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Chapter 12 Marine and aviation reinsurance 12/11 Chapter

A4 Liabilities 12
Another major class of marine insurance is generally described as marine liabilities. These include
anything from protection and indemnity (P&I) and pollution to stevedores’ liability and cover any liability
legally incurred in connection with the furtherance of marine business.

Question 12.5

What is a stevedore?

P&I clubs exist to fill the gap caused by insurers not being able to cover all the risks faced by a ship-
owner.

A4A Extent of cover and exclusions

The clubs cover a wide range of third-party liabilities and expenses arising from the owning or operating
Cover a wide range of
of ships, such as the one fourth collision damage and other collision related liabilities as well as third-party liabilities
liabilities for loss of life or bodily injuries.
The main reason that marine liabilities require special mention is that, in many instances, the claims
arising from such risks tend to be settled a long time after the policy period has expired. Greater care
than usual must be taken to ensure that the security of the reinsurer is of the highest order and that it
will be in business at least ten years after the start of the policy.

A4B Underwriting considerations

As the largest single source of marine liability probably emanates from the group of P&I clubs in the
London Market, reinsurers will want to know the specific extent of the insurer’s involvement in this
business. This may be protected to a certain extent by other specific reinsurance, but the insurer’s net
line should be established as well as the extent of exposure to pollution risks.
A detailed loss record is of particular importance to the reinsurance of such marine business as it is
usual for marine excess of loss business to protect all types of liability with few, if any, exclusions. Reference copy for CII Face to Face Training
Therefore, any assessment of price depends predominantly on the past results.
When dealing with non-proportional reinsurance, the reinsured should ascertain that there is enough
Reinsured would be
aggregate coverage in the shape of sufficient reinstatements written into the contract. Should there be advised to take out a
any doubt, the reinsured would be advised to take out a backup policy to respond in the event that the backup policy
basic policy runs out of reinstatements. Backup policies, depending on factors such as the number of
reinstatements, are generally reasonably priced when taken out at inception but become expensive or
impossible to obtain after a series of claims has occurred.
Accumulations
Liabilities associated with marine risks arise when a large number of individual risks are correlated in
such a way that a single event affects many or all of these risks. It would not be prudent to ignore the
possibility of, say, a natural or man-made disaster affecting a large number of individuals as a result of a
single occurrence. Another factor aside from the damages paid to those affected is the legal costs
incurred in defending associated legal actions.
Activity
The flooding and subsequent capsize of the roll on/roll off passenger ferry Herald of Free Enterprise, on 6 March
1987, resulted in the loss of 193 lives. Discover what you can about the subsequent verdict of the coroner’s inquest
jury with regard to those killed and their dependants, and its effect on the insurers of the owners, Townsend
Thoresen.

Suitable types of reinsurance
The extent to which marine liability risks are included in the portfolio should be considered. With a
marine account, liability risks may be assumed within a hull or even a cargo account, where it is unlikely
that any separate premium will be identifiable for the liability content. A separate liability treaty may be
arranged, in which case it would be important to ensure, as far as possible, that the risks to be ceded
contain a good spread of business over the various types of liability that will be written.
The most usual form of reinsurance in the marine liability field is non-proportional, but other forms are
The most usual form
also widely used. Due to the enormous limits required in this class of business, it is becoming of reinsurance in the
increasingly important for a reinsurer to balance its account down to an acceptable net line by way of marine liability field is
non-proportional
reinsurance.