency in respect oflarge claims. In addition, Covid-19 related claims have impacted the Club substantially.
  • In order to bring premiums to a sustainable level, price correction by means of a generalincrease is therefore needed.
  • The new call will be adjusted by any changes in the International Group’s reinsurancecost. The call will also reflect the true exposure of the Club’s retention, as well asestimated contributions to pool claims, together with an assessment of the Member’srecords

Commenting on FDD entries,

  • the Club’s main priority is to maintain high-quality service and a sustainable business overtime. Although it can be concluded that the Club’s FD&D business is in reasonably goodshape, the rise of the combined ratio for the last years is of concern. The FD&D result isunder pressure due to higher legal expenses, more claims reflecting the state of themarket and Covid-19 related issues.

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

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

General Increase Bulletin No. 15/21
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