Circular No. 10/96 - Premium rating for 1997; new By-Laws and Rules

December 17, 1996





Dear Member;






This circular addresses a number of important issues relevant to the forthcoming renewal of members' cover with the Club.


Premium rating for the 1997 Policy Year


At its recent meeting in New York, your Finance Committee considered what approach should be adopted in respect of premium rating for the policy year commencing February 20, 1997.


Account was taken of the development of recent open policy years, particularly 1995 and 1996. These years are currently projected to result in deficits which, although not alarming, are nevertheless undesirable in view of the Club's aim of providing, to the maximum extent possible, budgetary reliability for its members.


The potential deficits for 1995 and 1996 are to a large degree predicated upon allowances for claims incurred but not reported (IBNR), the value of which has been set by the Club's consulting actuaries in accordance with the regulatory demands of the New York State Insurance Department which supervises the Club's activities.


Uncertainty attaches to the ultimate loss development of these two most recent policy years. However, as members will already be aware, it has been considered prudent to cover these underwriting shortfalls by levying a further call of 25% for the 1995 year and putting members on notice that a further call of up to 40% for 1996 might in due course be required.


Going forward, it is in the interest of all members that a greater degree of prospective calls stability should apply to the underwriting development of the 1997 and subsequent policy years.


Accordingly, it has been resolved that a general increase of 10% be applied to members' expiring advance call premium for the renewal of entries with effect from Noon GMT February 20, 1997. Further adjustment will thereafter be made by reference to an individual member's loss record, taking specific account of factors which are relevant to the development of IBNR over time in accordance with actuarial projections generally. It is intended that the equitable implementation of this rating methodology will generate premium levels for 1997 and beyond which will restore stability to actual total premium costs so as to correspond in future with original forecasts.


The supplementary call requirement for the 1997 policy year will remain the same as that originally estimated for 1996 i.e. 25% of the nett advance call.



December 17, 1996-2-Circular No. 10/96



Since 1942, The American Club has issued documentation on a policy wording basis rather than in accordance with practice more universally adopted among P&I clubs where a Rule Book and Certificate of Entry format has typically been used to evidence a member's cover.


However, as of February 20, 1997 cover will be provided in accordance with the Club's new By-Laws and Rules and members from that date will be provided, in addition, with a Certificate of Entry evidencing cover under the new arrangements.


The Club's By-Laws and Rules will provide the same cover as that which obtained under the previous system of issuing a policy document. There have been one or two small changes made to the new wordings to place The American Club's cover more in conformity with that provided by its counterparts elsewhere in the International Group of P&I Clubs.


Release Calls


The new By-Laws and Rules provide for the Club's entitlement to levy release calls in respect of vessels prior to the closing of open policy years.


The margin of release call requirements in excess of any open year's currently estimated supplementary call will in due course be set by the Board of Directors. The figure for the 1997 policy year, being the first year where release calls will apply, will be notified to members as soon as possible, but in any event prior to the commencement of that policy on February 20 next.



Yours faithfully,

Shipowners Claims Bureau, Inc., Manager






Joseph E.M. Hughes

Chairman & CEO