UK P&I Club - Issue 20 - December 1997

UK CLUB NEWS is published by
Thomas Miller & Co

International House
26 Creechurch Lane
London EC3A 5BA

Tel +44 20 7283 4646
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For and on behalf of the Managers of

The United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Limited
The United Kingdom Freight Demurrage and Defence Association Limited

P&I movement must be preserved

The expertise vested in the P&I system has never been in greater demand and cannot be replicated in the commercial market. UK Club Chairman, Nils-Gustaf Palmgren, in a special introduction to this issue, makes an emphatic case for the retention of the IGA.

With the European Commission's Competition Directorate and the International Group's representatives currently locked in discussions about rating restrictions and liability limits, it is timely to remind ourselves about the scope and importance of the P&I system to the insurance of the world's merchant shipping.

This edition of the UK Club News contains stories which highlight the relevance and effectiveness of the P&I system in meeting the requirements of shipowners and charterers.

Clearly, the financial arrangements which underpin the International Group Agreement between the major clubs are fundamental to the continuing existence of P&I cover at its present level and in its current form.

Without the minimal rating restrictions, the fair basis for charging premiums between clubs will disappear. Co-operation between clubs over transferring members, and pool, reinsurance and overspill matters would immediately become very difficult. It could soon become impossible to manage a mechanism to meet larger claims.

Further, the International Group's capacity to obtain cover for a wide spread of risks at an economic rate would be heavily reduced.

The clubs' unanimous adoption of a lower liability limit and the discussions with Competition Directorate officials on rating restrictions are covered by Stephen James (Brussels threatens mutuality concept). Much stems from the principle that, in a mutual P&I club, the shipowners are both providers and consumers. I very much endorse his conclusion that "the wishes of the consumers are clear – to maintain the International Group Agreement in its current form".

"Clearly, the financial arrangements which underpin the IGA are fundamental to the continuing existence of P&I cover"

Nils-Gustaf Palmgren

However, the clubs have long had a much wider remit than specific financial arrangements. The network of sub-committees and working parties of club managers operating under the aegis of the International Group is testimony to this. There are few areas of commercial practice, risk, claims and safety aspects of shipping that are not covered by 28 standing sub-committees.

This reflects the fact that co-operation between clubs is greater than ever before. Owners and charterers are faced with a world where laws, regulations and associated litigation continue to grow.

All this means that the P&I movement has continued to build up expertise which is indispensable to underwriting, claims handling, correspondent activity and a wide spread of advice. At the UK Club, we have to deal with more and more requests for advice, for example on certificates of financial responsibility to trade with the United States, on DGIV's Statement of Objections to particular International Group practices, on the implications of the ISM Code and on the shifting sands of Port State Control. Loss prevention director, Nigel Carden, has played a leading role with other International Group managers, in helping to interpret the requirements and application of the ISM Code which they can recommend to all the clubs (see Important Club Rule Change).

Our managers are keenly aware of the importance of various Port State Control regimes to UK Club Members and, as reported on this page, will be publishing a guide to their requirements very shortly.

It is inconceivable that the range and depth of expertise vested in P&I club management would be available in the commercial market. Once dispersed, it could not be replaced. The P&I movement cannot be accused of standing still in seeking to serve the interests of members. As global businesses, P&I clubs in general have an eye to improving their representation in key maritime centres. Accordingly, the UK P&I Club has moved some of its claims handling and other activities out of London to Jersey City and, within the last few weeks, Hong Kong and Miami (see Strengthening services at local level). We hope that our representative offices in Beijing and Shanghai will shortly be supplemented by an office in Singapore. Links between our offices and customers are further being strengthened by making various databases available on the Internet (see Award for Internet services).

We should be clear, however, that many of these developments will be lost if there are fundamental changes to the International Group Agreement. There would be a 'downsizing' in marine P&I insurance cover and a growth of expensive commercial premiums. This, in turn, would lead to a diminution in the services essential to the high standards of operation required by governments and the international maritime community.

Supplementary calls down 4 times in 5 years

Improved claims performance pays off in the form of highest ever free reserves

The Club has reduced the planned 40% supplementary call for 1996 to 25%. This is the fourth time in the past five years that the Directors have announced a reduction. The move has been possible because of the continuing strengthening of the Club's free reserves which now stand at a record US$332 million (including estimated product of the 1996 supplementary call) – US$40 million more than last year. This very largely reflects improvement in the estimate of outstanding claims combined with a very positive investment performance.

