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Nov 19, 2023
Lockton P.L. Ferrari

Renewal Bulletin No. 08/23 - Club American

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:


P&I mutual entries


  • Whilst there is no declared general increase, an overall increase of 7.5% in is targeted.


  • No changes to minimum deductibles


FD&D mutual entries


  • Whilst there is no declared general increase, an overall increase of 7.5% is targeted.


Fixed Premium P&I and Damage to Hull (DTH) entries


  • Whilst there is no declared  general increase, an overall increase of 7.5% is targeted


Fixed Premium FD&D entries


  • Whilst there is no declared general increase, an overall increase of 7.5% is targeted


The recent Board meeting noted that despite the on going geopolitical tensions, macroeconomic uncertainty, social inflation, and volatile investment and commodity markets, as well as a generally elevated claims value environment, the Club has experienced significantly better operating results during and that the Board is cautiously optimistic that this will continue, always in the context of prudent pricing and careful risk selection. similarly, Eagle Ocean Marine (EOM), the Club’s fixed premium facility, experienced similar stresses as mentioned above but continues to contribute to the mutuality, with improved underwriting results over the past twelve months.

The Club’s current year combined ratio is about 95% but deficits on earlier years remainand these will be addressed over the months ahead to ensure financial strength. Further, while progress has been made to match rates of premium with the changing risk landscape over the past year, further adjustment is needed foreven greater sustainability for the future and the Board has carefully considered all these factors in reaching its decisions on premium and related requirements for the upcoming policy year.


The Club renewal circular sets out the main highlights from the Board decision.


  • The Board has concluded that the application of a standardized, or general, increase would not be the most effective way of generating the best balance of premium pricing to risk exposure across the mutuality as a whole.


  • As a result, the Directors decided to employ a Member specific approach reflecting individual records, trade and operational profiles for treatment of pricing and terms of cover.


  • To take account of inflation and developing trends in the claims environment, the Board has mandated the implementation for 2024 of a year on year target increase in the pricing of risk of 7.5% on expiring rates overall for all classes of the Club’s business.


  • Members’ premium rates and terms of entry for 2024 will be assessed by reference to their own particular circumstances.


  • As to deductibles, no standard increases or minimum amounts should be applied for the forth coming policy year.


  • Release call will be charged as  an additional margin of 20% of estimated total premium for the year.




Open Policy Years



In order toclose the year in balance the Board ordered that an additional and final callof 25% of originally Estimated Total

Premium for 2020 policy year be levied to all Club’s mutual business for both P&I and FDD classes.



This year emerged as a difficult and not favourable due also to extra ordinarily high Pool claims. The Board determined that a further Supplementary Call of 40% of originally Estimated Total premium is required for both P&I and FDD to cure the deficit of this policy year.



At an earlystage this year was developing favourably, but the results began to fade as the year progressed, due to Pool Claims and other individually large claims. In addition 2022 was the worst performance for most financial index, substantially impacting the Club’s investment funds.

As a result, the release call margin for the 2022 policy year for both P&I and FD&D business will be increased from 20% to 35% over and above the currently estimated total premium for the year to account for the deterioration.



This year is developing as forecasted which give rise to a cautious optimism. Also claims are so far developing as budgeted, while premium has grown at 20% over and above the Total Estimated Premium for the year. The release call consequentlywill be maintained at 20% for both the P&I and FDD classes.

Renewal Bulletin No. 08/23 - Club American
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