Circular 12/07 (October 2007) Review of Open Policy Years - 2008 General Increase


Dear Sirs


At their meeting on 22nd October the Directors reviewed the development of the Club's funds and claims and set the general premium increase level for 2008.

Policy year development

When the general increase was set at the Board meeting in October 2006, it was against the background of a relatively benign 2005 policy year, some improvement in the performance of reserves on the earlier policy years and a 2006 policy year which at 6 months of development looked unremarkable. One year later, in which the Club's own claims h ave developed in line with expectations, the Club has seen considerable development of the claims on the International Group Pool.

It is now clear that the Pool claims for the 2006 year will be the worst for 15 years with total claims on the pool from all Clubs projected to be at least $560 million, or more than double the 10 year average. It is also of concern that notified claims on the Pool for the 2007 policy year after six months are running at twice the level of the 2006 policy year at the same stage of development.

For a more detailed explanation, Members' attention is drawn to the special newsletter entitled 'Claims affecting the 2008 policy year increase' which will be available on the Club website (

Nevertheless, having considered all these developments in the context of the overall financial strength of the Club, the Board concluded that the supplementary premium estimates should be maintained at nil for all open years.

General increase for 2008 Policy Year

It is imperative for the long-term security of the Club that premium income should keep pace with foreseeable claims development including the Club's share of Pool claims. In the light of the claims experience, the Board concluded that 2008 premiums should be set at a level designed to achieve an overall increase in mutual owned premium of 17.5 per cent.

However, the Board considered that to order a straight general increase to achieve this result would impact unfairly on the membership and it would be more equitable to reflect the increased cost of Pool claims separately.

The Board accordingly directed

  1. a general increase for the 2008 policy year of 10 per cent of Members' premium rating, plus any increase in the cost of the International Group reinsurance premium for 2008, and
  2. a mandatory additional Pool surcharge to meet the projected future claims on the International Group Pool. The surcharge will be 12 per cent of each Member's 2007 policy year premium net of fixed reinsurance costs. The surcharge will be added to each Member's 2008 rate after it has been adjusted for the general increase and after any further adjustments for record or changes in risk.

The Board further decided that the time charterer and other fixed premium rates should be subject to a general increase in premium rating of five per cent.

As normal, mutual premiums for 2008 will be payable in four instalments.

Release Calls

In the light of the current claims environment, the Board decided to change the existing release call policy of five per cent of mutual premium, including any outstanding element of a policy year call on an open policy year. The Board also noted the practice of other clubs in this respect. As of 22nd October 2007, release calls for open policy years will be calculated on the following formula:

2005 policy year - 5% of mutual premium

2006 policy year - 15% of mutual premium (plus any outstanding instalments)

2007 policy year - 25% of mutual premium (plus any outstanding instalments)

2008 policy year - 25% of mutual premium (plus any outstanding instalments)



  • Members are recommended to contact their usual underwriter if they require further information

Staff Author