The letter of solicitation says that: We, therefore, now seek only your nonbinding confirmation of your interest in supporting the program, so that it can be carried to the next step after the oversight hearing. In this connection, we have attached a sample letter to be used as a guide. We wish to stress this confirmation of your interest is not binding, but will enable the managers of Shoreline to demonstrate the viability of this concept to government officials. It sounds like a publicity campaign. Is that all it is; or is Shoreline really going to get reinsurers to line up, as your testimony indicates, which is absolutely essential to the financial viability of the structure you propose?

Mr. BRYANT. Mr. Chairman, you have the advantage of me in the sense that, you know, when I have a dog, I tend not to bark myself. And therefore, I am not actually privy to the letters which our brokers have actually been writing to their chosen market.

Mr. TAUZIN. Have you not seen this letter?

Mr. BRYANT. What I do think is that when the brokers report to us that they have received interest from those markets, and the letter, of course, was written in order to be demonstrated to you, a company of the size and standing of Willis Faber doesn't actually make statements such as it has made without some confidence that it is going to be able to do the job. I don't know what letters they have actually received from their various

Mr. TAUZIN. Is that a problem-I will give you a copy of this letter, if you like.

Mr. BRYANT. With great respect for the Chairman, of course, I have seen that letter. The thing that I will assure you, though, is that there are five well-founded law firms who are all charging quite healthy sums, who are basically depending on the client, the Shoreline Management to keep us fed and watered until the rule is in effect and the Shoreline project can start underwriting. That will require a level of commitment to the various investors behind Shoreline of several million dollars. If we didn't believe as professionals that this whole project was feasible, we would not be here today.

Mr. TAUZIN. But the reason I raise it is, obviously, if your brokers are only requesting nonbinding confirmations of interest and stressing the nonbinding character of those letters, I want to know what kind of letters have they received from people to which they have referred in the letter that you quoted to us?

Mr. BRYANT. Yes, Mr. Chairman, I think what was in the minds of the brokers and what we were perhaps hoping to do was to actually have some letters to show to you at this hearing. I have to say that in the letter which we have asked for you to accept in the record from Willis Faber, you will see on the second page that they have, in fact, experienced-some of the reinsurers contacted have, in fact, experienced some pressure on them from other people. Mr. TAUZIN. They claim to, anyhow.

Mr. BRYANT. They claim to and they are a little reluctant until the contract is signed and sealed to let their names be known.

Mr. TAUZIN. They defined the letters they received as both written and verbal indications of potential conventional and finite capacity in excess of 150 million; what do they mean?

Mr. BRYANT. Perhaps I can help you out in this way. What we are trying to do is create one of the biggest reinsurance contracts in the world. The biggest is the International Group of P&I Clubs' reinsurance contract. The Shoreline one will not be as big, but it will certainly be one of the very big ones.

The International Group's reinsurance contract has been placed for many, many years now and it still takes the leading firm of Lloyd's brokers who formed that, several months to put the details into place each year. In Shoreline, we are having to do a similar job and we had to start on July the 1st, because until the requirements of the rule were known, it was not possible to go to any reinsurers with anything more than an in principle inquiry.

The project for the reinsurance placement started 20 days ago. I think to have got to the stage where Willis Faber is prepared to say that we are assured of getting the 150 million of the 290 required in 20 days

Mr. TAUZIN. They have not said that. That is my point. All they have said is that they have received written and verbal indications of potential capacity. And when I read their letter of solicitation, they have gone to great lengths to tell these people; when you get back to us, make sure that you know and we know that nothing is binding.

Mr. BRYANT. I think that it is a little bit sterile here to say to you what I think is in the mind of the reinsurers or whatever. What I would point out to you is that Willis Corroon's people have said that they feel confident that this program can be placed and that letter says that loud and clear. And we believe them.

Mr. TAUZIN. All right. I want to ask you-and, Mr. Coghlin, if you could also join in this discussion-to play against one another a bit here.

You mention in your testimony, Mr. Bryant, that as such, Shoreline's friend, like any other P&I Club, will be the function and the strength of its shipowner members.

The letter from your brokers indicates that one of the unknowns is: How are the P&I Clubs going to use the existing reinsurance program, thus, even more capacity might be available to you if P&Is are available to you as insurers. I read.

