Houston Marine Insurance Seminar 2002

1. Houston Marine Insurance Seminar 2002 U.S. Gulf Claims More Predictable Than Ever September 23rd, 2002

2. Mutual Insurance - what is it? • It is essentially co-operative self-insurance (a “Club”) • The insured are also the insurers • The insured's own the insurance fund • The aim of a mutual is to cover losses, not make a profit Mutual insurance is different from commercial insurance

3. The Clubs in the Maritime Field • The Clubs insure 95% of all ocean-going ships • The Clubs have cooperated for over 100 years (Pooling Agreement 1899) • The Clubs’ boards of directors comprise a hugely influential body of ship-owners • The Clubs have consistently acted in the interests of the maritime community

4. Typical Club Structure

5. Function Of Club Managers • UnderwritingArrange cover; process entries, allocate calls, draw up/dispatch debit notes: • ClaimsHandle and reimburse claims, provide advice, approve some contracts/indemnities, decide on deviation cover, approve costs/fees;guarantees • InvestmentGenerate investment income on Club funds within delegated guidelines • Loss PreventionLegal/technical publications, claims analysis

6. Club Financial Structure OBJECTIVE Premiums + Investment Income = Claims + Expenses SURPLUS = Premiums + Investment Income > Claims + Expenses Transfer to Reserves Return to Members DEFICIT = Premiums + Investment Income < Claims + Expenses Transfer from Reserves/ Reinsurance Further call on Members

7. RISKS: Protection & Indemnity • P&I Insurance isinsurance in respect of 3rd party liabilities • P&I Insurance is not • hull and machinery insurance, • war risk insurance, • loss of profit/freight insurance, • detention insurance, • strike insurance • defence

8. Core Covers in P&I • Injury, illness or loss of life of passengers • Loss or damage to personal effects • Injury, illness or loss of life of crew • Pollution and environmental damage Third Party Liabilities in respect of:

9. Core Covers in P&I (cont.) • Collision • Dock and other Property Damage • Fines • Legal costs • “Omnibus cover” Third Party Liabilities in respect of:

10. The World’s Largest P&I Club Figures in millions GT International Group - Owned & Chartered - February 2002

11. Members by Trade Type - Tonnage Chemical 1.0 % GasCarrier 7.0 % Bulk Carrier 27.3 % Reefer 1.1 % 5.1 % Passenger 2.4 % Ro/Ro Vehicle Carrier 3.8 % Miscellaneous 1.6 % Container 8.7 % Specialist 0.5 % General Cargo 3.2 % Tanker 38.5 % May 2002 Trade Sector Market Share (2002) Gas Carriers 32% RoRo 16% Reefer 11% Chemical 7% Passenger 30% Bulk 14% Combis 10% Tankers 22% Container 12% Dry Cargo 9%

12. Global Membership 62.3% 55.1% 26.3% 33.7% Club: 11.4% World: 11.2%

13. Age Profile of the Club • The Club’s tonnage age profile has reduced in the critical 15 - 19 year age band from 24% to 19% to 17%. • Tonnage under 10 years old increased from 31% to 40% to 41%

14. UK Club Reinsurance Structure Overspill pool with other Clubs - cover available from UK Club catastrophe reserve & Swiss Re contract US$ 4.5bn US$ 3,030m US $ 1470m US$ 1000m UK Club’s Overspill Reinsurance US$ 2,030m US$ 1500m Group’s excess R/I US$ 1,000m US$ 530m Oil Pollution US$ 500m US$ 30m US$ 25m Pool Retention US$ 5m Club Retention

15. Safeguarding Member Quality • Six full-time inspectors conduct 500 ship visits a year. • Over 5,000 ships inspected since 1990. • Only 3% of inspections led to adverse report and the number of inspections generating a high rating with no comment was up from 51% to 53% • Unsatisfactory findings lead to independent condition surveys and restricted cover. • Surveys leading to a repair being required fell from 45% in 2000 to 40% in 2002

