American Club Sets 2011 Renewal Terms

Entered tonnage on the up
Lower claims levels in 2010
Free reserves reach a record total

NEW YORK, November 22, 2010: The American P&I Club is the latest mutual to declare its renewal terms for 2011. It has announced a 2% general increase in advance call premium on mutual entries at next February’s renewal, plus additional reinsurance costs, subject to a 25% deferred call in due course. The release call is set at 50%. The club applied a general increase of slightly over 4% for the 2010 renewal.

Meeting in New York, the directors reviewed the club’s present and prospective circumstances, including the near and longer-term implications of the current economic climate. They also reviewed the development of closed and open policy years before making decisions about the levying of the forecast supplementary call for 2010 and premium requirements for 2011.

Briefly, these are the principal decisions:

2008 progressing satisfactorily and intended for closure in surplus within the first half of 2011 without further call. Release call 10%.
2009 not expected to attract any further call in excess of that already debited. Release call 25%.
2010 progressing satisfactorily, and currently in surplus. 25% forecast supplementary call will be debited in two equal installments during 2011. Release call margin 25% over and above 25% supplementary call.
2011 renewals. A 2% general increase in advance call premium on mutual P&I entries. A 10% general increase in mutual FD&D entries (plus any additional reinsurance costs) subject to a 25% deferred call in due course. Release call 50%. A 10% general increase in fixed-premium entries (plus any additional reinsurance costs) – such entries to include fixed P&I, Damage to Hull (DTH) and FD&D insurances.

A management circular to club members says that the underwriting, claims and investment experience of the club over the last nine months broadly reflect the trends seen in world trade and shipping. Against a background of sustained tonnage growth during 2009 – which also saw a much greater than usual turnover of entries as older vessels were sold or scrapped and newer ships added to replace them – 2010 has experienced the further expansion of entered tonnage, although at a measured pace.

At the end of October this year, Class I (P&I) tonnage had grown about 6% since February; but tonnage under Class II (FD&D) and Class III (charterers’ insurance) had remained broadly stable over the same period.

Regarding claims, the 2010 policy year to date has been characterised by lower levels of claims incurred for the club’s own account than those typically experienced in earlier years at the same stage of development. While encouraging, the managers comment, it would be unwise to assume that this represents a trend, particularly for a year that is very far from maturity. Nevertheless, there are grounds for cautious optimism as to the ultimate result for the year, particularly if International Group Pool claims continue their current trajectory.

Investment performance – the 10 months to end-October this year produced earnings of just over 6%, by comparison with a benchmark return of 5.85%. Consequently, the club has seen further growth in its free reserves. At September 30, the club’s GAAP free reserves had grown to $62.5m, up by nearly 29% over the nine months since year-end 2009, and fully 75% over the 21 months since year-end 2008.

As to the outlook, the managers sound a note of caution, saying that the experience of the past, and the implications of certain macroeconomic trends, suggest that higher claims volumes may well develop in the future.

Claims inflation over the years ahead is likely to be driven by several factors. One of the most important is the continuing devaluation of the US dollar and a concomitant rise in commodity prices. Another is the persistent hostility of the political, regulatory and judicial environment. “This, combined with the creeping expansion of levels of shipowner liability under existing conventions, to say nothing of the thinly-disguised extortion that passes for due process in some jurisdictions, will further serve to aggravate P&I exposures over the years ahead.”

Discussing premium requirements for 2011, the directors have concluded that, while current year results point in a positive direction, longer-term trends suggest that some allowance should be made for rising costs over the coming year, hence their decision to opt for a sensible but modest uplift in overall premium in order to match the realities of the future risk environment. There is also the need to ensure that the club’s current operational strength is maintained into the future.

Speaking after the board meeting, Joe Hughes, chairman and chief executive of managers Shipowners Claims Bureau Inc., said the club was in an excellent position to take advantage of future opportunities. “The club’s technical fundamentals are sound and its core business is performing well. Tonnage and premium levels are prudently increasing, while claims costs are moderating and net exposures are stable. Investment performance is also adding strength to global results. Operating overheads remain under tight control and regional service capabilities are steadily expanding.”

Mr. Hughes said: “While challenges remain, the club’s continuing progress is building a robust platform for the future. Although the global economic recovery is faltering and fragile in parts, it is generating new business opportunities of which the club will continue to take advantage on behalf of an increasingly dynamic and varied membership.”