Writing in the Directors' annual report, Club Chairman, Nils-Gustaf Palmgren comments: "Although continued growth in world trade inevitably increases the claims exposure of the Club, our strong financial position has once again allowed us to cut the cost of membership of our Club... We are certainly seeing the benefit of our strategy of building the reserves and solvency position up to the targets originally set back in 1992."

The balance between advance and supplementary calls has always been one of the key differentiators of the UK P&I Club. Hugo Wynn-Williams, a director of Thomas Miller P&I Ltd, explains:

"The UK Club has a policy of taking in advance a relatively smaller proportion of the planned total call, giving the Members the advantage of deferring a large part of their payment while still being able to budget accurately for the whole amount. The remainder of the total call is taken at a time when the claims experience of the year is more clearly known, and the Club has managed to reduce the total cost below its original estimate and cut this call in four out of the last five years. This has happened despite a series of deficits on recent policy years. The Club has achieved this result because of a combination of the recent good investment performance and the commitment of the Board to a policy of maintaining strong reserves.

In other words, the strategy is to maintain a steady course rather than to use the supplementary call as a device for making radical adjustments up or down. This is particularly important if we are to protect the value of the Club's reserves during a period when we are anticipating a modest but continued upward trend in claims and when it would be imprudent to rely on a sustained high level of investment income."

With this in mind, the Board has set a five per cent general increase in premium ratings for the 1998 policy year, beginning 20 February; the planned supplementary call is 40%.

Port State Control

Port State Control (PSC) is the means used by a territorial state to ensure that sub-standard ships do not enter or leave its ports. It covers a number of methodologies for checking how successfully a flag state has enforced the provisions of the various international conventions.

In recent years, the inadequacy of some flag states in enforcing existing conventions, has meant that Port State Control has assumed great importance. In those areas in which it is strongest – North America, Europe and Asia – Port State Control is already having a marked effect. Indeed, as the two new conventions – the ISM Code and STCW '95 – begin to bite, their front-line enforcement will, in many cases, be carried out by the Port State Control authorities with their powers to require rectification, to detain and even to fine.

The maritime community worldwide has welcomed the concept of Port State Control as an important part of the solution to the problem of sub-standard ships. The Club strongly endorses this view, regarding PSC as one vital element in a whole series of positive steps which can be taken to ensure that the shipowner complies with his international obligations.

To that end, the Club is preparing a guide to Port State Control which will cover in detail the main PSC regimes: the Paris Memorandum of Understanding, the Tokyo Memorandum of Understanding and the Viña Del Mar agreements. The guide will set out the requirements of each Port State Control authority, enabling Members to take the necessary steps to ensure that they comply with each authority's aims. At this stage, the accepted view seems to be that PSC works best when implemented on a regional basis. However, there are examples of unilateral approaches, the most advanced of which is that of the USA. Given its importance as a trading nation combined with its history of leading by example in areas such as this, the guide will include a chapter on the approach to PSC taken by the US Coast Guard.

The full guide will be published in December. An abbreviated version will also be available for Members to place on board their ships.

International Group Agreement under threat

Brussels objection could compromise the principles of mutuality, writes Stephen James

The International Group's discussions with the European Commission's Competition Directorate (DGIV) in Brussels continue to give cause for concern. Although the Group first made contact with Brussels as long ago as January 1995, it was only in May 1997 that hints of potential difficulties began to emerge. The problems were confirmed in June when DGIV issued its Statement of Objections, raising three particular issues:

1. The modest rating restrictions in the International Group Agreement (IGA) that are applicable for the first year after a ship changes clubs.

3. The circumstances in which a Group Club may give reinsurance to a commercial insurer

The most serious is the first – the threat to the IGA rating restrictions. Dismantling these would deprive mutuality of a vital prop by removing the essential fairness of the relative rating that applies among members of the same club. Loss of rating restrictions would result in a very serious threat to the continued operation of the Group Pool and its reinsurance arrangements.

Shipowners have reacted strongly to this threat, with many national shipowner associations and other shipowner interests making their views known to Mr. Karel van Miert, the Competition Commissioner in Brussels. Meanwhile, Brussels has made it clear that it is looking for some changes and, of course, the International Group is seeking to find a solution through continued dialogue. However, it has to be said that four years of negotiations between the Group and Brussels in the run-up to the initial ten-year exemption of the IGA in 1985 had already reduced the IGA rating restrictions to the bare minimum.

The other two issues raised in the Statement of Objections promise to be less problematical. Indeed, the reinsurance issue is seen as essentially a technicality whilst the limit on cover issue has already been dealt with by the recent decision of all the Group clubs to lower the P&I limit on cover to a figure approximating to US$4.25 billion for the 1998 policy year.

