On 23 September 2022, COSCO Shipping Captive, a subsidiary of China COSCO Shipping Group, announced to sign up for the Poseidon Principles for Marine Insurance (PPMI) as an Affiliate member, becoming the first insurance company to join PPMI in China and the third in Asia after EF Marine and CTX Special Risks. The principles, with shared methodological foundation with the Poseidon Principles for Financial Institutions and aligned with the Sea Cargo Charter, are intended to establish the same data requirements and information flow for Signatories and their clients to follow. It is governed by the Poseidon Principles Association which is maintained by the Global Maritime Forum.

I. The Poseidon Principles

The Poseidon Principles were drafted under the auspices of the Global Maritime Forum by a group of global shipping banks and leading industry players and launched in New York on 18 June 2019. The Principles provide a global framework for integrating climate considerations into leading decisions to promote international shipping decarbonization. With Germany’s KfW IPEX-Bank endorsed the Poseidon Principles on 22 September 2022 becoming the 30^th signatory, nearly 65% of the global marine leading portfolio is now on board. 30 shipping banks and 17 marine insurance providers and brokers announced on the same day that the Poseidon Principles will add additional trajectories to report climate alignment with the Paris Agreement’s 1.5C temperature goal.

II. The Poseidon Principles for Marine Insurance (PPMI)

PPMI is a global framework that measures vessel carbon intensity and enables marine insurance companies to disclose their portfolio climate alignment. It is consistent with the IMO ambition to reduce shipping’s total annual GHG emissions by at least 50% by 2050 compared to 2008. It has also taken steps towards measuring portfolio alignment with the Paris Agreement, to achieve net-zero emissions by 2050.

On 15 December 2021, six of the world’s leading marine insurers launched the PPMI, which came into force on 4 May 2022 when Navium Marine and AXA XL joined as the eighth and ninth signatories. The organisation held its inaugural meeting on the same day and elected its steering committee members. Patrizia Kern from Swiss Re Corporate Solutions was elected Chairman of the Steering Committee and Rolf Thore Roppestad from Gard was elected Vice-Chairman. The PPMI signatories now include Swiss Re Corporate Solutions, Gard, Hellenic Hull Management, SCOR, Victor Insurance, Norwegian Hull Club, Fidelis Insurance, Navium Marine, and AXA XL.

The PPMI Affiliate members include Willis Towers Watson, Cefor, EF Marine, Cambiaso Risso, Lockton, CTX Special Risks, Lochain Patrick Insurance Brokers, Gallagher Specialty, and COSCO Shipping Captive.

In addition to the nine signatories and nine Affiliate members, the International Union of Marine Insurance (IUMI) supports the PPMI as its supporting partner.

III. Scope

The Poseidon Principles for Marine Insurance must be applied by Signatories in all business activities where:

1. The insurance products cover hull and machinery (H&M).
2. The Signatory is the leading insurer, as well as in cases where the Signatory is a follower, but the lead is also a fellow Signatory.
3. A vessel or vessels which have an established Poseidon Principles trajectory whereby the carbon intensity can be measured with IMO Data Collection System (DCS) data (vessels 5,000 GT and above engaged in international voyages).

Under the current scope, the Poseidon Principles for Marine Insurance are applicable to insurers with H&M policies and underwriters. However, it is recognized that the ecosystem of key players extends beyond this limit, and the framework must be inclusive of these perspectives and their support. Therefore, Affiliate membership is applicable to insurance brokers and collective groups (such as insurance associations, unions, and P&I Clubs), and their support is welcome.

IV. Principles overview

The PPMI, aligned with the Poseidon Principles for Financial Institutions and the Sea Cargo Charter, are supported by a climate alignment assessment methodology and accountability, enforcement and transparency requirements.

1. Assessment

Signatories will, on an annual basis, measure the carbon intensity and assess climate alignment (carbon intensity relative to established decarbonization pathways) of their hull and machinery portfolio. Affiliate members will support Signatories by sharing knowledge about the Assessment principle and climate alignment methodology with relevant stakeholders, in line with the Technical Guidance. These requirements take effect for each member in the following calendar year in which it becomes a member.

2. Accountability

For each step of the assessment, Signatories will exclusively rely on the data types, data sources and service providers identified in the Technical Guidance. Affiliate members will, for each step of the assessment and as necessary, support Signatories by sharing knowledge about the Accountability principle and data collection process with relevant stakeholders, in line with the Technical Guidance.

3. Enforcement

Signatories will agree to work with clients and business partners to collect and process the information necessary to calculate carbon intensity and to assess climate alignment. Affiliate members will agree to work with Signatories, shipowners, other marine insurance providers, brokers and business partners where possible, to support Signatories by sharing knowledge about the Enforcement principle and standardized clauses with relevant stakeholders, in line with the Technical Guidance.

4. Transparency

Upon becoming a Signatory or Affiliate member, the member will publicly acknowledge that it is a Signatory to or Affiliate member of the PPMI. On an annual basis, each Signatory will report the overall climate alignment of its shipping portfolio and supporting information to the Secretariat. All eligible Signatories and Affiliate members’ annual climate alignment scores and statements of support are published online prior to 31 December.

V. Reception in the industry

The International Group of P&I Clubs (IG) sets out its position on the day the PPMI was published on its official website that it is currently considering whether to seek to obtain a formal mandate from its shipowner stakeholders via the 13 individual Clubs in respect of the PPMI. The IG and its constituent Clubs will, nevertheless, support their shipowner members where possible through the transition to alternative fuels.

Gard Vice President Sigvald Fossum said on 23 June 2022 that the data collection process has been smooth, and they are working on the incorporation of standard clauses and use of modelled data going forward. The data will be fully understood and analysed before applied to commercial decisions and pricing.

Alexander Gray, Lockton’s Head of Marine P&I, Asia Pacific commented on 21 July 2022 that “among the issues that still need to be resolved is the alignment of the IMO’s Carbon Intensity Indicator (CII), which addresses how a ship operates such as the fuel used, with the Poseidon Principles. Funding will be needed to develop and test prototype vessels, new engines, and alternative fuel options including the necessary logistics. Capital expenditures are higher for new and untested technology than for existing solutions and this may create a dispute over who should bear the cost”.

VI. Conclusions

With decarbonisation prevailing globally the PPMI can without doubt ride this tide. There is a strong call for decarbonisation worldwide and the low-carbon economy is well underway in China. Also, the IMO Intensity Target and Absolute Target have been put into practice. On a more intuitive level, with the Poseidon Principles now collectively covering over 65% of the global ship finance portfolio, the role and influence of the PPMI has been established beyond dispute.

However, the PPMI cannot be implemented without difficulty. The EU is closely monitoring IMO’s decision on the GHG strategy. Where the EU is not satisfied with any new targets adopted by IMO in the revised strategy for 2023, or if not aligned with the Paris Agreement’s 1.5 degrees Celsius future, shipping will become subject to the ETS. From an internal operational point of view, achieving the initiative would be costly. According to Lockton’s calculation, if the shipping industry was to fully decarbonise by 2050, this would require further investment of USD1-1.9 trillion.

In summary, the PPMI has come into force and the impact on marine insurance, particularly hull insurance, is to be revealed. While the industry is taking steps towards decarbonisation, the cost and resistance during the process must not be overlooked.

For more information, please contact Managers of the Association.