16. Crew Risk Management Programme • Enhanced pre-employment medical examinations (PEME) • Significant pre-existing illnesses and repatriation avoided • Available in ten crew-supply countries • Unique cost-saving service • Development into post-repatriation care

17. VIDEOS Tanker Matters Bulk Matters Container Matters Any fool can stuff a container . . . . BOOKS & MULTIMEDIA Major Claims Analysis The Human Factor Port State Control Carefully to Carry Loss Prevention News UK Club News Publications & Videos

18. Loss Prevention • Seminars & Workshops around the world • Weekly Loss Prevention Bulletins • Books, magazines & videos • Full-time department in London & specialist regional managers

19. Advice & Information • Concentration of expertise available to all members regardless of size or premium contribution • Databases - Pollution legislation, conventions and procedures, legal and technical enquiries etc. • Past Projects - Millennium Bug (Ship 2000), ISM, STCW etc.

20. Loss Prevention Developments • New website area • Benchmarking • Good Practice • Technical Reports • “How To” guides • ISM Analysis

21. Worldwide Statistics

22. Stable Claims Trend

23. Claims Analysis @ 20/2/2002 US$ millions 350 300 250 200 150 100 50 0 00 02 74 76 78 80 82 84 86 88 90 92 94 96 98 Year

24. 10 Most Frequent Claims Producers

25. Major and Minor Claims Percentages By Value By Number Major Claims % Minor Claims %

26. Main Types of Major P&I Claims 2% 2% 8% 1% Cargo Collision 39% Property Damage Pollution Fines 23% Crew Injury Wreck Removal Non-Crew Injury Other 2% Unrecoverable GA 5% 8% 10%

27. Main Causes of Major P&I Claims

28. Fatigue Morale Motivation Loyalty Training Standards of Certification Experience Conditions Environment Language Management Policies Human Factors

29. Causes of Crew Injury Claims % Number Value

30. Location of Crew Injuries Number Value

31. Collisions - Visibility and Sea State Visibility Sea State

32. Tanker Claims A number % of all large claims in each particular country)

33. US Claims Statistics

34. THOMAS MILLER (AMERICAS) INC. Full Claims Handling Service 24 Hours a day in YOUR time zone New Jersey , Miami and San Francisco

35. AMERICAS REGION • 25 experienced claims handlers in New Jersey, • Miami and San Francisco • Full authority for Claims and Guarantees • Immediate response on major casualties • Monitoring attorney performance & cost • Contact with agencies (e.g. Coast Guard) • Loss Prevention on board Cruise Ships

36. Claims Exposure in USA -The reason for local service 25% Industry claims in USA $ncreasing exposure of Ship-owners in USA $ 14m a year in legal / survey fees

37. Major Claims ($100,000 +) in USA 1987/2002 • 1014 Claims -- $422M • 20% of all Major Claims • 40% Personal Injury, 25% Cargo • 5%Pollution, Collision, Dock Damage • Numbers Decreasing - Average Value Increasing

38. US Seamen Accident Type Thousands %

39. US Seamen – Type of Injury Thousands %

40. US Gulf Claims Since February 2000 • 1,532 • 47.87 Month

41. Claim Since February 2000 cont.., • 1,532 - CLAIMS LAWSUITS • TEXAS 567 289 • FLORIDA 255 164 • LOUISIANA 612 219 • ALABAMA 84 16 • MISSISSIPPI 14 2 1,532 690

42. Mediation • TEXAS 289 - 122 • FLORIDA 164 - 111 • LOUISIANA 219 - 73 • ALABAMA 16 - 4 • MISSISSIPPI 2 - 0

43. 4 Factors Influencing Claims Trends In The US Gulf 1. Corporate A New Type of Owner 2. Legal 2. Legal Is it possible to try a case? Hard or soft Market….. 3. The Insurance Market Does It Really Make A Difference? How so few influence so much? 4. Personalities