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1 The Association may determine that for the next ensuing Policy Year the Premium Ratings of the Ships entered in the Association shall generally be varied by a fixed percentage, before any further adjustment is made in order to take account of the Member’s loss record, alteration in the extent of the risk or any other factor the Association may deem relevant.
2 Notification of variation of Premium Ratings effective for the following Policy Year shall, if practicable, be given to Members prior to 20th December.
(A) …Premium Ratings…shall generally be varied… (Rule 11.1)
This Rule entitles the Association to make a general variation of the Premium Ratings for the next Policy Year. A general variation pursuant to Rule 11 applies across the board to all mutual P&I entries and Defence entries, as the case may be, and should not be confused with the individual premium adjustments which may be applied to any particular Ship, fleet or Member.1 However, different percentage variations may be applied to P&I and Defence2 cover. The P&I clubs that are members of the International Group of P&I Clubs have usually given effect to such general variation in the form of a ‘general increase’ since there has been an increase in most cases in recent times, although historically, there has sometimes been no increase and sometimes even an overall reduction in premium levels.
The premium policy which the Association adopts for any given Policy Year is based on the expected financial results of the Association for the current year, the financial strength represented by the total contingency and claims reserves held in trust by the Association, as well as an assessment of the liabilities, costs and investment returns during the next ensuing Policy Year. This includes claims trends and the development of cost drivers such as Pool claims, new and changed industry risks, legislation or international conventions affecting ships generally. The premium policy will also take account of inflation, expected increase or reduction in investment income, changes in reinsurance costs and administration expenses. However, such factors may also be affected by the new solvency capital requirements that will be imposed on P&I clubs that are domiciled in the EU and EEA pursuant to the Solvency II Directive as from 1 January 2016 which will require higher on-balance capital levels.
(B) …any further adjustment… (Rule 11.1)
In addition to adjusting the general variation in premium for all Ships, the Association may also adjust the premium for individual Ships or categories of Ships,3 based on the loss record of the Member and/or any change in the risks covered.
(C) Notification… (Rule 11.2)
Variations in Premium Rating pursuant to Rule 11 are decided by the Board of Directors of the Association.4
Whilst Rule 11.2 provides that notification of variations of Premium Ratings for the following Policy Year shall, if practicable, be given to all Members before 20 December, the Association’s practice has been to provide such notification by way of a circular distributed to Members immediately after the meeting of the Board of Directors at which the issue has been resolved. This is usually in October. However, the actual new Premium Ratings, and individual adjustments, are not usually advised to Members until January since the variations of the reinsurance rates of the Group Excess Loss Policies will not usually be known before then.
1 See Rule 14.
2 See the definition in Rule 1.1, as well as the Guidance to Rule 2.6 and Rules 65 – 70.
3 See the Guidance to Rule 14
4 See Articles 9.2.d of the Bye-Laws of Gard P. & I. (Bermuda) Ltd. and 9.2.c of the Statutes of Assuranceforeningen Gard -gjensidig-.