What is the difference between Shoreline and a P&I Club, if you end up relying upon reinsurers to make up the 300 million liability cover that you propose to offer to shippers?

Mr. BRYANT. The International Group, as I am sure Mr. Coghlin will tell you, has a comprehensive reinsurance program. I think it is the biggest in the world. Shoreline also is planning to have insurance program. That a P&I club has a reinsurance program doesn't make it any less than a P&I club.

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Mr. TAUZIN. Exactly as P&I Clubs now operate, as you pointed out, Shoreline proposes to operate on the basis of its shipowner's strength. That is the foundation of P&I Club strength. You say that is going to be the foundation of Shoreline's strength.

Both you currently operate with reinsurers behind you. They operate with reinsurers and you propose to operate in the same way. What is the difference between Shoreline and a P&I Club in the end?

Mr. BRYANT. Shoreline has in its Rules a specific rule which permits it to issue COFR guarantees.

Mr. TAUZIN. So the difference is you would subject yourself to these rules and the P&I Clubs would not, but that is the only difference.

Mr. BRYANT. That and the differences in our levels of liability exposure.

Mr. COGHLIN. I think your exchange with Mr. Bryant is very fair. It is a one-risk, one-area club but structured as our individual clubs are, and with a 300 rather than a 500 million dollar limitation on oil pollution liability cover.

And in terms of playing against Mr. Bryant, which you kindly invite me to consider doing, I have no interest in doing that at all. I wish him well.

Mr. BRYANT. I am grateful to you.

Mr. TAUZIN. And next to you both, Mr. Kulukundis is offering a new concept of a government-sponsored program of bonded insurance. Why government-sponsored? Why can't the markets fund a bonded insurance program for the shippers?

Mr. STATHES KULUKUNDIS. Because, Mr. Chairman, our inquiries with the commercial insurance markets indicate that that capacity is not there at the moment. And we can-we feel that the government-sponsored nature would be required to get the scheme off the ground until it were up and running, with respect, it would be self

Mr. TAUZIN. Help me on this. I thought we created a government-funded insurance program for oil spills when we created a billion dollar government fund, and that we would supplement it under OPA 90 with individual evidence of financial responsibility in order to make sure that the players who operate are going to be responsible for what they do. As I understand good insurance principles, it is also supposed to make the players more careful about the way they operate and how they are prepared to respond to a spill as they have residual liability under the system; am I wrong? Haven't we created a government-sponsored insurance fund under OPA 90 to the tune of a billion dollars.

Mr. STATHES KULUKUNDIS. The Federal fund, Mr. Chairman, does protect potential claimants against the possibility of the owner not being able to meet the liability.

Mr. TAUZIN. Isn't that insurance?

Mr. STATHES KULUKUNDIS. That is protection available to the claimant. It doesn't provide protection to the shipowner who is most concerned at the possibility of—

Mr. TAUZIN. But at the bottom of all of this is insurance for the claimants. And the reason we passed OPA 90 was to insure the claimants, citizens of this country were protected against oil spills. And that somebody paid the bills. So we told all the players, chip in some money in advance to a Federal fund, which is going to be an insurance fund, in case any one of you are incapable of meeting the needs of a claimants in America who suffer an oil spill. Again, unless I am all wrong, I thought we had established such a fund. We have a vote on, and my time is extremely limited and so we will recess then while I run to vote.

[Recess.]

Mr. TAUZIN. The committee will please come to order.

My apologies. When we hit the Floor we found out there were more votes. We were in the midst of some questions to the second panel. I wanted to renew some of those in a minute.

This is to all of you in general. My understanding is that for ships to qualify by December, they are going to have to make some decisions as early as October in terms of leaving the Gulf with supplies. I want to talk about the timetable just a little bit.

Mr. Bryant, we talked a little bit about what is going on in terms of your company trying to put together its reinsurance. We talked with the Coast Guard a little bit about when they think they are going to be ready to either certify you or other insurers, and they gave us some indication, at least, of what they might do if things don't work out. But here is the question.

If, in fact, shippers are going to have to launch or not launch in October vessels destined for ports in the United States, and they have to qualify by December, is it not true that before they launch those vessels, they are going to have to give assurance that they meet the COFR requirements and be certified to enter U.S. waters or the launch itself may never occur?

