Details of the General P&I Premium Increase of the Associations

The economic situation has affected the investment activities of the Association, thus the investment returns are unstable and the P&I insurance premiums of the Associations also fluctuate during each renewal season.

Table 2: Details of the general increase in P&I insurance premiums of the Associations



Festival

2007/08

2008/09

2009/10

2010/11

American

10%

20%

29%

4.2%

Britain

5%

15%

12.6%

5%

Gard

7.5%

10%

15%

0%

Japan

0%

20%

21.2%

12.5%

London

12.5%

7.5%

15%

5%

North of England

7.5%

7.5%

17.5%

5%

Shipowners

0%


10%

5%

Skuld

5%

7.5%

15%

5%

Standard

5%

15%

15%

3%

Steamship

5%

15%

17.5%

5%

Swedish

10%

7.5%

15%

2.5%

United Kingdom

12.5%


12.5%

5%

West of England

12.5%

15%

19.2%

5%

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Source: Vinare

Through the table, we can see that the insurance premiums in the recent renewal seasons have gradually increased, in which the 2009/10 renewal season has increased the most, with some Associations increasing by nearly 30%. The reason for the increase in insurance premiums of the Associations is because the financial situation in recent years has not been very positive, especially the impact of the economic crisis in 2008, which has made investment activities of the Associations difficult. Moreover, the compensation situation is not much better than in previous years, so the Associations have to increase premiums to cover their expenses.

However, the more positive economic situation in 2009 also made the activities of the Associations brighter and more hopeful. Therefore, the renewal season

In 2010/11, the fee increase was not high, the highest was more than 10%, the rest only increased by about 5%, in which there were Associations that did not increase or increased very little.

4.2 Fee situation in Vietnam market

In general, the total P&I insurance premium in the Vietnamese market in recent years has tended to increase. The first reason is that the number of insured ships is increasing. In addition, newly built ships that are insured also have a large tonnage, so the total market premium is large. Below is a chart showing the total insurance premium for the years 2003 - 2008.

Figure 6: Total P&I insurance premiums for the years 2003 – 2008


Source: Vinare

After 5 years, the total market premium has nearly doubled from VND 72,585 million to VND 130,198 million. With this trend, insurance premiums will continue to increase in the coming years due to favorable conditions of both the world economy and the shipping market. Another reason for the increase in total premiums in the Vietnamese P&I insurance market is the increase in premiums in recent years by international P&I Clubs.

Along with the trend of increasing fees of the Associations, in recent years, Vietnamese ship owners have had to pay higher fees than in previous years.

In particular, the fact that the three P&I Clubs that hold a large market share in Vietnam require additional premiums has further affected the insurance premiums of the domestic market.

In September 2006, WOE Association - the Association with the largest market share in the Vietnamese market, issued "Notice No. 5" affecting the business of original insurance companies and ship owners. That is, the Association called for additional premiums to increase capital as required by Solvency II 3 and will be able to be implemented in 2010. The Association called for additional premiums of 15% for the years that have not been paid, namely 2004, 2005, 2006, specifically as follows:

2004: additional call fee of 15% paid on 20/1/2007 and 5% reserve for unknown losses until this business year closes (May 2007).

2005: Additional call fee of 15% paid on 20/1/2007 and 10% reserve for unknown losses until this business year is closed.

2006: Additional call fee is 15% & 20% regular additional fee as scheduled to be paid on 8/20/2007.

Due to the impact of the global economic crisis in 2008, P&I Clubs were also significantly affected by the large decline in investment income, leading to three out of four P&I Clubs participating in the Vietnamese market requiring additional premiums for unpaid business years:

WOE Association continues to announce additional fees for the years 2006, 2007, 2008 as follows:

- 2006/07: additional 20% of prepaid fee collected on 20/1/2009

- 2007/08: additional 35% of prepaid premium collected on 20/8/2009

- 2008/09: call for an additional 45% of the prepaid fee divided into two installments 20/1/2010 and 20/8/1010


3 New draft EU law sets capital requirements for insurance companies

Next, LSSO Association calls for additional fees for some unpaid years from 2006, 2007, 2008 specifically as follows:

- 2006/07: 35% of the total estimated fee (ETC) collected in December 2008

- 2007/08: 35% of ETC, collected in December 2009

- 2008/09: 25% of ETC, collected in December 2009

By the end of January 2009, the Steamship Mutual Association announced additional fees for the business years from 2006 to 2008 as follows:

- 2006/07: call for additional 12.5% ​​collected on 5/20/2009

- 2007/08: call up 14% more divided into 2 periods 7% on 8/20/2009 and 7% on 5/20/2010

- 2008/09: call for additional 20% divided into 2 periods on 8/20/2009 and 10% on 8/20/2010

The fact that the three P&I Clubs, which hold a large market share in the Vietnamese market, require additional premiums will greatly affect the financial situation of ship owners and insurance companies. However, insurance companies always want to gain more market share and increase revenue, especially new companies entering the market, so in recent times, it has led to great competition between domestic insurance companies. The method of competing by premiums has existed for a long time but is still chosen by insurance companies. Therefore, although the Club's premiums have increased over the years, insurance companies have not increased them as much as the Club has, causing the gap between Club and Fix premiums to increase. According to statistics from Vinare Reinsurance Corporation, these gaps in previous years were: 76% for 2001, 85% for 2003, and about 91% for 2004. In 2008, hull and shipowner liability insurance reached a revenue of VND1,266 billion, an increase of 57.6% compared to 2007, but competition caused the premium rate to increase by only about 30% after 5 years.

5. Compensation and loss situation

In maritime transport, the risk factor leading to accidents is very high, so the number of losses that occur is also serious. Especially for Vietnam, a country that is still weak in finance, technology and experience, the issue of maritime accidents is very important to be able to find out the causes, learn from experience and find ways to respond. In recent years, according to the statistics of maritime accidents of the Vietnam Maritime Administration, this number has tended to decrease.

Table 3: Maritime accident statistics 2004 - 2007



Year

Number of accidents


Add

Number of deaths

Number of injured

Special

serious

Serious

Less serious

2004

7

20

53

70

23

13

2005

11

18

29

58

27

0

2006

8

29

22

59

38

15

2007

6

15

26

47

16

16

Source: Vietnam Maritime Administration The above table shows that the number of accidents has a tendency to decrease, but the reality is that the losses to Vietnamese ships are still very large. Below are statistics of some major losses that have occurred in recent years.

recently:

In 2005, accidents occurred mainly due to collisions leading to ship sinking or under-delivery of goods such as:

- The Sea Bee ship sank in the waters off Shanghai on January 1, 2005, incurring a diver contract cost of 1.1 million RMB, and the cost of removing the wreck under this contract is estimated at 8 million RMB.

- The ship “MIMOSA” collided with the ship “TRINITY” and sank in the waters of Vung Tau on May 11, 2005. The cost paid was nearly 37 thousand dollars and the estimated cost of incident resolution and pollution treatment was 118 thousand dollars.

- The ship "Long Xuyen" ran aground in the waters of Pohang, Korea on September 6, 2005, causing damage to the aquaculture area. The Association paid about 185,438 USD to the aquaculture owners on behalf of the ship.

The loss situation in 2006 occurred frequently such as shortage or damage of sugar and rice in some cargo fleets. For example:

- Binh Minh 19 ship collided with Phuong Nam 2 on March 21, 2006, estimated compensation amount is about 144,650 USD.

- The ship “Sturdy Falcon” lacked and damaged cargo in Mogadisu on October 28, 2006 with a total negotiated amount of 226,693 USD while the amount of compensation requested by the complainant was 725,000 USD.

- The ship "ASEAN sea 2" lacked and damaged rice cargo at Nanging, Cotonou on July 12, 2006, WOE Association issued a guarantee worth 430,000 Euro.