This limit is not the preference of every shipowner (the Greek Shipping Co-operation Committee and the Union of Greek Shipowners, for example, have indicated to Brussels that they would prefer to see the limit at US$3 billion). Nevertheless, it is seen as the best overall compromise between the shipowner's cover requirements on the one hand, and the industry's ability to fund a large claim on the other.With this in mind, the UK Club Membership vote at the October Annual General Meeting was overwhelmingly in favour of the rule change necessary to bring in the new limit.
So, although concerns persist, positive progress has been made in a number of areas. It is to be hoped that Brussels will accept that, in a mutual P&I club,the providers of the insurance product (the shipowners) also happen to be the consumers and that, in this instance, the wishes of the consumers are clear - to maintain the International Group Agreement in its current form.

Stephen James

For a more detailed account of the Club's position, Members are referred to the Club Circulars Nos. 8/97 and 10/97 and to the briefing paper attached to the latter.

Award for Internet services

The European Electronic Messaging Association (EEMA) has given Thomas Miller & Co Ltd one of its top accolades in its annual Electronic Commerce Innovation Awards...

The award, which was presented to Peter Donnellan of Thomas Miller at the Electronic Commerce '97 Exhibition in London on 22 October, was for 'pan-European implementation of electronic commerce'.

Thomas Miller has been a highly active pioneer in harnessing new electronic technologies for some years, and Members already have access to some of the Club's publications on-line from the Club website. This site contains general information about the Club, its history and its rules. It also contains publications such as UK Club News, Loss Prevention News and Carefully to Carry. A special loss prevention page, providing regular loss prevention bulletins, is also available. The guest book contains discussion on topics such as the ISM Code and the use of digital cameras by surveyors.

"I feel more protected now that I can get you on my screen as well!"
- comment from UK Club website 'guestbook'

There is also a valuable links page providing one-click access to a number of important marine-related websites.

One of these links is to the new Thomas Miller website – Thomas Miller On-Line, from which there is access to the Club's information services, including the Miller Encyclopaedia and the Environmental Encyclopaedia.

"An excellent beginning: promises to be a centre for P&I and related maritime information"
- comment from UK Club website 'guestbook'

Until now, these and the Club's other information services, such as the UK Club's List of Ships, were available for access only to those actually using Lotus Notes (because they were developed on Notes databases).

The EEMA award marks the coming of age of these information services as they are now launched as a fully fledged Internet service. By connecting to the new Thomas Miller website from the UK Club site, users can gain secure access to the Miller databases on which the Encyclopaedias and other information services are held.

The Encyclopaedias are the repository of much of the Club's knowledge and information. They contain the texts of many Conventions (with signatories), a wealth of legal and shipping information from numerous maritime jurisdictions, articles and commentaries from lawyers, and specialist information on a wide range of subjects; for example, cargoes and stowage, and crewing matters – too many to mention here.

In addition to the Encyclopaedias, the Club has developed several other databases, the most important of which is ClaimsTrac™ - a database of each Member's claims. Instead of a Member having to wait for his claims records to be sent to him, perhaps only once a year, they can now be accessed on-line. Being electronic, ClaimsTrac™ makes it very easy to examine claims data in the most convenient way – for instance by ship name, by place of incident, by reason for claim, by amount or by data. Some views provide totals and averages by year and there is also a general 'search' facility. Data can be exported into other applications such as a spreadsheet for further analysis and presentation in graphical form. Needless to say, Members will only have access to their own claims data.

"Congratulations on your Website. A great opportunity for shipping"
- comment from UK Club website 'guestbook'

At the Thomas Miller website (which can also be accessed direct) visitors are invited to register and are subject to a positive checking procedure before access is given. This allows the Club to create a personal subscriber menu for each Member, which can include the Encyclopaedias and his (but no other) ClaimsTrac™ database. For other visitors to the site access may be given to the List of Ships, the Miller Forum and the Miller Internet Directory. Correspondents, for instance, will have access to the List of Ships and the Miller Internet Directory. The List of Ships will enable them to check whether a particular ship is entered at any time.

"This is a whole new way of communicating and will be as important as fax is currently"
- comment from UK Club website 'guestbook'

Meanwhile the Miller Internet Directory - a full-scale directory of marine and insurance related websites which is constantly added to - provides 'one-click' access to much of the valuable information availabel on the Internet.

