THE ATHENS PROTOCOL & THE IMPLICATIONS FOR

FINANCIERS OF PASSENGER SHIPS

Graham BarnesBankServe Insurance Services Ltd

Herald of Free Enterprise EstoniaNorwegian Dream Express Samina

SHIPOWNERS’ LIMITATIONS OF LIABILITY for PASSENGERS

Per passenger $ equivalent

ATHENS CONVENTION 1974 Consolidated and harmonized two earlier Brussels conventions on passenger liabilities that were adopted 1961 & 1967 respectively.

SDRs 46,666 US$61,000

1990 PROTOCOL - not ratified limits of liability considered too low

SDRs 175,000 US$230,000

1999 UK Government insured limit required of UK passenger ship operators

SDRs 300,000 US$393,000

2001 Canadian Marine Liability Act – Part 4 2002 Athens Protocol also being considered

C$350,000

2002 ATHENS PROTOCOL

Strict Liability to be Guaranteed SDRs 250,000 US$330,000

Maximum Limits IMO recommends SDRs 400,000 US$525,000 OR - states may ratify to higher limits Unlimited Unlimited

Current Passenger Liability Limits under the Athens Convention 1974 - SDRs 46,666 per passenger

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The 2002 Protocol to the Athens Convention will supersede the current provisions of the 1974

Convention 12 months from the date it is ratified by just 10 states

The EU is totally committed to the 2002 Protocol

ATHENS PROTOCOL 2002Liability without negligence for the first SDR

250,000 per passenger of claims for death and personal injury if the incident relates to a "shipping incident" (An incident that could not have occurred in a land-based hotel)

Guaranteed by a Compulsory Insurance for SDR 250,000 per passenger for death and personal injury claims, accepting direct action with no policy defences except wilful misconduct. Such insurance can be of any type or be combined with an acceptable guarantee.

Strict Passenger Liability Limits under the Athens Protocol to be guaranteed - SDRs 250,000 per head

New Compulsory Guaranteed Limits

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ATHENS PROTOCOL continued

Maximum liability. IMO recommends a maximum liability limit of SDR 400,000 per passenger.

Unlimited liability in respect of death and personal injury claims for States that choose so in respect of actions in their courts.

IMO proposed Maximum Liability Limits under the Athens Protocol - SDRs 400,000 per passenger

IMO Proposed Max Limits

New Compulsory Guaranteed Limit

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THE P&I CLUBS HAVE SAID

THEY CANNOT PROVIDE THE

INSURANCE THAT THE

ATHENS PROTOCOL 2002

REQUIRES!

Key elements of the P&I Club Mutual System

Members’ Funds payable by Club CallsEstablishment of the Pool accepting all

member Clubs’ liabilitiesPool reinsurance programme Strict indemnity principal limiting claims

to Shipowners’ Limitation of Liability Conventions

No conceivable risk of Overspill Claims

EXTENT OF P&I COVER

Liabilities to Passengers and/or Cargo

Liabilities to Crew

Pollution liabilities

Collision liabilities

Damage to Port installations

Removal of wreck

The Clubs’ DifficultiesIncreased risk to the upper R/I layers, causing

higher premiums for Pool R/I programme.

Risk of Overspill Claims will become a reality.

Guarantee requirement removes the clubs’ strict indemnity to shipowner principle.

Cause internal divisions between club members, eg between tanker owners and passenger vessel operators.

Maximum liability limits getting close to total capacity of world insurance markets.

Year Vessel Loss Location Pax Current Athens Protocol '02 Protocol '02Deaths Pax Liability Strict Pax Liability Max Pax Liability

SDR 46,666 SDR 250,000 SDR 400,000

2000 Express Samina Sinking Aegean 77 $4,725,567 $25,410,000 $40,425,0001999 Sleipner Grounding Norway 20 $1,227,420 $6,600,000 $10,500,0001996 Iohan Collision Sicily 283 $17,367,993 $93,390,000 $148,575,0001994 Estonia Sinking Baltic Sea 728 $44,678,088 $240,240,000 $382,200,0001991 Moby Prince Collision Livorno, Italy 141 $8,653,311 $46,530,000 $74,025,0001991 Salem Express Sinking Red Sea 1,400 $85,919,400 $462,000,000 $735,000,0001987 Herald of Free Enterprise Capsizing North Sea 150 $9,205,650 $49,500,000 $78,750,0001986 Admiral Nakhimov Collision Black Sea 398 $24,425,658 $131,340,000 $208,950,0001983 10th of Ramadan Fire R Nile 350 $21,479,850 $115,500,000 $183,750,000

Data compiled by Elysian Insurance Services (13 Feb 02)

SIGNIFICANT FERRY INCIDENTS ex third world

Year Vessel Loss LocationCount Deaths Injury Deaths Injury

2003 SS Norway fire Miami 2,153 0 0 7 151999 Norwegian Dream Collision English Channel 2,400 1 24 0 01998 Ecstasy Fire Miami 2,565 0 8 0 141997 Vistafjord Fire Ft Lauderdale 569 0 6 1 01996 Universe Explorer Fire Alaska 1,066 0 1 5 551995 Regent Star Fire Alaska 875 0 2 0 71994 Nieuw Amsterdam Grounding Alaska 1,799 0 4 0 01994 Achille Lauro Fire Indian Ocean 900 3 8 0 01992 Royal Pacific ? Malacca ? 9 0 0 01991 Sovereign of the Seas Fire Puerto Rico 2,100 0 0 0 11988 Scandinavian Star Fire Gulf of Mexico 439 0 2 0 21988 Jupiter Collision Greece 600 2 ? 2 ?1986 Mikhail Lermontov Sinking New Zealand ? 1 0 0 01986 Emerald Seas Fire ? 1,296 0 41 0 31985 Achille Lauro Terrorism Mediterranean 400 1 0 0 0

