JLT market review 2017 of International Group of P&I Associations (Part one)

Over the past couple of weeks IMN has been publishing the responses of the Group Clubs to some of the questions posed by broker Jardine Lloyd Thompson in its annual review of the International group P&I Clubs. JLT also published its own analysis of the Clubs’ situation, strategy, and views. We will conclude JLT’s analysis tomorrow.

JLT noted that it was not unsympathetic to the desire on the part of the IG for consistent and unified responses on many of the issues raised by the JLT questionnaire. While the club managers represent their boards of directors, which themselves are mainly constituted of the shipowner members themselves, often drawn from a significant proportion, at least when measured by tonnage entered, of the membership as a whole, there was a fundamental principal at work when the IG presents a uniform position on a particular issue.

JLT observed that there were numerous challenges facing shipowners where consensus was the strategy most likely to achieve the best result for the majority of shipowners. IG’s swift and decisive response to the Maritime Labour Convention “prevented a cottage industry and associated unnecessary additional cost growing up around yet another new piece of maritime legislation”, a happy contrast to “the debacle that was OPA 90”.

JLT said that some of the responses to its questionnaire did seem to reveal where the current points of friction lay, and one of these appeared to be fundamental differences of opinion in the matter of release calls (the clubs’ answers were published in IMN last week).

JLT’s question postulated the argument that the record levels of surplus funds the P&I clubs had accumulated of late meant that, in effect, members had already more than adequately discharged their responsibility towards “unexpected adverse development in club finances”.

JLT noted that North, in its response, vigorously dismisses this suggestion on a technical finance point: “This pre-payment argument, if seen as valid, would make a supplementary call impossible for clubs and would damage the clubs’ capital position”. Gard developed this discussion and explained that “supplementary calls are recognised as … Tier 2 capital under Solvency II and account for up to 50% of the regular capital required”. On the philosophical point, American Club went further, ending its response with the warning that “the implications of such an extraordinary possibility (of not levying release calls ) would be highly damaging to a club’s prospective finances, and would not go unnoticed by regulators.”

Shipowners’ Protection, meanwhile, did not levy release calls. UK Club said that “the release call system is not much liked by members and … it is worthy of review to consider if there is a possible alternative”. Britannia acknowledged that “release calls have to be looked at in the context of our current financial position”. JLT agreed with this line. “The commentary we provide in respect of the P&I clubs’ Solvency II filings reflects on the exceptionally strong capital positions of all the clubs; there is no actual requirement for future supplementary calls to bolster balance sheets in this way”, said JLT. It claimed that “release calls have been made an anachronism of the current strength of the mutual P&I system.”

Another subject which revealed varying views was that of how the clubs approach the business of buying reinsurance protection for the pooling system (the Clubs’ responses were covered earlier this week by IMN). JLT noted that many of the clubs responded with a variation on what had all the hallmarks of a preferred consensus position. For example Japan P&I said that “we are happy with the comprehensive review of the IG reinsurance programme that the Reinsurance Subcommittee, drawing on the knowledge and experience of the IG’s brokers and relevant external consultants, carries out every year”. This, said JLT, made Standard’s short and sharp answer of “Yes” to the question “…do you consider a more root and branch review of how the IG buys reinsurance is called for?” “all the more starkly at odds”.

JLT said that it would come as little surprise that it favoured the position of Standard Club.

JLT said that, while IG employed brokers with undoubted and relevant expertise and experience, “the process still seems to us to be insufficiently broadly based and lacking in transparency”.

JLT opined that the IG should conduct an open tender of both sets of roles. It said that, even if this process resulted in the reappointment of the current panel of brokers and consultants, brokers and clients could be satisfied that no stone had been left unturned and every potential alternative examined.

JLT called the current approach “old-fashioned at best” and said that it excluded from the process “the vast quantity of intellectual capital present in today’s specialist insurance and reinsurance brokers, while always being exposed to the insinuation that it is some sort of insiders’ charter”.

JLT said that it was “hard to see what could be lost through an open tender process”, while adding that “a great deal could be gained”.


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