Circular 8/97: The International Group Agreement Limit on Cover

  • Date: 01/08/1997



Dear Sirs,


In 1985, after careful study of the functions and operating practices of the International Group, the European Commission's Competition Directorate, DGIV, granted a formal exemption for ten years of the International Group Agreement (IGA), having satisfied itself that any restrictive elements in the International Group Agreement were more than offset by the benefits provided to shipowners and others by the International Group.

In 1995, the International Group sought renewal of this exemption for the IGA, as it was legally bound to do. In June 1997, DGIV issued a formal "Statement of Objections" (SO) which


a. challenges the necessity of the IGA; and

b. states that the current limit on cover is too high.


Point (b) is in line with arguments set out in a formal complaint lodged with DGIV by representatives of the Greek merchant fleet.

The International Group Agreement

All Club Boards of Directors, including the Board of this Association, have considered DGIV's challenge to the IGA (point (a) above), and have instructed Club Managers to resist DGIV's position on the ground that the IGA is indispensable to the continued existence of claims sharing through the International Group Pool. Club Boards feel that the restraints in the IGA are the minimum necessary to promote the fair sharing of overall costs of the Clubs, bearing in mind that any shortfall in the contributions of a particular Member who is either induced to move or induced to stay by the offer of a reduction in his proper rate must be subsidised by the rest of a Club's Membership. They feel that without these restraints the highly beneficial pooling and reinsurance system of the International Group would break down. The cost of P & I would rise and the amounts of cover available would fall, and the efficiency of the system of International Group Club guarantees would be lost.

The Club Managers are now striving to urge this case upon DGIV with the assistance of the Group's legal and political advisers. A formal response to the SO must be lodged with DGIV by 16th September, 1997. Meanwhile, very positive support is being received from shipowners and their Associations around the world.

Limit on Cover

So far as concerns DGIV's objections to the current limit on cover (point (b) above), the Directors of all Group Clubs have decided, against the background of the Statement of Objections, that a reduction in the level of individual owners' exposure to overspill calls from 20 per cent of the vessel's limitation funds to 2.5 per cent would provide a level of limitation which should (i) be acceptable to DGIV, (ii) still provide a substantial level of cover to Members (about $2.25 billion above the limit of the International Group's reinsurance contract, currently just over $2 billion), and (iii) set Members' exposure to overspill calls at a level which is tolerable and sustainable.

For this Association, whose Members have for some time supported the Board's call for a realistic limit on cover, this is a positive development. Members will recall from the circular 8/96 of October, 1996 ("Limit on Cover"), and the longer paper "Limit on Cover - Why 4 billion dollars?" issued in February, 1997, that this Association's Board considers a limit of about $4 billion would best represent a realistic balance between shipowners' cover requirements on the one hand, and an acceptable financial obligation on the P & I system and its members on the other. The limit now agreed is equivalent to about $4.25 billion based on the current reinsurance limit. In endorsing this, the U.K. Club Board recognised the major concession made, for the sake of Group unity, by those Clubs whose Boards had been in favour of maintaining the much higher status quo.

If DGIV are disposed to accept the limit proposal, the necessary Rule changes will be put before the membership for consideration at a General Meeting later in the year.

Further developments will be reported in due course. Meanwhile, further details can be obtained from the Managers' London Agents.

Yours faithfully,



Industry developments

Polar Shipping

Legal, navigational and environmental resources, news and updates on the development of polar shipping. Read more

US VRP Compliance

With effect from 30th January 2014 non-tank as well as tankships calling at US ports will be required to submit VRPs.  For Club and other resources to assist in compliance click here

International Environmental compliance

Environmental Compliance resource page collates material in respect of International environmental compliance issues affecting our Members. Information from the Club, Loss Prevention and external resources has been collated in one place for ease of reference.

MLC 2006

The Maritime Labour Convention enters into force in August 2013 - resources, news & advice on implementation can be found in this dedicated section.  READ MORE

International sanctions

Recent guidance & corresponding material in respect of international sanctions against various countries has been updated with respect to temporary easing of sanctions against Iran.  READ MORE


Essential precautions and preparation against piracy, as well as additional information and resources, loss prevention advisories and useful external web links

Emergency Contacts

If you need to call our offices out of hours and at weekends, click After Office hours for a up to date list of the names of the Duty Executives and their mobile phone numbers. 

Ship Finder

This Ship Finder is updated on a daily basis. Members who need to advise the Club of updates to their recorded ships' details should advise their usual underwriting contact.