LONDON, 21 August 2006 – A wave of social and regulatory legislation for the marine industry means that shipowners can expect to pay up to a 10% increase on their P&I (protection & indemnity) premiums at the 2007 renewals, according to Aon PLF’s P&I Midterm Review 2006, launched today.  The report reveals how the impact of mounting liabilities on the shipping community, coupled with stringent new regulation to assess and make provision for future claims, has the obvious consequence of continued premium hikes as clubs seek to minimise their risk exposure.

Therefore, despite the good financial health of P&I Clubs, Aon identifies the following drivers, out of the shipowners’ control, which will lead to a predicted rise in premiums from 0-10%:
Social and legislative drivers:

• traditionally, shipowners operating in the oil industry have been subject to harsher legislation than other sectors in the shipping world, but now the laws are affecting a much wider remit including the cruise industry;
• conventions and initiatives, such as the Marpol regulations which limit the amount of oil which ships can legitimately discharge into the sea, are increasing a shipowners liability;
• the potential criminalisation of the industry, particularly the holding of shipowners accountable for ship source pollution, equates to an enhanced risk to underwriters who are building up their case for additional premium.

Regulatory drivers:

• new regulation, such as FSA solvency requirements which are heightening transparency, dictates that insurers must take into account future risks and make allowances before the claims occur. In light of this, the industry will see premium increases for the next two years to 2009.

Fiscal drivers:

• historically, the main issues were investment return, claims and the cost of reinsurance and clubs have become increasingly clever in managing their solvency;
• reinsurance tariffs have traditionally discriminated against oil through higher premiums but now this trend is continuing through to the cruise sector as rates are now determined by the damage shipowners may cause in the future as opposed to their actual track record.

Stephen Hawke, executive director of Aon Marine and chairman of Aon PLF, comments: “Since we accurately predicted the 0-12.5% rate increases of the 2006 renewal, the overall solvency of the clubs is very high. But lurking on the horizon are the dark clouds of greater levels of legislation which will have the inevitable result of increasing liabilities and therefore the potential for claims.  In days gone by, the clubs would have seen if the impending storm could be weathered before taking any financial change of course. Nowadays, the highly regulated clubs must take preventative action in advance.

“Going forward, as a decrease in social legislation is unlikely, we foresee increased risk for shipowners and greater risk transfer for the clubs continuing, suggesting that clubs will increase rates for the next two renewals up to and including February 2009.”

Notes to Editors

About Aon

Aon Corporation  is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. There are 46,000 employees working in Aon's 500 offices in more than 120 countries. Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions.

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