American Club Raises Premium Levels for 2002

Thursday, November 29, 2001
In a move to return premium rating to levels more in line with current and expected claims exposure, allied to the need to maintain the club’s future financial strength, the directors of the American Club have advised members of rate increases for the 2002 policy year. A general increase of 12.5 percent will apply to all expiring advance call premiums as of February 20. In addition, the estimated supplementary call for 2002 will be raised from 25 percent to 40 percent of the advance call. This results in a year-on-year rise in the estimated total cost of 26 percent for 2003 over and above the equivalent figure for 2001. However, further rating adjustments will be made, as required, to reflect any disproportionate increase in reinsurance costs for the new policy year. Joe Hughes, chairman and chief executive of Shipowners Claims Bureau Inc., the club’s managers, said: “The directors, mostly shipowners themselves, are conscious of the shipping industry’s current problems and negative short-term prospects. They have therefore made an effort to ease the burden on members’ cash flow to the maximum extent considered to be prudent, yet accommodating in the circumstances. “Accordingly, the advance call premium will be levied in four installments between February and November 2002, and it is intended to make the supplementary call during the first half of the 2003 policy year in two equal installments of 20 percent each.

“Meanwhile, the club continues to make progress in eliminating the bad experience of 1999 and 2000. It is very encouraging that entered tonnage is now around 12 m. gt, against about 10m. at last February’s renewals. Also, we continue to gain new members both from within the United States and overseas.”

At their meeting in New York, the directors said it was widely acknowledged that the P&I market’s capacity to sustain uneconomic rating could not stand further compromise. “Reliance upon contingency or reserve funding is no longer an option,” they said, “given the erosion of all clubs’ net worth over the past 12 months, while the hope that underwriting losses can be subsidized by investment returns is equally unrealistic.”

However, the board wanted to proceed in as measured a way as possible since the supplementary calls levied in October for the 1999 and 2000 years will fall due for payment during 2002, hence the decision to stagger the increases decided for the 2002 policy year. As far as characters’ fixed-premium entries are concerned, rates will be increased by an amount equivalent to that applicable to the estimated total cost requirement for mutual entries, again subject to any disproportionate rise in the club’s reinsurance overhead for this sector of its business next year. Where it purchased on a mutual basis, there will be no general increase in advance calls for freight, demurrage and defense cover; but the supplementary call component of estimated total cost will increase, in line with the P&I cover, from 25 percent to 40 percent i.e., an overall rise of 12 percent for 2002. An equivalent rise will also apply to fixed-premium FD&D entries for account of charters.

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