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Shoreline finds solution to Athens war-risks row

The top two providers of certificates of financial responsibility (Cofrs) are filling a void that proved too wide for the protection-and-indemnity (P&I) clubs.

Jim Mulrenan, London   |   2 November 2012

The leading providers of “tickets to trade” to the US are set to move into the market for war and terrorism cover for cruiseships and passenger ferries.

Shoreline Insurance Managers and Shipowners Insurance & Guaranty Co (Sigco) aim to provide the passengership cover required by the European Union (EU) in a replay of moves 20 years ago when they were established to offer the certificates of financial responsibility (Cofrs) required under the US Oil Pollution Act of 1990 (OPA 90).

Shoreline has teamed up with a panel of Lloyd’s syndicates and London-market insurance companies to offer the war and terrorism cover required under a protocol to the Athens convention on passenger compensation that comes into force in Europe from the end of this year.

The new scheme, Shoreline Passenger Solutions, will be ready to quote by the start of December and will provide the war-risks cover that the protection-and-indemnity (P&I) clubs have refused to provide.

The rival Sigco scheme is understood to be in a less finalised form but there are rumours that it is hoping to team up with Safeguard, a subsidiary of the Gard marine-insurance group and top P&I club reinsurer, and the Catlin syndicates at Lloyd’s to provide a rival war-risks scheme.

Leading guarantors

Shoreline and Sigco are the Bermuda-based operations that are the leading guarantors of Cofrs, the pollution-cover certificates required to trade to the US, and it looks as if they will become a solution to the impasse that has developed in Europe.

The Shoreline Passenger Solutions facility will act as a coverholder for a substantial panel of “A”-rated underwriters rather than offering insurance through Shoreline Mutual, which provides guarantees for Cofrs.

Shipowners will be able to access the Shoreline scheme directly or through their brokers but it also appears that the P&I clubs could be a conduit if they wish to directly provide the passenger-liability regulation (PLR) guarantees based on reinsurance through Shoreline.

The cost of PLR guarantees has not been determined but should be a relatively modest tariff-based amount linked to the passenger capacity of cruiseships and ferries.

Shoreline’s aim is to create a streamlined, web-based process similar to that for obtaining Cofr guarantees.

There has been a long-running stand-off between the P&I clubs and the EU over a requirement that passengerships have at least SDR (Special Drawing Rights) 340m ($522m) of guaranteed terrorism and war-risks cover under the rules — the PLR — that give effect to the 2002 protocol to the Athens Convention in Europe.

The protocol lifts the compulsory insurance requirement for the largest cruiseships to more than $2bn and shipowners’ limits of liability to a maximum of more than $3bn — but, as with the OPA 90, it was a side issue that led to conflict with the P&I clubs.

Support for ‘blue cards’

A majority of the clubs favoured providing “blue cards” guaranteeing war-risks cover to avoid a rerun of the Cofrs debacle but support fell short of the 75% majority — 10 of the 13 International Group clubs — required to change the cartel’s policy.

The PLR, which comes into force on 31 December, requires shipowners to produce blue-card guaranteeing cover for passenger deaths or injury, with the war and terrorism cover turning out to be the most controversial issue.

Although the war or terrorism risk facing passengerships is not a core issue, it has turned out to be a matter of principle where legislators and the clubs have clashed, with a number of parties trying to develop solutions.

The nature of the risk is, however, somewhat similar to that under Cofrs, making Shoreline and Sigco the most successful players in this market, tempting providers of a solution.

Shoreline is a company owned by Shoreline Mutual and the much smaller Arvak Cofr scheme, which grew out of an initiative by the Skuld P&I club.

Shoreline Mutual is chaired by Vikrant Bhatia of the Hong Kong-based Chellaram group’s KC Maritime, with other directors drawn from the Ofer group, BW Maritime, Ultranav, Petroleum Geo Services and Disney Cruise Lines. Arvak directors include Skuld chief executive Douglas Jacobsohn.