Circular /96: Limit On Cover - Updated Advice to Members



Dear Sirs


I am writing to keep you informed of the Board's views on this issue, as developed since the beginning of the year.

The implementation of the 20 per cent compromise proposal on limit on cover from 20th February, 1996 has formally established the principle of a limit on the liability of all Members to pay overspill calls. Since that time, your Board has continued to keep this issue on its agenda. The Board remains committed to achieving a reduction in the limit to a realistic level. In pursuing this longer term aim, the Board's policy has been endorsed by an overwhelming majority of the Members who replied to the questionnaire at the time of the Special General Meeting in December, 1995.

Two questions remain central to the Board's further consideration of this issue:

(i) how to achieve a reduction in the limit whilst at the same time preserving for all Members the benefits of the International Group's pooling and reinsurance arrangements, and

(ii) what is the optimum level at which a lower limit should be set.

The Board has no doubt that the pooling and reinsurance arrangements of the International Group represent a major benefit to all Members. The pooling enables the Club to spread the cost of P&I claims (in excess of $5 million each claim) across the entire International Group membership without paying any premium. In turn the Group, through its pooling arrangements, can purchase reinsurance at a cost which it would be difficult for a single Club to match. The importance of the Pool is probably greater now than ever. At a time when doubt still exists over the future availability and cost of reinsurance, the ability of the Pool to absorb claims at a high level and reduce reliance on reinsurance gives the Club and all its Members a significant advantage.

Disagreement between Clubs in the International Group over the issue of a limit on cover still poses a threat to the continued successful operation of these pooling arrangements. It is clear that those Club boards which would have preferred to retain unlimited cover are reluctant to see further movement down from the 20 per cent compromise. Conversely, those Club boards which, like the UK Club, want to see a reduction in the limit have received support from their own memberships for a significant move in this direction.

Against this background, your Board remains convinced that lowering the limit on the cover is necessary. The Board will continue to work for a reduction in the limit to a level which the Board believes will be realistic, in the hope that such a limit can in due course be supported by a consensus of shipowners in all International Group Clubs.

I will ensure that you are kept informed of our further progress. In the meantime, I hope you will not hesitate to contact the Managers or any Director if you have views on this subject which you would like to be made known to us.

Yours faithfully

N-G Palmgren Chairman


Staff Author