Anyone want to handle that?

Mr. BRYANT. I can talk about what I call the critical path, which in setting up a new P&I we are going to have to follow. And we can relate that to a target time so you can then assess how your hypothetical shipowner leaving the Gulf is going to fit in with that.

Mr. TAUZIN. Let's do that. Let's assume that you are plotting ahead. You are going to file for acceptance with the Coast Guard, that you have got a timetable in which your brokers are going to get in reinsurance for you. When do you expect to file with the Coast Guard with adequate reinsurance to satisfy the Coast Guard of our financial capability to be certified as a properly, financially capable insurer and guarantor?

Mr. BRYANT. We anticipate that to get to that stage, Shoreline needs to do a number of things. First of all, it needs to be incorporated. It is incorporated.

Second, it needs to get its reinsurance program fixed.

Third, it needs to get its leading shipowners to join its board so that they can control its final shape. Then it needs to launch its bond offering so that it actually has capital money available in case there is a major claim on day one. And when it has got all of that, then it goes to the Bermudian authorities to get its formal permission to underwrite in Bermuda and it goes to the Coast Guard at the same time to get its permission to act as a guarantor. Now, we anticipate that that whole process should be complete during the month of October.

Mr. TAUZIN. During the month of October. And obviously then you are going to take applications after you have been authorized to act pursuant to Coast Guard permission. How long will it take you to examine applications for coverage.

Mr. BRYANT. Because it is going to be a large job, the Shoreline requirement has been to set up a program which could accommodate all the ships which are currently covered by COFR guarantees issued by the International Group of P&I Clubs. Now, the Coast Guard tells us that that is somewhere slightly over 15,000 ships.

For that reason, Shoreline is underwriting on the basis of a tariff so that it is a very mechanical business to work out what each ship would pay and what its requirements would be.

We have taken the precaution of setting up data bases so that in fact all of those ships are now on data bases. The majority of the main shipowners are already in touch with Shoreline. So an awful lot of the preparatory work has already been done.

Mr. TAUZIN. Granted, you have named a number of things that have to fall into place. Corporating should not be difficult since you have a lot of lawyers on board, but you do have a problem of getting all of your reinsurance together, you do have a problem of getting shipowner acceptance and participation on your board. As you pointed out, the success of your venture depends upon the strength of the shippers themselves.

You have to make your bond offerings. You have to at some point, not only go through the process of going through the Coast Guard for permission to operate, but you have to also come up with a schedule of tariffs or premiums by which shippers are going to go in to apply for and buy this coverage.

Mr. BRYANT. Mr. Chairman, they exist already. The draft tariffs are in the docket which is being submitted to you.

Mr. TAUZIN. Right. But you will have to eventually do more than draft them. You will have to tie them down and offer them to shippers.

Mr. BRYANT. The difference is that when the reinsurance contract is fixed, the reinsurers have to indicate that the tariffs are acceptable to them. Every indication that we have had is that the tariffs are acceptable.

Mr. TAUZIN. You did not anticipate all of these things would fall in line. Obviously, you would not be here so I would not presume that you would give me an answer other than you expect it all to hatch, but what happens if any one of these do not fall in place and you are not able to offer this by October? My understanding is that shippers are going to have to be insured by October to launch some of these shipments to America.

Mr. BRYANT. No. I think with respect, Mr. Chairman, that is not correct.

Mr. TAUZIN. Why is that wrong?

Mr. BRYANT. The rule requires self-propelled tankers to have evidence of financial responsibility which doesn't actually mean COFRS. It means the new guarantees on December the 28th. They don't need to have them in October.

Mr. TAUZIN. We are told and what I hear from shippers is that if we will be required to have a COFR by December 28th then we are not going do launch in October without having one then. That is the conundrum that I think some of shippers find themselves in. Mr. BRYANT. I very much doubt, Mr. Chairman, that many shipowners would pay premiums for an insurance for which they don't actually need and they don't need this insurance before December 28th. So I think you will find that everything has to come together on December the 28th and not before.

Mr. TAUZIN. But the point they are making, Mr. Bryant, and please address it if you can, is that if they do not have the confidence that it is available to them when they have to launch, then