Insurance cover against war, terrorism and piracy

1. Insurance cover against war, terrorism and piracy Oslo, 7 November 2013 Iris Østreng, Legal Advisor Ingrid Mellingen, Security Analyst Den Norske Krigsforsikring for Skib

2. Agenda • About war risk insurance • DNK - The Norwegian War Club • Insurance Cover • War perils • The Nordic Marine Insurance Plan • Special covers • Focus on Piracy • Global threat picture • Horn of Africa piracy

3. War risks insurance The Nordic Association of Marine Insurers

4. Insurance against war risks - characteristics • Catastrophe risk • Low frequency, high severity • Few statistics • Traumatic experience for shipowners/crew • Exclusion in traditional marine insurance • Special covers • Long latent claims

5. Number of incidents / claims handled by DNK As the war risk underwriter – what is your claims forecast for the next 30 years??

6. War risk insurance market • Lloyd’s of London • Mutual clubs • Commercial marine insurers

7. Conditional trading areas

8. Different systematic approaches to war risk All risks (Nordic Plan) Named perils (English system) Marine Perils Marine Perils Warperils Warperils

9. Perils and losses covered Perils covered Losses covered Warperils • Hull & Machinery • P&I and occupational injury • Loss of Hire • Special covers Marine Perils Whichpolicy? What can be recovered?

10. DNK – The Norwegian War Club The Nordic Association of Marine Insurers

11. Den Norske Krigsforsikring for Skib • Mutual insurance association (war club) owned by Norwegian Shipowners • Established 30th October 1935 • Insures interests attached to vessels, drilling rigs and similar movable units against war risk based on the Norwegian Marine Insurance Plan • Comprehensive war risk cover and contingency support • Largest war risk insurance facility world wide, ca. • 3000 vessels • 460 members • USD 200 billion insured value • Capacity USD 1,589 billion

12. Insurance Cover The Nordic Association of Marine Insurers

13. The Nordic Marine Insurance Plan • Comprehensive marine insurance regime • All risks principle • Based on a formal agreement between insurers represented by Cefor and Shipowners represented by the Nordic countries shipowners' associations • Used by all major Norwegian shipping companies irrespective of which market they are insured in • Used widely by the international shipping community • Commentary to the Plan as integral source • www.nordicplan.org

14. Insurance Conditions for war risk • Policy conditions • Extended / special covers • Nordic Marine Insurance Plan • War perils, § 2-9 • Chapter 15 on war risk insurance • General conditions

15. Definition of War Risks - NMIP § 2-9. Perils covered by an insurance against war perils An insurance against war perils covers:  (a) war or war-like conditions, including civil war or the use of arms or other implements of war in the course of military exercises in peacetime or in guarding against infringements of neutrality,  (b) capture at sea, condemnation in prize, confiscation and other similar interventions by a foreign State power. Foreign State power is understood to mean any State power other than the State power in the ship’s State of registration or in the State where the major ownership interests are located, as well as organisations and individuals who unlawfully purport to exercise public or supranational authority. Requisition for ownership or use by a State power shall not be regarded as an intervention,  (c) riots, sabotage, acts of terrorism or other social, religious or politically motivated use of violence or threats of the use of violence, strikes and lockouts,  (d) piracy and mutiny,  (e) measures taken by a State power to avert or limit damage, provided that the risk of such damage is caused by a peril referred to in letters (a) - (d).

16. § 2-9 (a) War or war-like conditions • ”Classic” war risk • Including Civil War (NMIP 2010) • All measures that are undertaken by powers that are attributable to war • Also after the war where the implement was used has ceased

17. § 2-9 (b) Foreign State power interventions • “Capture at sea, condemnation in prize, confiscation and other similar interventions by a foreign State power” • Prerequisites: • The party carrying out the intervention must be a foreign state power • The event must be a “confiscation” or another “similar intervention” • The intervention must be founded in an overarching political motive • Act exceeds the measures necessary in order to enforce police and customs legislation

