FINANCIAL SECURITY

The shipping community seems to be taking it for granted that the International Group Clubs are the best security on the market.

What are the facts?

All International Group Clubs together are producing a premium volume of about US$ 2.5 billion per annum. They insure about 70,000 vessels.

The total non-life premium income world wide is around US$ 900 billions, of which around US$ 22 billions are marine insurances. The major commercial insurance companies have premium incomes of multi billions US$ each and the major re-insurance companies are in the same region.

The International Group of P&I clubs is NOT a financial safety net. It is only a pooling agreement and a re-insurance arrangement. In other words if one of the P&I Clubs would go bankrupt, the other Clubs have no duty whatsoever to contribute. The pooling agreement is only for claims between US$ 6 and 50 million, which means that the majority of the claims have to be paid by each Club individually.

Each P&I Club in the International Group is as strong as it’s Members. There is no alternative capital, nor is there any alternative source of income to finance a shortfall in collected premiums against claims to be paid.

The conclusion is that if a P&I Club must go in to run off (stop underwriting), it is uncertain whether all ex-members will pay all their supplementary calls. This automatically means that it is doubtful whether all outstanding claims can still be paid. If on the other hand a ‘good rated’ insurance company would go in to run off the result is pretty certain, because all the assets of the insurance company will be available to as security for the payment of all the outstanding claims. It further means that a P&I Club letter of guarantee is as strong as the Members’ being able or willing the raise the cash, where a letter of undertaking from a good rated insurance company is backed by all assets of the insurance company.

A P&I Club in run off means the end of the Club, whereas an insurance company putting their P&I business in run off, will continue as an insurance company for their other lines of business and will therefore provide a much better security that outstanding claims on previous years will be paid and that letters of guarantee will be honored.

SUPPLEMENTARY CALLS

It is not a secret that most International Group Clubs are still facing underwriting deficits on their technical account, despite the general increases they have been charging to their members over the last couple of years.

With poor invest income and a pattern of increasing claims levels, there is still a threat of unbudgeted supplementary calls, which P&I Clubs will only announce and charge after 2 to 4 years of each underwriting year.

At RaetsMarine the agreed premium for the policy year is fixed and final, irrespective of the Shipowner’s individual record and irrespective of our book of business as a whole.

Unlike the P&I Clubs we do not apply general increases. Each individual Shipowner will be judged and rated on his own performance.

CHOOSE A POLICY LIMIT

All International Group Clubs are offering the same policy limit of US$ 4.25 billion. Since there is only re-insurance coverage up to US$ 2.03 billion there is a very big gap (the so-called ‘overspill’ risk) to which all Ship owners entered in to the International Group Clubs are exposed.

A big cruise line company or a big tanker owner may need the above limit, but why would many Shipowners with smaller tonnage be exposed to a risk which they themselves would never have.

The International Group Clubs cannot offer flexible lower limits to reduce the above socalled ‘overspill’ exposure.

THE RIGHT PLACE TO BE

There need to be a balance between the Member/Ship owner and the Club/Insurer. In other words each Ship owner need to consider whether his fleet is important enough to receive a reasonable service.

Most International Group Clubs are concentrating on the mainstream Shipowners. If a Shipowner is not big enough it becomes a favour to be insured by an International Group Club, which makes it doubtful whether such Shipowners will receive the best attention.

At RaetsMarine we insure vessels upto 10.000 GT, mainly dry cargo vessels, tankers trading non-persistent products and non cargo carrying vessels, such as fishing vessels, tugs, pontoons, supply vessels and other special crafts.

All of vessels up to 10,000 GT can be insured safely and comfortably at lower limits. There is no need to be entered in an International Group Club, so the exposed risk of having to contribute to major disaster caused by cruise liner or a VLCC can easily be avoided.

It is further important to note that all clients of RaetsMarine are equal important to us, no matter how small the account is, and will receive our best attention for services and performance.

GUARANTEES

An argument often used by the International Group Clubs is that they have a long tradition of putting up letters of guarantees for the release of arrested ships. It is true that the P. & I. Clubs are offering these services for many years, but why would a fixed premium underwriter not be able to provide the same service.

At RaetsMarine we are fully equipped to meet any demands for guarantees and we are in fact acting in the same way as the International Group Clubs.

We even think that in regard to guarantees we take an even more practical approach in dealing with the problems of arrested ships and we have proved our skills on many occasions already.

SERVICE

The P&I Clubs argue that the fixed premium underwriters cannot match the level of services provided by P&I Clubs.

Unlike some fixed premium underwriters, who indeed have not yet set up a full service claims handling department, we at RaetsMarine are fully committed to service. We are proud to say that we can easily match the Club type service and even think that we can exceed it.

In our head office in Rotterdam we have more than 15 experienced claims handlers with both legal and shipping backgrounds. Through our regional claims office in Singapore we are capable to provide instant service to our customer base in South East Asia.

In concluding there is one final aspect which is extremely important:

Most P&I Clubs are managed by commercial management companies, who all have an incentive to make a profit. Their income is based on a percentage of the premium written into the P&I Club. It means the more premium, the more income for the management company. The P&I Club itself are the Shipowners entered into the Club and it are those Ship owners that have to raise all the cash required to run the P&I Club without a loss. If there is not enough premium collected the managers of the P&I Club will simply declare supplementary calls to be paid by the Ship owners.

In other words: Are the managers of the P&I Clubs interested in the lowest possible or the highest possible premium? The answer seems to be quite simple: The higher the premium, the higher the management fees.

We as commercial underwriters must make a profit and we can only reach this goal, if we make ourselves responsible for the performance under the insurance policy. It means that we will take a responsible approach in how the Shipowners’ money is spent and make savings where possible.

We are achieving our goals by reducing costs and defending claims through pro-active claim handling procedures and inter-active loss prevention programs.

The long term result is that the Shipowner will benefit from our approach by paying the lowest possible premium and by reducing his ‘deductible’ exposures.