Pool claims highest for 15 years
The increase in P&I claims across the shipping
industry has made----and continues to make----heavy demands on the
International Group of P&I Clubs' Pool.
Pool claims on the 2006/7 policy year which ended on
February 20th are expected to be the worst for 15 years. A record payout of
more than US$550million by the clubs is envisaged.
Further, the Pool claims for the first half of the
2007/8 policy year (up to August 20th) were even higher than in the first half
of 2006.
In October 2005, the UK P&I Club budgeted its
contribution to the 2006 policy year Pool claims as US$35 million to US$45
million. However, the actual contribution resulting from the surge in claims is
currently projected as high as US$90 million. The UK Club will, therefore, have
to pay about two and a half to three times as much into the 2006 Pool as its
average contribution for each of the past five policy years.
Claims Director Christopher Brown emphasised that the
rise in shipping industry claims reflected a growing world fleet, larger ships,
strong freight markets creating pressure on owners and charterers to deliver,
challenges in obtaining quality crews, sustained commodity prices, stormy
weather and higher wreck removal and salvage costs. "There were a
disproportionate number of groundings in the 2006 year following adverse
weather, inappropriate crew response or mechanical troubles. Unusually,
collisions were not the dominant form of loss and there was no major tanker
spill. Salvage costs were particularly high.
"Clearly, there is an irregular but unmistakable
upward cost trend going forward. Claims appear to have risen faster in real
terms than the world fleet has increased. As more ships are launched, the
P&I industry will need to monitor this factor very carefully indeed.
"It would be wise and prudent, therefore, to assume a
claims pattern similar to the 2006 and 2007 years for the policy year starting
on February 20th 2008," added Mr. Brown.
The broad claims picture was laid before the UK Club
Board at its meeting in Bermuda on October 22nd. The Directors considered the
impact of these developments and resolved measures to maintain adequate revenue
and reserves to meet known and likely obligations. They felt it was imperative
for the long term security of the Club that premium income should keep pace
with foreseeable claims development, including the Club's share of Pool claims.
The Board considered that an overall increase in
premium of 17.5 per cent was required. However, it considered that a straight
general increase to achieve this would impact unfairly on some members and that
it would be more equitable to reflect the cost of Pool claims separately.
Accordingly, the Directors agreed a general increase
in premium rating of 10 per cent with the customary contribution to any
increase in the International Group's reinsurance premium.
To meet the projected future claims on the
International Group Pool, they also decided on a mandatory Pool surcharge of 12
per cent of each Member's 2007 policy year premium net of fixed reinsurance
costs. The surcharge will be added to each Member's 2008 rate after application
of the general increase and any adjustments for record or changes in risk.
No change was made to the estimates of supplementary
premium, which remain at nil.
Time charter and fixed premium rates would be subject
to a general increase of five per cent.
In light of the current claims environment, the Board
agreed to revise the existing release call policy to reflect the relative
maturity of open policy years, as is common in other clubs. From 22nd October,
such calls would be calculated as a proportion of mutual premium as
follows:
2005 5%
2006 15%
2007 25% (plus instalments not yet due)
2008 25% (plus instalments not yet due)
Ironically, 2006 has proved one of the best policy
years for the UK Club's own Members' Pool claims which have only accounted for
three of the 31 claims notified so far----and all three were only marginally
above the Club's retention. By contrast, during the first six months of the
2007 policy year, there were already two claims above the UK Club's retention
of US$7 million out of seven Group Pool claims declared so far.
At August 2007, the Pool record showed an improving
loss ratio for the UK Club. This has resulted in a drop in the UK Club's
pooling percentage for the 2006 policy year from 17.14 per cent in August 2006
to 15.09 per cent a year later.
The UK Club has an A rating with stable outlook from
Standard & Poor's.
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