Napoli 3 October 2013 Alistair Groom Director, Charles Taylor plc CEO, Standard Club PAYING FOR LARGE CASUALTIES SHIPPING AND THE LAW 2013

Contents – how large claims are funded – IG Pool – reinsurance – cost allocation – future 2

How are claims funded Claims in club retention < $9M IG Pool claims $9m - $70m Reinsured claims $70m - $3,000m Overspill claims > $3,000m 3

Pool claims ($9m - $70m) –each club pays a percentage share of each Pool claim –percentages change each year –intention is that each club should pay its way over time –what a club claims from other clubs should equal what it pays to other clubs –contribution formula is improved periodically to ensure fairness 4

Pool claims ($9m - $70m) Clubs contribute to Pool claims according to a formula, reflecting each club’s size and performance 5

Reinsurance programme ($70m - $3,000m) –reinsurance programme uses all available international markets –unusually favourable reinsurance terms –unlimited numbers of claims payable –full follow terms –capacity is not the problem; pricing is the issue –IG captive (Hydra): –facilitates risk retention –optimises reinsurance buying –is internal to the IG 6

Reinsurance costs –4 ship categories: –dirty tankers –clean tankers –dry cargo –passenger ships –reinsurance costs apply across whole International Group 7

P&I reinsurance rates history 8 $ per gt

Reinsured claims –major casualties –38 claims have entered the commercial reinsurance layer (above $30m in 2000, $70m in 2013) –70% were groundings and collisions –navigational errors – not deficiencies in ships, or cargo problems 9

Reinsurance costs and allocation –reinsurance premium rises –who pays what? –tonnage-rated –driven by record and risk exposure –but large casualties are few, large, volatile and random – very hard to scientifically allocate reinsurance cost: –is a cruise ship the same risk as a ferry? –is a container ship the same risk as a bulk carrier? –is a gas carrier the same risk as a wine tanker? –no simple or right solution, evolutionary process –overriding principle: fairness between members 10

Payment for record and risk –all shipowners should pay for their own ‘burning’, i.e. routine, claims (<$1.5m) –all shipowners need to contribute to the cost of large / Pool claims – even if they haven’t (yet) had any –all shipowners need to contribute to the cost of reinsurance purchase –the bigger the ship / the lower the premium, the lower the ‘acceptable loss ratio’ 11

The future –the IG system generally works well –huge limits for maximum cover –bulk purchasing for 90% of shipping industry –large claims have gone up in cost and frequency –reinsurance costs will reflect claims –cost allocation under review 12

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