New e-mail addresses

Members are taking increasing advantage of the cost savings and convenience afforded by e-mail. The Club has used e-mail internally since 1987 and has recently upgraded its electronic gateway to the Internet to allow much more reliable communication externally. As a consequence, our e-mail addresses have changed to conform to the following construction:

The first and last names are those by which your contact is usually known. For instance, to send a message to Herry Lawford, you would address him as:

E-mail messages from the Club's staff will now show the new addresses and, if you use the 'reply' facility in your own e-mail application, your message will be correctly addressed.

Our old e-mail addresses (e.g. lawfordh@mutual.co.uk) will still work but will eventually be withdrawn.

ISM certification to be a term of cover

A significant change in the Club Rules was voted in at the AGM in Bermuda on 20 October. As from the 20 February 1998, it will become a term of cover that Members maintain valid ISM Code certification in accordance with flag state requirements. Members who fail to comply will no longer have the right to recover claims arising from events that happen while they are uncertified.

Although the Directors will be able to exercise discretion in favour of a Member in special circumstances, they are unlikely to do so unless the Member has demonstrated to their satisfaction that the claim in question was not caused by failure to comply with the Code.

Nigel Carden of Thomas Miller P&I Ltd, said: "In making the right of recovery conditional on the maintenance of valid ISM certification, the Club is observing and exceeding the minimum standard recommended by the International Group of P&I Clubs, that claims of uncertified owners, caused by failure in ISM com-pliance, should not be paid. This course strikes a pragmatic balance between recognising the importance of compliance and dealing with the uncertainties of the new regime".

Although the Rule change applies from 20 February, the practical effects will not be felt until the code becomes mandatory. That is to say,1 July 1998 for bulkers, tankers, passenger ships and cargo high-speed craft, and 1 July 2002 for other vessels.

Strengthening services at local level

The Board's policy of delivering services directly to Members at the place and time they need them is leading to new regional initiatives

How should the Club improve its services to Members in South America? This question has been the subject of an in-depth study this year. Rightly so; the UK Club is the leading club in South America with more than 40 per cent of the market.

So, in March, Lance Hebert, Area Manager for South America, was seconded to Miami to conduct a three-month pilot study. During that period many South American claims were handled through Thomas Miller Americas' Miami Office instead of through London.

The study was an unqualified success. Lance reported that Members very much appreciated having their claims handled within their own time zone. It also enabled the Club to liaise with the Members and deal with their problems before close of business in South America -- a clear improvement over the service that could be delivered via London, however efficient that may have been.

As a consequence, Thomas Miller (Americas) Inc. has expanded its Miami operation to meet the claims handling and servicing requirements of the Members of the UK P&I and UK Defence Clubs in South America, while Kevin Sandom and his colleagues in Syndicate D4 continue to provide those services that still need London resources. The strength of the Miami office will be increased by two new claims handlers while Larry Jacobson, a senior manager and Defence claims specialist from Thomas Miller Americas in New Jersey, is transferring to Miami to manage the expanded operation.

New syndicate for Hong Kong

The trend towards on-the-spot claims handling has resulted in significant developments in the Hong Kong S.A.R. Syndicate HK has been operating since 6th October when claims files for the Club's HK-based Members were transferred to the office in Centrepoint. This is a significant first step along the road to being able to provide, as required, full syndicate service in Asia to all of the Club's Asia Pacific Members.

In line with these increasing responsibilities, we have been growing our team of executives to offer the service which Members have hitherto been accustomed to receiving from London syndicate A1. Joining our syndicate manager, Richard Chan, are Bruce Hung, Ricky Tsang, C.Y. Wong and Felix Lai. Richard will already be known as a long-established member of the HK correspondents office, TSA; Bruce, Ricky, C.Y. and Felix come to us with a variety of experience in the shipping world, including sea-going time and claims management.

Mark Carter is now in HK offering high-level claims consultancy and, together with the area manager, Sid Lock and Felix Pak, is adding weight to what is already a significant operation; Sid's assistant Celia Tsang, completes our team. Members serviced by Syndicate HK can also expect the usual prompt guarantee services, as well as loss prevention and general advice.

These initiatives are in anticipation also of Members from other Asia Pacific countries being serviced from within Asia, with the files for the main-land Chinese and Taiwanese Members being transferred to Syndicate HK early in 1998. Meanwhile, the Club's offices in Beijing and Shanghai remain a focal point for liaison with mainland Members and with Chinese government authorities, and TSA in HK continues in its role as UK Club correspondent for the HK S.A.R. and in supervision of the Club's mainland correspondents, Huatai.

