Open Policy Years and General Increase for Renewal 2014

CIRCULAR REF: 2013/033

CIRCULATED TO ALL MEMBERS, BROKERS AND DIRECTORS

The Directors met on 22 October 2013 to review the performance of the Club’s open policy years and to consider the requirements for the 2014 renewal.

Open Policy Years

P&I CLASS

2010/2011              This policy year was closed, the final cost was on target at 100% of the originally estimated total premium.

2011/2012              This policy year will be reviewed in October 2014, no additional calls are anticipated, and the final cost is expected to be on target at 100% of the originally estimated total premium.  The release call is NIL.

2012/2013              This policy year will be reviewed in October 2014, no additional calls are anticipated, and the final cost is expected to be on target at 100% of the originally estimated total premium.  The release call is 5%.

2013/2014              The outcome of this policy year will be determined in due course, the final instalment of 30% (due on 1 December 2014), will be reviewed in October 2014, and at that stage a decision will be made as to whether the instalment is required in part or full.  It is too early to predict the final outcome, claims are developing as anticipated with a small underwriting deficit, however it is anticipated that the final cost will not exceed 100% of the originally estimated total premium.   The release call is 20%.

FD&D CLASS

2010/2011              This policy year was closed, the final cost was on target at 100% of the originally estimated total premium.

2011/2012              This policy year will be reviewed in October 2014, no additional calls are anticipated, and the final cost is expected to be on target at 100% of the originally estimated total premium.  The release call is NIL.

2012/2013              This policy year will be reviewed in October 2014, no additional calls are anticipated, and the final cost is expected to be on target at 100% of the originally estimated total premium.  The release call is NIL.

2013/2014              The outcome of this policy year will be determined in due course, the expected final premium is currently on target to be 100% of the originally estimated total premium.  The release call is 20%.

Renewal 20 February 2014

North is financially secure and has a strong capital position as evidenced by the ‘A’ rating from Standard & Poor’s and North’s strong underwriting performance has meant that Members have not been burdened by unbudgeted supplementary calls for more than 20 years. However, the Club has not been immune to the impact of volatile investment markets, and a deteriorating claims environment, which has seen an escalation in the number and cost of claims, particularly claims over US$1 million.

The slow recovery from the economic downturn, depressed freight rates, liquidity pressures and uncertain times mean our Members continue to operate in a very difficult and unpredictable environment.  Whilst remaining mindful of these industry-wide issues, the Directors have decided on a renewal strategy that will maintain the financial health and stability of the Club and to maintain the Club’s strategic objective of not burdening Members with additional unbudgeted calls in the future.

P&I Class

The Directors have decided to apply a 7.5% General Increase to Members’ premiums at the forthcoming renewal, all deductibles currently below US$25,000 will be increased by US$1,000 each. Members with adverse loss records or enhanced exposures, will face adjustments in excess of the General Increase, and all Members’ rates will be adjusted to incorporate any changes in the costing and structure of the International Group Excess Loss Reinsurance programme.

Last year, the Directors recognised that the external costs of handling, advising and dealing with claims had increased significantly and a separate deductible was applied for all fees, costs and expenses incurred as a result of a claim/incident. With effect from 20 February 2014, all external fees, costs and expenses will be subject to a Members’ fee deductible of 25% per claim/incident, with a minimum of US$1,000 and a maximum of US$10,000.  The P&I Class Rules will be amended to incorporate this deductible for all Members from 20 February 2014.

FD&D Class

The Directors have decided to apply a 5% General Increase to all Members’ premiums at the forthcoming renewal to reflect the high level of claims notifications and volatility affecting this Class. The FD&D deductible will remain unchanged at 25%, with a minimum of US$10,000 and a maximum of US$150,000 per claim.

Premium Collection

P&I premiums for mutual owned entries will be collected in five equal instalments of 20% timed to continue to provide a financial benefit to Members.  P&I premiums will be collected on: 1 April 2014, 2 June 2014, 1 September 2014 and 1 December 2014, with the final 20% instalment to be collected on 1 December 2015. The Directors will decide in Autumn 2015 whether this instalment is required in part or full.  The Managers’ assessment of release calls is 20%.

FD&D premium will be collected in two equal instalments on 1 April 2014 and 1 September 2014.  The Managers’ assessment of release calls is 20%.

Pre-Renewal Report 

A Pre-Renewal Report will be published in early November, and will provide detailed  information concerning the Club’s financial position, and also include an initial assessment of developments during the year to date.  Investment markets were particularly volatile in the first half of the year, and consequently the contribution from investments is likely to be lower than in previous years.  As a result a small reduction in total free reserve is therefore currently anticipated.

The Directors are satisfied that the Club remains in strong financial health, and that our renewal strategy will maintain this position. 

AA WILSON and PA JENNINGS

JOINT MANAGING DIRECTORS – North Insurance Management Limited

As Managers on behalf of the North of England P&I Association Limited