SIGNIFICANT CRUISE SHIP LOSSES 1977 ONWARDS

Data compiled by Elysian Insurance Services (13 Feb 02)

Caused by fire, collison, grounding etc EXCLUDES INDIVIDUAL INCIDENTS eg slips & falls

Passenger Crew

CRUISE SHIPS GETTING BIGGER

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Existing Fleet Newbuildings

Current I.G. Pool Insurance Program$4.5 billion approx. Club Limit (2.5% of 1976 London Convention Limits for property damage)

Overspill Claims uninsured by IG Reverts to Pool

(and all club members)

$2.03 billion the top $500 million layer only provides for one reinstatement

International Group Layers of Pool

Insurance/Reinsurance (4 X $500m layers)

$30 million Club & Pool Retentions

P&I Club members liable for Overspill Claims, payable on Catastrophe Calls Some P&I clubs insure their Overspill liabilities, often on a Finite Risk basis

AN R/I PROGRAM TO SATISFYALL PARTIES

$4.5 billion or 2.5% of 1976 London Convention Limits for property damage

OVERSPILL EXCLUDING PASSENGER LIABILITIES

NO OVERSPILL IF PASSENGER

LIABILITIES LIMITED TO

REINSURANCE

$2.03 billion Covers 3,500 pax at SDRs 400,000 per head

$2.03 billion

POOL R/I EXCLUDING PASSENGER LIABILITIES

NEW SPECIFIC POOL R/I

COVERING PASSENGER LIABILITIES

$1.23 billion Covers 3,500 pax at SDRs 250,000 per head

$30 million Club & Pool

Deductible & Club

A CHEAPER ALTERNATIVE

$4.5 billion or 2.5% of 1976 London Convention Limits for property damage

OVERSPILL EXCLUDING PASSENGER LIABILITIES

NO OVERSPILL IF PASSENGER

LIABILITIES LIMITED TO

REINSURANCE

OPTIONAL EXCESS PASSENGER R/I

$2.03 billion Covers 3,500 pax at SDRs 400,000 per head

$2.03 billion

POOL R/I EXCLUDING PASSENGER LIABILITIES

PRIMARY PASSENGER

LIABILITY R/I & Guarantee

$1.23 billion Covers 3,500 pax at SDRs 250,000 per head

$30 million Club & Pool

Deductible & Club

PROVIDING THE GUARANTEESINTERNATIONAL GROUP P&I CLUBS

U K

Gard

BrItan nia

Stan dard

Steam ship

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Lon don

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Sku ld

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Swed ish

Japan

Shipownr

New IG BERMUDIAN CAPTIVE INSURANCE COMPANY

Settle all claims under the Pool for IG Clubs also

Guarantor where required

1st layer $30m - $530m

2nd layer $530m - $1.03bn

3rd layer $1.03bn - $1.53bn

4th layer

R/I of CAPTIVE

Ex Passenger

Liabilities $1.53bn - $2.03bn

PASSENGER

LIABILITY

R/I

CURRENT FINANCING LEVELS ON PASSENGER SHIPS

US$22 billion approx. in financing cruise ships, both outstanding and committed financing new buildings.

US$ 3 billion approx. in financing ferries, outstanding and committed.

CURRENT FINANCING POSITION ON CRUISE SHIPS

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TYPES OF FINANCING

Single Ship Financing - secured by Ship Mortgages and assignments of insurances

Corporate Financing - No Ship Mortgages

Lease Financing

REASSESSMENT OF THE LENDING RISKS

Availability of the required insurance enabling operators to trade.

Additional insurance costs which cannot be passed on to passengers in the ticket price.

Major fatal incidents causing bankruptcy of the operator due to insufficient insurance cover.

Lessors potentially liable for unpaid liabilities!Consolidation of the cruise lines has made second

hand values of cruise ship more uncertain.

MAXIMUM POSSIBLE LOSSES from a catastrophe exceeding insured limits

SINGLE SHIP MORTGAGE

Liabilities to Passengers primes the Mortgage on the Responsible Vessel.

Default and loss of the loan on the Responsible Vessel.

CORPORATE FINANCING

Liabilities to Passengers causing insolvency of the Operator resulting in bankruptcy or Chapter 11.

Default and loss of the loan - larger than a single ship financing.

SHIP LEASING

The Lessor becomes liable for Passenger Liabilities unrecoverable from the Operator/Lessee.

Lease default. Finance loss plus liability for amounts unpaid by lessee.

INSURABLE SOLUTIONS

SINGLE SHIP MORTGAGE

Passenger Liabilities priming the Mortgage on the Responsible Vessel.

Mortgagees Additional Perils (Passenger Liabilities) or (All P&I risks) on each ship mortgaged.

CORPORATE FINANCING

Passenger Liabilities causing insolvency of the Operator - bankruptcy or Chapter 11.

Additional Perils (Passenger Liabilities) or (All P&I risks) on all vessels in the Operator's fleet.

SHIP LEASING

The Lessor liable for Passenger Liabilities unrecoverable from the Operator/Lessee.

Excess Liabilities Insurance.

To what limit?

Cruise Ship Orders & Deliveries (m) Gross Tons

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million GT delivered or due Orders Contracted GTm