Pool claims highest for 15 years

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

30 Oct 2007

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$550 million 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 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 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 their 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, the Board 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, they agreed a general increase in premium rating of 10 per cent with the customary addition of any increase in the International Group's reinsurance premium. In order 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. 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 a total 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.