IUMI Intervention at IOPC Funds Meeting – “Prestige” 17.10.2016

By Nick Gooding FCII, IUMI Alternate Officer at IMO

Since the last IOPC Funds meeting, marine liability insurers, whose national member associations are represented by IUMI, have had the opportunity to examine both the Spanish Supreme Court’s judgement on the liabilities arising from the oil spill from the Prestige casualty, and the subsequent statement from the distinguished delegation from Spain at the previous meeting of IOPC Funds.

Insurers are extremely concerned by what they have read and are now considering the impact this will have on the business models and assumptions that underpin the writing of long tail pollution liability arising from the worldwide shipping industry. As well as examining the strength of reserves on legacy cases, marine insurers and reinsurers are looking at the capital requirements now needed to support this class of business given the uncertainty of International Convention limits being upheld by courts.

Some insurers may consider, post the Prestige judgement, that the return on the increased amount of capital now required will no longer make the class viable to underwrite profitably. Those who remain will no doubt examine limits of liability available, as well as price and conditions of cover. Rating models will need to be calibrated for vessels trading to countries where there is thought be uncertainty as to convention limits being upheld.

It should be recognised that world trade depends on insurance to mitigate its risks and support its logistics and for their part; insurers calculate premiums with reference to known potential liabilities under the agreed international conventions. The efficacy of those conventions and their respective limiting parameters has been undermined by the court decision.

Unless it is reversed, the court decision has the effect of removing that element of certainty from insurance premium calculations. The function of insurance is to pay legitimate claims from collected premiums. These premiums need to be sufficient to both pay claims and support the functioning of the insurance business. Any country that effectively allows the spirit of conventions to be ignored is likely to be perceived as a pariah state. In addition to the general distrust and uncertainty generated, if insurance coverage were to be given, there would need to be a significant premium loading on ships calling to such countries.

Underwriters will continue to monitor developments arising from the judgement of the Spanish Supreme Court and act accordingly.

Finally, IUMI would like to put on the record its support for the paper submitted by the International Group of P&I clubs.

The reaction to this statement is summarised by Neil Roberts below: 

  • The statement caused something of a stir as several countries - Japan, Greece, Denmark, Norway, Italy, and Canada intervened to say they were concerned by what they’d heard – Canada was gravely concerned that the long-term viability of the convention system could be in doubt. Japan went so far as to say “the result seems beyond the reasonable expectation of the insurer”. Spain, supported by France, argued that the IOPC meeting was the wrong forum for the discussion. 
  • We were careful to make it clear for the record that it is the spirit of the conventions which is endangered, not the mechanism itself which has probably been applied correctly, but after a widely questioned legal decision.