Additional claims staff for Piraeus office

In response to a need which has been identified over the course of the last year, it has been decided to expand our Piraeus office, with the secondment in 1998 of three claims staff from London. Tony Fielder and Alexandra Couvadelli will be taking up station in January to offer a local claims handling service to some of the Club's Greek Members; Tony will be taking with him the senior claims consultancy role, and the settlement and guarantee authorities which he currently enjoys as a member of the London PICT team. There are plans in hand to further strengthen the claims team later in the year.

In addition, Thomas Miller (Hellas) Ltd will assume the role of Club correspondent in Greece from 1st January, 1998. Our "old" friends, Van Nomikos and Taki Alikaris will continue in their roles of servicing the Club as part of this company.

Crew fitness project continues to bring savings

More rigorous health checks in Philippines proves successful in reducing illness claims

The year-old pilot scheme, to carry out more extensive pre-employment medical checks on crew in the Philippines, has had decisive results. The scheme involved three clinics in Manila and a selected group of ship owners. The conclusions are that the costs involved in running the enhanced examinations are greatly outweighed by the resultant fall in the number and costs of health-related claims.

There has been ample evidence, both anecdotal and statistical, that the quality of pre-employment medical examinations has been a factor in the large numbers of repatriations and medical bills. The UK Club has been determined to address this issue.

Since 30 August 1996, some 977 applicants for crew positions have been subjected to the Club's stiffer health tests. Of these, some 94 (9.6%) have been adjudged medically unfit.

Kit Chan, the project co-ordinator, who is both a solicitor and a highly trained nurse, reports: "It is almost certain that the great majority of these seamen would have been certified fit via the established examination procedures".

The Philippines Overseas Employment Administration contract makes the employer liable when a seafarer suffers injury or illness during the term of his employment. The contract does not distinguish between work-related and other illnesses. Either way, the shipowner is liable for repatriation, seamen's wages, medical costs and any resulting disability costs.

The UK Club's designated clinics carry out tests additional to those required by the Philippines Government. These include full blood count, liver function, hepatitis B, malaria, AIDS, lung function and ECGs. The most common reason for rejection is abnormal liver function. Furthermore, of 20 examinees found reactive to hepatitis B, five were carrying the infectious type.

The cost of the enhanced examinations is US$80 per person – and the Club pays the costs against the Member's record. The project would have achieved savings by identifying only a handful of unfit seamen who might have been repatriated or made illness claims.

Illness claims worldwide account for a substantial proportion of the Club's claims. Many are below deductible and are paid out of the Members' pockets. UK Club's paid and estimated illness claims in 1994, 1995 and 1996 amounted to US$30m. For the 15 clubs in the International Group, the cost of claims in the Philippines rose from US$5.77 million in 1995 to US$7.18 million in 1996. In 1997, they have again been rising swiftly – although the UK Club's proportion of those claims is now dropping.

"That the Club's Crew Fitness project saves Members significant amounts of money is indisputable," said Service Director, Herry Lawford. The Club is planning to invite more Members to participate in the Manila scheme and to extend it to east European countries, China and India.

New Directors elected

At the Annual General Meeting in Bermuda on 20 October, four new Directors were elected to the Board.

	Mike S Warwick has recently been appointed President of Shell International Trading and Shipping Company Limited (STASCO) in succession to Rob Walvis whom he also succeeds as a Club Director. Rob Walvis has now taken up a directorship with Shell International Petroleum Company Limited. Mike Warwick was previously Chairman of the Shell Companies in Thailand.
	Philippe Louis-Dreyfus is Chairman and Chief Executive of Louis Dreyfus Armateurs (SNC), the shipowning arm of the Louis-Dreyfus group of companies. A French national, Philippe sits on the National Committee Board of the French External Trade Council and is President of the Council's UK/Eire Commission. He has held senior posts at Credit Naval (Banque), Banque Pallas France, and Banque Louis-Dreyfus.
	Alexander Gagarin has been President of Northern Shipping Company, based at Arkhangelsk in Russia, for the past 11 years. He has been with the company for most of his career, starting as a ship-board marine engineer in 1964. The company has a fleet of some 68 general cargo ships of 323,000 gross tons.
	Senator Everard T (Bob) Richards is President of Bermuda Asset Management Ltd (BAM) which he founded in 1987 and which is now part of the INVESCO Group. Born and raised in Bermuda, he began his business career in banking and has also been an economist, in charge of investing Bermuda's foreign exchange reserves. Later he set up and ran an international investment department for Shell in Bermuda. He is currently Chairman of Bermuda Association of Securities Dealers and a Member of the Board of Directors of Bermuda Monetary Authority.


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