18. § 2-9 (c) Acts of terrorism • Revised after 9/11 to include ”terrorism” • Requires social, religious, or political motivation behind the act or threat • Distinction against ordinary criminal acts purely for the purpose of gain • Intended purpose of such acts is traditionally to influence governments or its people or other powerful entities • Clarification in 2010 version of the Plan

19. § 2-9 (d) Piracy and mutiny • Commentary : “illegal use of force by private individuals on the open sea against a ship with crew, passengers and cargo” • No motive requirements other than personal gain • From criteria of “open sea” (2006) to “port limits” (2010) • Crime can be dealt with by port State authorities • En route between ports • Distinguish from common criminal acts • Marine or war peril

20. Case studies • ”Animal Liberation Front” activists sink whaling ship in Northern Norway • Reefer is attacked by armed militants at berth in Lagos, Nigeria. Master is abducted and tortured • Seismic ship is arrested off Vietnam by Chinese coastguards for ”trespassing of territorial waters and suspicion of smuggling” • During Iran-Iraq war, an oil tanker is severely damaged at Basrah terminal due to a sudden fire in the engine room • Discuss: • Does the event fall under the war risk insurance? • Which war peril(s) could be relevant?

21. Perils and losses covered with DNK Perils covered Losses covered War perils § 2-9 NMIP • Hull & Machinery • P&I and occupational injury • Loss of Hire • Special covers .. under one policy

22. Loss of Hire • Standard Cover NMIP • Chapter 5, Section 6, and Chapter16 • Physical damage • Blocking and trapping • Not triggered by piracy • Open cover • 7 day deductible / 14 days in conditional trading areas • 180 days • Additional Cover DNK • Paragraph 11 of DNK Insurance Conditions • Non-physical damage (H&M or P&I incident to vessel) • Triggered by piracy • Open cover • Limits: • 7 day deductible • 10% self-insured retention • 100,000 USD max. daily limit • 30,000,000 USD per occurrence and in all • 180 days

23. DNK «Horn of Africa» Supplement (1.10.2010) Costs related to Hijacking • Reasonable costs, cf. §§ 4-7 and 4-12 NMIP • Ransom • Related costs, e.g. negotiator • Not limited to vessel’s proportion • No need to declare GA • Payment on account (cf. § 5-7 NMIP) Loss of Hire • No deductible • No self-insured retention • Other limits remain • 100,000 USD max. daily amount • 30,000,000 USD per occurrence and in all • 180 days

24. War P&I and standard P&I cover • Amended provisions in Chapter 15 in the 2010 Plan • Clause 15-20: War cover provided by Chapter 15 is seamless in relation to the war exclusion clauses used by International Group of P&I Clubs. • Reference to Gard’s P&I conditions • Clause 15-22: Cover provided by P&I clubs is subsidiary to the war cover provided by Chapter 15 • Piracy: • War peril under the Plan • Marine peril under the International P&I Club rules

25. DNK special covers, Chapter 15 NMIP Major powers war • Automatic Termination as basic rule (§ 15-5) • extended but limited cover for DNK members • 30 days, maximum aggregate limit of USD 1 billion. Radioactive and biochemical perils • RACE exclusion as basic rule (§ 2-9 (2) (b)) • extended, but limited cover for DNK members Requisition by own State • no cover for requisition by own flag state as basic rule (§ 2-9 (1) (b)) • extended, but limited cover for DNK members

26. Case studies • ”Animal Liberation Front” activists sink whaling ship in Northern Norway • Reefer is attacked by armed militants at berth in Lagos, Nigeria. Master is abducted and tortured • Seismic ship is arrested off Vietnam by Chinese coastguards for ”trespassing of territorial waters and suspicion of smuggling” • During Iran-Iraq war, an oil tanker is severely damaged at Basrah terminal due to a sudden fire in the engine room • Discuss: • - Which losses could be recoverable under the war risk policy?