In line with the general trend of the international P&I market in 2007, the number of claims and the amount of claims also tended to increase and for the first time in the history of P&I insurance in Vietnam, there was a claim exceeding the retention level of the P&I Association. Below are some typical losses in 2007:

- The first 2 years of the Far East ship's transfer from the WOE Association to the Steamship Mutual Association, it encountered an incident and this can be considered the largest compensation in the history of P&I insurance in Vietnam. The Far East 2 ship was loading iron ore at Hadia port - India on September 26, 2007. Due to the nature of the iron ore cargo, when encountering bad weather, the ship tilted 20 degrees to the right side. On September 29, 2007, the ship ran aground at Car Nicobar Island - India. The Steamship Mutual Association estimated that the compensation for this incident was quite large, about 22.3 million USD, of which about

7 million USD for the cost of salvaging the ship and removing the cargo from the ship; nearly 14.3 million USD for moving the wreck and the remaining costs for the crew and other compensation settlement costs. From this incident, the P&I Clubs have issued recommendations to ship owners when accepting to transport iron ore in India.

- The collision between the Hoang Dat 36 ship insured by the West of England Association and the “Gas Shanghai” ship insured by the North of England Association at Lotus Port in Ho Chi Minh City on May 15, 2007. The “Gas Shanghai” ship collided with the “Hoang Dat 36” ship, causing it to sink rapidly along with more than 2,000 tons of steel on board. Eight of the 16 crew members died. The WOE Association requested the North of England Association to issue a letter of guarantee of 7 million USD to release the “Gas Shanghai” ship. The WOE Association also had to issue a letter of guarantee worth 1.3 million USD for the claims against the Hoang Dat 36 ship by the “Gas Shanghai” ship. The amount paid was 50,800 USD and the remaining amount was 693,000 USD.

- The ship “Au Lac Dragon” collided with the ship “Gan Valour” on April 21, 2007 in Ho Chi Minh City. According to the investigation results, the fault lies entirely with the ship “Au Lac Dragon”. The complainant demands compensation of 517,665 USD. The estimated compensation amount in this case is about 500,000 USD.

- Peace Sky ship collided in China on May 28, 2007. The estimated compensation amount is about 535,000 USD.

The P&I loss situation in 2008 has not improved, some losses due to collision and damage to goods such as:

- The Vinashin Metal ship collided with the “Katerina” ship while docking at Damman port on April 30, 2008. The WOE Association had to sign a letter of guarantee worth 130,000 USD for the Katerina ship to avoid the ship being detained. During the unloading process at the port, there was a shortage of goods, so the WOE Association had to sign another letter of guarantee worth 87,449 USD for the consignee.

- Quoc Tu Giam Prison collided with the ship "Genco Hunter" in Singapore on August 7, 2008, the complainant requested an amount of 4.5 million USD after deducting

to cover the damage to the Quoc Tu Giam ship. The WOE Association has coordinated with relevant parties to limit liability under Singapore law to about 1.6 million USD.

- The Phuc Hai Star ship had its rice cargo damaged at Harcourt and Lagos ports on October 9, 2008. The complainant requested an amount of 783,122 USD. The WOE Association had to sign a letter of guarantee of 633,122 USD for the complainant.

- The Neptune Star ship lacked and damaged rice on November 5, 2008 at Conakry port, the shipowner detained the ship, the GARD Association had to sign a letter of guarantee worth

$900.00 to release the vessel. GARD and the parties involved negotiated and paid the claimant $500.00 in compensation.

Through the above loss statistics, we see that the loss situation of the Vietnamese fleet is mainly due to collision, lack of cargo and damage to cargo. These are causes that are largely influenced by human factors, so limiting losses is not impossible. Claims with large compensation amounts and an increasing trend make the compensation rate of the fleet increase, combined with the general increase of P&I Clubs, this makes it more difficult for insurance companies to renew P&I insurance with P&I Clubs as well as renew contracts with ship owners. The increase in insurance companies, P&I Clubs and brokers participating in the P&I business makes competition in exploitation more fierce. However, we see that the rapid growth rate of the Vietnamese shipping market in recent years and its further development in the coming years is an important premise for the P&I insurance market to develop strongly and sustainably.

IV. Difficulties and limitations in P&I insurance activities for shipping companies

1. High insurance premiums

Vietnamese shipping companies when participating in P&I insurance have to pay high fees, which also causes financial difficulties for the companies.

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