Circular No. 17/98 - Development of Open Policy Years



NOVEMBER 16, 1998



Dear Member:



At its recent meeting in New York, your Board of Directors considered the development of open policy years and made the following decisions in relation to them. The Board also reviewed a variety of factors influencing prospective premium rating for the 1999 renewal and reached the conclusions described below.



1995 Policy Year

As was the case twelve months ago, the year continues to develop in surplus. Two years ago, however, it was felt prudent to make an additional call of 25% of advance call over and above the then estimated supplementary call of 50% based on actuarially projected ultimate loss costs for the year. In the result, these calculations have proved to be too conservative and it is now clear that a part of the additional call was unnecessary.

Accordingly, in order to bring the year into balance, your Board has determined to make a refund of the earlier overassessment to the extent of 7% of advance call premium for the year. This will have the effect of reducing the supplementary call for the year from 75% to 68% and the estimated total call for the year by some 4% in comparison with earlier projections.

Your Board also decided to close the 1995 policy year as of December 31, 1998. Credit notes for the return of call will be distributed in due course.

1996 Policy Year

During the last twelve months this year has also continued to develop more favorably than originally projected two years ago, for much the same reasons as described above in relation to 1995.

In early December last year Members were notified that the supplementary call requirement for the year would be less than that indicated twelve months previously, i.e. 40% of advance call rather than the 65% estimated in November 1996. It is therefore pleasing to be able to report that in view of the continuingly favorable development of the year, the Board has ordered that a further supplementary call of only 9% be levied for 1996. This will be made receivable as of December 31, 1998 and will be due from Members on May 20, 1999. The year will remain open with a view to closure toward the end of 1999 or early 2000, but in the meantime Members are advised that no further call is expected.

1997 Policy Year

As foreshadowed in the report contained in Circular No. 15/97 of December 9, 1997, the development of this policy year continues to exhibit no claims trends which suggest that the originally estimated 25% supplementary call will prove insufficient. Members are advised to budget accordingly.

The release call margin for all mutual entries for this year will remain at 25% as originally notified.

1998 Policy Year

In light of the Club's growth as of February 20, 1998 and the concomitant changes in its membership profile, there has been some uplift in the level of claims notifications during the early part of the year, consistent with the diminishing volume of - and exposure to - more "long tail" liabilities.

However, taking this into account, the underlying development of the year indicates a pattern broadly consistent with its predecessors. And, as was noted last year at the same stage of the development of the 1997 policy year, 1998 should perform in line with original expectations.

In view of this, your Board of Directors has ordered that a 25% supplementary call be levied for all mutual entries for 1998, as originally estimated, and receivable as of December 31, 1998. The call will be payable in one installment due on May 20, 1999.

The release call margin for all mutual entries for this year will remain at 25% as originally notified.


Although Club finances continue to be robust - indeed there is every expectation that its policyholders' surplus and Members' equity will at year-end have increased yet again over the figures recorded for 1997 - your Board is eager to ensure that this position is not eroded in the future.

Last year no general increase was applied to expiring rates. However, the incipient claims growth noted by other Clubs in the International Group, together with the longer-term hazards to budgetary stability created by unjustifiably persistent rating softness, argue convincingly for the need to ensure an upward movement in rating over the short-to-medium term.

Accordingly, having considered the subject at length, your Board has determined that - as a minimum correction to ensure future economic strength - a general increase for the 1999 policy year of 5% should be applied to expiring rates prior to further adjustment to take account of an individual Member's record. This increase will apply to all classes of business written by the Club including P&I, F.D.&D. and charterers' entries.

The Club's supplementary call requirement for all mutual entries is estimated to be 25% of the advance call for the year. Its release call margin will remain at 25% of advance call over and above estimated total premium.


The above can briefly be summarized as follows:

1) 1995 to be closed as of December 31, 1998 with a 7% refund of advance call to Members.

2) A 9% additional supplementary call to be levied in respect of 1996 - a significant reduction from earlier estimates. Call payable on May 20, 1999. No further call expected.

3) 1997 supplementary call estimate remains at 25%. Current trends indicate that this original estimate will prove sufficient.

4) A 25% supplementary call to be levied for 1998 as of December 31, 1998, payable on May 20, 1999. Year to be kept under review, but current estimates appear adequate.

5) Release call margins for 1997 and 1998 to remain at 25% of advance call over and above presently estimated total premium.

6) A 5% general increase for 1999, 25% estimated supplementary call and a 25% release call margin.

The Managers will, in due course, be in touch with individual Members setting out proposals for renewal of their cover with the Club effective February 20, 1999. In the meantime, all Members are asked to note the contents of this Circular and await further contact.

Yours faithfully,

Joseph E.M. Hughes, Chairman & CEO
Shipowners Claims Bureau, Inc., Managers for