27. Focus on piracy

28. Reported Piracy Incidents – 2013 (Cutoff date: 24th Oct)

29. Piracy - Common ”success” factors • Security situation on land/Capabilities of local navies • Corruption • Weather • Target • Surprise • Speed • Violence

30. Piracy in East Africa Observations and Trends – 1/2 • Hijacking of ship and crew • Skiffs & Mother vessels • Long-term captivity/hostage situation for crew • Opportunistic crime • Team members recruited in clan environment • Local and international investors • Economic gain • Not politically or religiously motivated (Al Shabaab) • Potential involvement of international organized crime

31. Piracy in East Africa • Observations and Trends – 2/2 • Open sea. Huge geographic area - Gulf of Aden – IRTC, Arabian Sea and Gulf of Oman, Indian Ocean • Any type of vessel. Focus on softest targets in Gulf of Aden. Random targets in Indian Ocean. • No vessel is safe; even RoRo vessel has been hijacked • Somalia a failed state. • Presence of international forces -AMISOM and Kenya. • Law enforcement challenges • State building initiatives to decrease the threat of pirates

32. Piracy in Gulf of Guinea Observations and Trends – 1/2 • Expanding area of operation; Nigeria (2010), Benin (2011), Togo (2012), Cote d’Ivoire (2012), Ghana, Liberia (?) Gabon (2013) • Pirates expand their range westwards and off the coast– use of mother vessels • Corruption key to pirates’ capability to attack vessels. Pirates buy information on vessels, cargo and crew • Three types of attacks; Hijacks, armed robberies and kidnappings. • Hijack vessels to steal cargo - hijacks last only for a few days • Vessel released after cargo is stolen. No ransom to release crew or vessel • Well equipped (speedboats) • Armed, high violence • Usually short term captivity of individuals • Structured and organized • Mostly economic gain

33. Piracy in Gulf of Guinea Observations and Trends – 2/2 • Crew are still kidnapped. MEND not as powerful as before • Lack of adequate naval and coastguard capability in the region in order to act as deterrent against pirates • Use of armed guards not legal. Naval/coastguard to escort vessels • Crew kidnapped off vessel that used armed naval escort (Jascon 33 – august 2012) • Oil production in the Gulf of Guinea – increase in number of vessels calling ports may lead to an increase in pirate attacks • Important to implement relevant BMP (Interim Guidelines) against pirates in the region

34. Scenario 1 - Attack on tanker in Gulf of Guinea • Tanker «Iris» wasapproached by skiffsoutside Lome, Togo last week. • Piratesmanaged to take over thevessel and switchthe AIS off. The shipownerwas not able to get in touch withthevessel. • Vesselwasreleasedfivedays later. No ransomdemand. Twoforeignersweretakenoffthevessel. These have beentakenonshore. Ransom demandsareexpected. • Theft of cargo (gas oil). • War risk cover?

35. Scenario 2 - Attack on container vessel in Arabian Sea • Container vessel «Ingrid» wasattacked by skiffs at 14°56N – 63°05E. • Crew in citadel. • Piratesdisregardedthe show ofweapons and flares by embarkedarmedguards. Guardsinitiatedwarningshots. After a shortexchangeof fire thepiratesbroke off. The incidentlasted 30 minutes. • No damage to thevessel. Crew is ok. • One container wasdamaged by an RPG. • War risk cover?

36. Scenario 3 - Attack on bulk carrier by the Suez Canal • Container vessel «Marianne» wasattacked by a skiff prior to enteringthe Suez Canal from the Red Sea last night. • The vesselwasapproached by a smallskiff laden withexplosives. • The skiffdrove straight intothe hull of «Marianne». The explosionrippedthroughthe hull causingthevessel to take in water. • One crewmember is unaccounted for. • Terrorist group from Sinai have claimedresponsiblity. • War risk cover?

37. Piracy affects many insured interests Loss Of Hire Hull & Machinery Ransom transport Cargo P&I ?? War or Marine cover?

38. Piracy cover challenges for Insurers • Piracy or terrorism • Legality of ransom payments • Armed guards • Cover • Kidnap & Ransom • Loss of Hire • P&I • Cargo interests and GA The Nordic Association of Marine Insurers

39. Long term development

40. Q&a