Underwriting

Introduction


The Clubs within the International Group are all parties to the International Group Agreement (I.G.A.) which governs the co-operation between Clubs required to support their common reinsurance arrangements. The I.G.A. places certain restrictions on competition between the Clubs for new Members.

Whilst it is still relatively common for shipowners to place their entire fleet of vessels with a single Club, large fleets are often divided between two or more Clubs.

The initial introduction of a Member to the Club is quite often through a broker, in which case the premium may need to include a commission payable to the broker.

Membership of the Club is granted to any shipowner or charterer who has a vessel entered, and the insurance certificate, which states the terms of the cover provided, also serves the purpose of being a Membership document.

The normal procedure for a new shipowner or charterer wishing to join the Club is that, following agreement on the terms of entry, the new Member completes and signs an application form. The Club then issues a certificate of entry, which identifies the entered vessels, records the risks covered and any special terms such as deductibles, and expressly states that the certificate of entry, together with the current Rules and Bye-Laws of the Club, form the contract of insurance between the Member and the Club. The certificate of insurance also states the date upon which the Club's insurance cover is to commence. That cover will then normally continue until 12 Noon on the next 20th February, when the Club's next policy year begins, and thereafter from policy year to policy year, unless and until terminated in accordance with the provisions of the Rules, or unless a special renewal date is agreed.

Cover is usually renewed on an annual basis, and the underwriters negotiate the renewal terms with the Member (or their broker), using as their basis the history of premium and claims for the previous six complete years of entry and the then current year. Because the Club is a non-profit making organisation, the underwriters' objective in looking at each renewal individually is to try to ensure that, over a period of years, the claims on the Club arising from a particular entry are balanced by the premiums paid, less fixed costs such as reinsurance for that entry. Further consideration will also be given to the risks associated with the cover provided and allowance may be made for the occasional large claim.

Steamship Mutual’s underwriting practice reflects the view that a Member’s mutual premium should on average substantially cover the costs of claims plus administration expenses. With effect from 20th February 2006, premium for mutual entries, (i.e. those that are not charged a fixed premium) is charged in full during the course of each policy year. For Class 1 P&I mutual premium the standard debiting pattern is now four equal instalments of 25% to be debited on 20th February, 20th May, 20th August and 20th November respectively. For Class 2 FD&D mutual premium the standard debiting pattern is now two instalments, one of 70% debited on 20th February and the second, of 30% debited on 20th November of the policy year.

A Club year may formally be closed 24 months after the end of the particular underwriting year, following which no further calls can be made, unless an "overspill call" is anticipated, in which case it may remain open pending resolution of the "overspill" claims.

In the case of termination or cancellation of an entry, the Member remains liable for any outstanding mutual premium on the vessel. He will have the option of either paying what is known as a release call for all open Club years - this is higher than the estimated mutual premium and if paid, releases the Member from any further liability for additional calls - or he may opt to provide a bank guarantee as security for the payment of additional calls as and when they are ordered by the Board of Directors.

Chartered vessels are normally entered on a fixed limit and fixed premium basis, i.e. a full premium is charged at the time of entry and there is no liability for additional calls.

Occasionally, owned entries are also accepted on a fixed premium basis. This is rare, but may occur with very small vessels or where the entry is a reinsurance inwards, and the covers are subject to a limit.

The rating of a Member's cover is normally by vessel, and based on the vessel's gross tonnage. The Club also offers some covers which are not vessel related, such as cover for containers and special crew covers.

For owners' entries, the vessels are named as part of the cover agreement and will be identified in the certificate of entry. For charterer's entries, more often there is an open cover agreement, whereby a rate or list of rates is agreed in advance for various categories of vessel which may be chartered by the Member and declared to the Club during the course of the policy year. In this case, the Member may be required to pay a minimum premium for the cover which may be payable in whole or part at the commencement of the policy year. Such deposit premium is used as a deposit against subsequent premiums which accrue when vessels are actually declared and the premium calculated.

Single non-adjustable premiums may also be charged to the Member where special covers are arranged from time to time.

Adjustments to the original premiums may be required during the course of a policy year if the original risk varies, for example because a Member wishes to delete a certain part of his cover or may switch his vessels to a different type of trade. At times, a Member may have no work for a vessel and so lay her up out of service for temporary periods. The Club Rules provide that, subject to certain conditions, the Member is entitled to an automatic reduction in premium for these periods of lay up.