79 ANNUAL REPORT 2022 STRATEGY & OUTLOOK LEGAL & INSURANCE REVIEW LEGAL & INSURANCE LANDSCAPE The global legal community was not spared from the effects of Covid-19, with one of the key questions arising on whether force majeure may be invoked to relieve parties from performing its obligations due to the pandemic. The impact of the pandemic on businesses, especially those that rely on international trade, has had a severe effect on commercial contracts and the hampering of contractual obligations on parties. The cascading effect of its interruption to businesses only serves to complicate matters even further, as would be the disparity in the treatment of such interruption in relation to Governmental agencies, clients and contractors respectively. Our legal team continued to navigate the unchartered territories brought about by the hitherto unprecedented pandemic. It is anticipated that the challenges brought about by the pandemic are expected to grow even as the global economy gradually regains lost ground, reviving contract negotiations that had been put on hold and giving rise to fresh rounds of negotiations that need to be adapted to a different post-pandemic environment. The changing environment is causing businesses to reassess their strategic priorities, necessitating legal advice on how to manage their respective unique set of risks and opportunities. The insurance market has endured some of its most turbulent times in recent years, largely driven by natural catastrophe events. This was compounded by back-to-back years of significant loss of activity from 2017 to 2021, as well as disruptions to the global economy caused by the Covid-19 pandemic. This has led to general market hardening, with increases in insurance rates globally and across most classes of insurances. Other dominant themes shaping the global marine insurance industry include extreme weather conditions, rapid technological developments resulting in growing cybersecurity concerns and new regulatory regimes such as IMO 2020. In keeping with our time-honoured contracting strategy, we continue to engage with both our clients and contractors by way of honest and friendly negotiations, in a solutions-oriented manner and by the avoidance of unwarranted ultimatums. We balance our considerations in relation to risks and rewards in a careful and measured manner, never losing sight of the objectives of contract negotiations, and never failing to take into account the interests of our clients and contractors. YEAR IN REVIEW Contract negotiations FYE 2022 has been an incredibly busy year for Yinson’s Legal & Insurance Department. We successfully closed contract negotiations for FPSO Maria Quitéria with Petrobras, with firm contracts signed, sealed and delivered. The successful award is a testament to the adaptability and commitment of both Yinson and Petrobras, as negotiations encountered many challenges and several postponements, caused in part by the pandemic and volatile oil prices. Together with Petrobras, we are pleased to arrive at a robust contract that meets our shared goals for profitability, productivity and sustainability. Our second major contract signed was with Enauta for FPSO Atlanta. The FPSO Atlanta project has proven to be a complex legal transaction, at once challenging and rewarding. Our Legal Department had to dig deep into our capabilities and knowledge to structure the transactions involved, and in doing so, we churned out novel solutions hitherto unexplored. In a relatively short time, we were able to overcome all the challenges posed by this project, and the result was a transactional triumph for all parties involved. The FPSO Maria Quitéria is Yinson's second project award with Petrobras, after FPSO Anna Nery and FPSO Atlanta, and is the third project award in Brazil for Yinson. With this, Yinson has made a firm inroad into Brazil, fulfilling our objective of making Brazil one of the leading jurisdictions in our business endeavours. Insurance update We successfully placed billions of dollars of FPSO exposure through Construction All Risks (“CAR”) insurance for the FPSO Maria Quitéria project, at competitive premiums even in the current hardening market within an unprecedented short period of time. All participating insurers in this CAR programme are rated by S&P as ‘A-’ at a minimum, which is equal to or in excess of contractual requirements, which translates to highly favourable terms. CAR insurance is a very important tool to mitigate project cost exposures in the event of any major unfortunate incident during the construction phase including commissioning & testing in the field. It covers all perils to which the interest is exposed, unless specific exclusions are stated. It insures the physical damage or loss plus liability arising out of the project works. Despite rate increases in the insurance market, Yinson’s fleet continues to enjoy competitive rates. This is due to Yinson’s growing fleet profile, good management and operational reputation and strong relationships with insurance partners such as brokers and market leading insurers with strong credit ratings. We have also regularly assessed our risk exposures and determined mitigation measures by insurance, if any, for consideration. Managing Covid-19-related legal risks During the financial year, the Legal & Insurance Department proactively looked into the best way to manage the risks of contracting parties in light of the pandemic. Applicable risks for us as a contractor include project schedule delays and cost increases; while for us as a client, risks include unfavourable variation orders and invocation of force majeure by vendors who face difficulties meeting their deliverables. Our strategy adopted on force majeure-related provisions have evolved from excluding Covid-19 in totality as a force majeure event to provisions relating to unforeseeable impact from the consequences of implementation of Covid-19 measures. Further, and notwithstanding that communicable diseases have recently been excluded from International Group P&I Club pool coverage, we are pleased to make the observation that our renewal with Skuld P&I Club has put us in a substantial position by having the reinstatement of such exclusions of up to USD10 million.
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