Circular 10/01: Chairman's Letter re General Increase for 2002 Policy Year



Attached to this letter is a circular announcing, inter alia, the decision of your Board to order a general increase of 20 per cent of premium rating, plus the increase in reinsurance costs, for the forthcoming 2002 policy year. This is a significant increase, and I want to explain the reasons for it.

First of all, the Association is one of the most strongly funded of P&I Clubs. In past years healthy investment returns have enabled the Association to maintain that strong position while at the same time reducing the premium cost to Members through successive cuts in planned supplementary calls. However, the downturn in the financial markets, particularly equities, over the last eighteen months means that the pure underwriting deficit is no longer being covered by investment income and the free reserves are being eroded.

Looking ahead, the Board is of the view that the strong investment returns of the past cannot be expected to be repeated in the future, and if the free reserves position is to be maintained a significant increase in premium is required.

Of course, the Association's financial strength is underpinned by its unique reinsurance contract with the AAA rated Swiss Re which would operate to support the Association's position if the free reserves fall below the target range set by the Board. However, it is the Board's policy to plan to maintain reserves above the trigger point for the Swiss Re contract, and to rely on that contract for an unforeseen, rather than a foreseeable, fall in the free reserves.

Hence the Board's decision to order a 20 per cent increase. The increase in the cost of the International Group's reinsurance programme, which is to be added to premium rating, is not yet known, but it is likely to be at least 20 per cent of the current reinsurance cost.

In summary, therefore, the Board is determined to maintain the financial strength of the Association. My fellow Directors and I trust that you will agree with our view that this strength is particularly valuable at this time of uncertainty in the world's financial and insurance markets.

Yours sincerely

A G Kairis


Dear Fellow Member

Staff Author