Circular No Circular No. 7/96


October 1996



TO THE MEMBERS



Dear Sirs,

ELECTION OF CHAIRMAN AND VICE-CHAIRMAN
CLOSING OF THE 1993 POLICY YEAR
OPEN YEARS
PREMIUM RATING FOR THE 1997 POLICY YEAR

At the Committee meeting in Vienna on 28th October 1996, the Committee re-elected Mr Erik F. Johnsen of Central Gulf Lines Inc, New Orleans as its Chairman and Ms Jane Hinkley of Gotaas-Larsen Limited, London as its Vice-Chairman.

The Committee also considered the progress of all open policy years and set the premium rating for the policy year commencing on 20th February 1997. The Committee decided to:

Close the 1993 policy year without further contribution.
Adjust release calls on open years in the light of current forecasts.
Make an increase of 7.5 per cent in the estimated total call for owner?s entries and for charterers? Defence entries for the 1997 policy year.

The remainder of this circular discusses these decisions in more detail.

CLOSING OF THE 1993 POLICY YEAR
The Committee closed the 1993 policy year without levying any further contribution. The claims development for this year continues to be favourable and the year is expected to end in a surplus.

OPEN YEARS
1994 policy year
A contribution of 35 per cent, 5 per cent lower than originally forecast, was levied in July 1995. The year has developed as anticipated and is expected to end in a surplus. The Committee anticipates that the year can be closed in 1997 without further contribution.

The release contribution for this year was set at 5 per cent.

1995 policy year
A contribution of 15 per cent, half the supplementary call originally forecast, was levied in July 1996. The year has experienced almost no large claims and has developed into one of the most favourable policy year of the nineties. The current estimate for the year is a surplus and the Committee does not anticipate that a further contribution will be required.

The release contribution for this year was set at 5 per cent.

1996 policy year
The first six months of the year have seen a marked increase in the Association?s own reported claims compared with the 1995 figures. The value of reported P&I liabilities at six months from inception is USD 30 million in the 1996 policy year compared with USD 18 million in the same period in the 1995 policy year. It should, however, be noted that 1996 has so far seen a reduction in cases showing liabilities below USD 1.2 million. The entire claims increase is due to a higher number of claims in the band above USD 1.2 million. It is far too early to make any prediction on the outcome of the year and the original forecast 30 per cent contribution is maintained.

The release contribution for this year was set at 55 per cent, 25 per cent above the estimated contribution.

PREMIUM RATING FOR THE 1997 POLICY YEAR
1) Owner?s entries
  Notwithstanding the Association?s strong financial position, the Committee believed that a general increase would be prudent for the 1997 policy year. It is important that the Association maintains its contingency fund without having to resort to unexpected calls. A general increase will assist the Association in balancing its books for the 1997 policy year within the estimated total call.

Against this background the Committee ordered a general increase of 7.5 per cent in the advance call for the 1997 policy year for owner?s P&I and Defence entries.

The estimated contribution for the 1997 policy year was set at 30 per cent of the advance premium, and the release contribution for the year was set at 55 per cent, 25 per cent above the estimated contribution.
2) Charterers? entries
  (i) P&I entries
    There will be no general increase in premiums for charterers? P&I entries. The overall limit of cover available for charterers? P&I entries will be advised as soon as it has been determined.
  (ii) Defence entries
    The Committee considered the premium level for charterers? Defence entries to be too low and ordered a general increase for such entries in line with that ordered for owner?s P&I and Defence entries, namely 7.5 per cent.
3) Mobile offshore units
  A separate Circular will be issued in December for mobile offshore units, when the overall limit of cover available together with the standard conditions will be advised as determined.
4) Individual Premium Rating

Each Member's estimated total call will, as usual, be assessed individually in the light of his loss record and the cost of reinsurance. All Members will receive shortly the loss record for their respective fleets.

Members who have not heard from the Association by 20th January 1997 may assume that their total premium will be increased by the standard 7.5 per cent together with the appropriate adjustment in their reinsurance rates.

Advance premium, assessed according to the above criteria, will be debited in three instalments and falls due on 20th March, 5th July and 5th November 1997. However, P&I premiums not exceeding USD 5,000 per vessel and Defence premiums will be debited in one instalment falling due on 20th March 1997.
5) Deductibles
  Standard deductibles for ships applicable for the 1997 policy year will be unchanged from those for the 1996 policy year.

SUMMARY
To summarise, the following decisions were taken:
1) 1993 policy year closed without further contribution.
2) Release contributions for open years set as follows:
1994 - 5 per cent
1995 - 5 per cent
1996 - 55 per cent
1997 - 55 per cent
3) A general premium increase of 7.5 per cent in the estimated total call for owner?s P&I and Defence entries and a general premium increase of 7.5 per cent for charterers? Defence entries for the 1997 policy year. No general increase as regards premium rating for charterers? P&I entries.

Yours faithfully,
ASSURANCEFORENINGEN GARD
-gjensidig-

John G. Bernander
Managing Director