American Club Sets 17.5 Percent General Increase in P&I Rates

Thursday, November 20, 2003
The American P&I Club has announced a general increase of 17.5% in total premium for its P&I business for the 2004/2005 policy year following a meeting of the directors in Copenhagen. Any increase in the cost of the International Group’s reinsurance programme, which has not yet been determined, will also apply. As usual, and in line with other mutual clubs, individual members’ premium ratings will be adjusted in accordance with their loss records. Another decision by the directors means that the advance call will equate to 100% of estimated total premium. This compares with a 2003 policy year advance call of 83% of estimated total premium. The directors state: “Moving to an advance call requirement representing 100% of estimated total premium will improve the club’s cashflow in 2004, bringing it into line with practice elsewhere in the IG while creating administrative efficiencies.” The club’s general increase for its freight, demurrage and defence (FD&D) business is 10% for 2004. The release call has been fixed at 25% of the relevant advance call for both classes of business. As to development of open policy years, the directors noted that 2000 and 2001 were developing in line with expectations; but 2002 had shown some deterioration from earlier projections. The current year was satisfactory, showing a respectable surplus to date. However, the very recent implementation of the club’s new IT system nevertheless means that the managers intend to complete a further updated analysis of open-year results in the next few weeks and will advise members. In any event, and while acknowledging significant revenue development in recent months, the directors concluded that, as many other IG clubs had observed, “there remained a need to achieve levels of premium rating sufficient to match increasing exposures in a continuing hostile liability climate.” The board was firmly of the view that although good progress had been made in enhancing the club’s financial strength, and while recent gains in the equity markets had been encouraging, reliance on prospective investment performance was no substitute for solid underwriting results as the best way forward to continuing financial stability. Joe Hughes, chairman and chief executive of Shipowners Claims Bureau Inc., the managers, said: “The directors realise that increases in premium, though always unwelcome, are necessary to maintain the club’s financial strength and future progress.”

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