International Group P&I Clubs
In contrast to so called “fixed premium” P&I marine insurers like British Marine, Lodestar and others, approximately 90% of the world’s blue water tonnage is insured for operating liabilities by one of the thirteen principal underwriting member “Clubs” of the International Group of P&I Clubs (the “IG”).
The Clubs are generally quite old (some over 150 years) and modern Clubs with a long history still have names with a strong regional flavor and containing the now redundant ‘steamship’ somewhere in the name, eg. The United Kingdom Mutual Steamship Assurance Association (Bermuda) Ltd. This old-fashioned image is deliberately cultivated by the Clubs.
P&I Clubs are in theory non-profit making mutual organizations, and therefore cannot make a profit or a loss. However all Clubs accumulate ‘free reserves’ which are funds held for the future beyond what they need to pay anticipated incurred but not reported claims. With aggregate Free Reserves in excess of $4 billion, few can say that the Clubs, collectively, are under-capitalized, although clearly some are better-placed than others. Solvency II requirements, where applicable, should be comfortably met, with healthy surpluses in some cases.
The Clubs operate quite distinctly from the general marine insurance market and see themselves as an entirely different entity from the conventional insurer. The thirteen members of the International Group of Protection & Indemnity Clubs are bound by an agreement (The International Group Agreement or “IGA”) in relation to sharing large claims, making reinsurance arrangements and the principle of setting rates for entered vessels.
While the main purpose of the IGA is to share (pool) large claims, an important side effect is to prevent one Club from undercutting the rates charged for a ship owner currently entered with another “holding” group club. This agreement applies irrespective of whether the ship owner himself wishes to transfer existing vessels to another club. This is not to say that transfer between clubs is impossible, but as a general rule the rates given must be no better than the rates at the holding club.
The reason for noncompetition is the clubs’ pooling arrangement between themselves for claims above a certain level of Club retention (currently $10 million). Above this pooling arrangement the group purchases in the commercial market a single high level reinsurance policy of multiple layers. In addition, the Clubs have established a captive insurer called “Hydra” which sits alongside the market reinsurance policy.
Each individual P&I Club has hundreds of members and so the strategic control of a Club is left to a Board of Directors who are ship owning members of that Club and elected by the other members. The day-to-day running of the Club including underwriting, accounts and claims handling is carried out by Club managers appointed by the board. The management company is either owned directly by the Club or is a separate company appointed on a long term basis. Either way, the management company is always closely associated with the Club it manages.
As the Clubs can write up to $3.1 Billion and have long histories in dealing with claims all over the world, they are preferred by owners of large tonnage commercial vessels and also sometimes by owners of super yachts for liability cover.© Sunrise Marine Risks and sunrisemarinerisks.com, 2017. All rights reserved.