Circular 2/05: 2005 Policy Year


  • Date: 11/02/2005

Outline

1/05 & 3/05.Circular Ref:1/05.Circular Ref: 3/05.

  • The Club's liabilities to the upper US$20 million layer of pooled claims and the Group's 25 per cent co-insurance on the excess loss reinsurance are reinsured into Hydra.
  • Individual Club retention is increased from US$5 million to US$6 million.
  • The Club intends to purchase 100 per cent reinsurance protection of the first US$1,000 million of its overspill claim exposure.
  • Improvements in the Swiss Re protection are being negotiated in the five year anniversary review of that reinsurance.
  • Oil pollution claims remain subject to special limit under Rule 5B(iii) - US$1,000 million for owned entries and US$350 million for chartered entries.
  • US oil pollution and special war risks P&I are reported separately in Club circulars

TO THE MEMBERS

Dear Sirs

2005 POLICY YEAR

Reinsurance Arrangements

The Group reinsurance contract has been renewed on the same terms as the 2004 policy year with no overall increase in premium and minor changes to the rate allocations by ship type.

Hydra

The Group segregated account captive, Hydra, the establishment of which has now been agreed by the Boards of all the clubs in the International Group, will commence underwriting from 20th February, 2005. Hydra, acting through the relevant segregated accounts, will reinsure each club in the International Group in respect of that clubs' liabilities, first, in the layer US$20 million excess of US$30 million within the Pool's retention of US$50 million and, second in the Group's 25 per cent co-insurance of the first layer of the general excess loss contract of US$500 million excess of US$50 million. Hydra will buy reinsurance protection in respect of its 25 per cent share of claims falling in the co-insured layer in the amount of US$500 million in the aggregate excess of US$50 million.

Changes to the Pooling arrangements for 2005

For the 2005 policy year the Club retention will increase from US$5 million to US$6 million. The Group Pool, which, will now cover a layer between US$6 million – US$50 million, will return to two layers: US$6 million – US$30 million (the lower Pool) and US$30 million – US$50 million (the upper Pool). The upper Pool layer will be pre-funded as it was for the 2004 policy year. Premium allocated to this layer will be paid into Hydra, the Group's Captive.

Overspill Arrangements

If a claim were to exceed US$2.05 billion i.e. the limit of the Group Pool's excess of loss contract, the excess or overspill will be pooled amongst the Group clubs. The overall Group Pool limit for such an overspill claim remains unchanged at 2.5 per cent of the property limitation funds under the 1976 Limitation Convention of all ships entered in the International Group Pool clubs. Members remain ultimately liable to pay an overspill call up to a maximum of this limit for each entered ship, in accordance with Rule 22 of the Rules of the Association. For the 2004 policy year, the Association purchased a special overspill reinsurance to cover 100 per cent of its estimated share of the first billion of such an overspill claim.

At the meeting of the Board of the Association on 27th January, 2005 the Directors decided to buy, subject to price and capacity, at least the same level of protection for the 2005 policy year as the Club has taken for 2004. Details of these arrangements will be notified to the Members once the contract has been placed.

Renegotiation of the Swiss Re contract

The Association entered into a ten year reinsurance contract with Swiss Re in February, 2000. Reinsurance recoveries under this contract are triggered by a fall in the Association's solvency ratio as measured by total funds to outstanding claims at the end of each financial year. Claims are recoverable regardless of the reason for the fall in the solvency ratio, whether this is caused by increased claims, or by adverse performance on the underwriting account or investment. The contract is due for review at the five year point on 20th February, 2005.

Against this background discussions have been held with Swiss Re to review the contract with a view to negotiating an improvement in the protection provided for the five years starting on 20th February, 2005. These negotiations are still in progress and once the final revision of the contract has been concluded Members will be advised by circular of the details of the policy.

Oil pollution limit

The Board has determined in accordance with Rule 5B(iii) that for the 2005 policy year, the limit of the Association's liability for claims in respect of oil pollution shall be: US$1,000 million each accident or occurrence in respect of each ship entered by or on behalf of an owner not being a charterer other than a demise or bareboat charterer, or a combined single limit of US$350 million (for oil pollution and other risks) each accident or occurrence in respect of each ship entered by or on behalf of a charterer (other than a demise or bareboat charterer), or by more than one such charterer as joint owners.

Oil pollution risks in the United States – tanker voyage additional premium

Details of the additional premiums for 2005 are set out in the Association's

War Risks – P&I

Details of the Association's special War Risk P&I cover for the 2005 policy year are set out in the Association's

Charterers Liability

For 2005 Policy Year, cover in respect of a charterer's entry on the Group reinsurance cover will be changed as follows:-

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the "Deemed to limit" provision currently contained in Rule 5(B)(ii) will be removed

the aggregate limit for pollution risks of US$300 million will be removed

Cover will be subject to a maximum combined single limit of US$350 million for all risks (pollution and non-pollution) per charterer's entry.

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This cover should be distinguished from the "alternative" charterers covers which are available outside the Group reinsurance arrangements.

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