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Nov 14, 2023
Lockton P.L. Ferrari

Renewal Bulletin No. 05/23 - Club West of England

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:

13thNovember 2023


P&I mutual entries


  • 7.5% general increase has been set to apply to all mutual premium rates.


  • An increase of 10% will be applied to all deductibles below USD 50,000.


  • Additional action will be taken where necessary with rates and terms adjusted as appropriate to reflect record and/or risk exposure.


  • No change has been made to the calling structure or instalments: an estimated total mutual call shall be payable in four equal instalments, each of 25% of the total mutual call during the Policy Year.


  • A release call of 15% shall apply.



FD&D entries


  • 5% general increase has been set to apply to all mutual premium rates.


  • No change will be made to the deductible structure.


  • As with P&I mutual entries, an estimated total mutual call shall be payable in four equal instalments, each of 25% of the total mutual call during the Policy Year.


  • A release call of 15% shall apply.


The Club noted during the recent board meeting that the Club’s own claims for the2023/24 Policy Year are better than forecast and claims development on prior years also showed general improvement and that the combined ratio is forecast to be around 100% at year end.

The Free Reserve is forecast to increase to around USD 241 million, with investment returns, although positive, being constrained by the continued rise of interest rates globally. Capital is expected to further increase at February 2024, to a Solvency Ratio of around 180%.

The annualised mutual entry at year end is expected to be 100m GT with an annualised gross premium of around USD 250m. The Club achieved an A rating with stable outlook from AM Best.


Notwithstandingthe above, and despite the Club’s overall strong performance, the Club renewal circular sets out the main highlights from the Clubs operating environment which were considered when deciding the general increase requirements:


  • As expected, claims experience on the International Group Pool has increased from last year’s low level of activity, with seven reported claims in the current Policy Year together with some adverse development on back year Pool claims notified by other Clubs.    
  • The Board recognised that premium remains insufficient to meet expected future claims costs as inflationary pressures continue.
  • In order to ensure that the Club meets its long-term objective of breakeven underwriting, the Board therefore decided the above-mentioned general increase.


Renewal Bulletin No. 05/23 - Club West of England
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