Reinsurance

The ability of the Clubs to offer such substantial Class 1 P&I cover yet still maintain stability requires that they have extensive reinsurance arrangements. The P&I Clubs belonging to the International Group have formed a reinsurance Pool in which very large claims falling within an agreed band are contributed to by all Members of the Pool on a proportional basis. Unlike reinsurance with market underwriters, the International Group Pool does not depend on payment of premium in advance of claims arising. Funds to settle claims on the Pool are only collected from the contributing Clubs when the claiming Club has actually paid an eligible element of the claim. In this way, the mutual principle is used to provide an extremely economical form of reinsurance, at a layer which would be the most expensive layer to place in the international reinsurance market, and to enable all the Clubs to retain their own funds until a claim is actually settled. There is no profit or loss factor involved in the International Group Pool and the ultimate cost is determined only by the level of the whole International Group’s aggregated claims within the layer of reinsurance underwritten by the Pool.

Currently, each Club which is a member of the Pool pays the first $7,000,000 of any claim. In excess of $7,000,000 up to $50,000,000 the claim is divided among all the Clubs in the Group Pool (including the Club which is making the claim), with the Pooling contribution of each Club being calculated taking into account its entered tonnage, premium income and claims experience in the Pool.

The exposure of each Club under the Pooling Agreement for the layer $30,000,000 to $50,000,000, as well as a 25% quota share retention under the first layer (up to $500,000,000) of the Excess Loss contract (see below), is reinsured into the International Group’s Bermuda captive - Hydra Insurance Company. The captive will hopefully enable the Group to accumulate reserves to support progressively greater risk retention in the future, as well as enhancing inter-Club security.

For claims in excess of the Pool limit, the International Group has arranged its own excess of loss reinsurance contract which currently provides cover up to $2,000,000,000 in excess of $50,000,000 in relation to all types of claim except oil pollution, where the limit is $1,000,000,000. The International Group has also bought cover to protect the first $1,000,000,000 of 'overspill' (see below), bringing the upper limit of its reinsurance programme to $3,000,000,000.

The Excess of Loss contract, effected on behalf of the whole International Group rather than an individual Club, is currently led by Lloyd’s of London, the risk being shared by a large number of major insurance companies in other leading insurance markets. The individual Clubs within the International Group are responsible for their own declarations and payment of premium for this reinsurance, and the balance of claims which exceed the upper Pool limit are submitted by the Club to the Excess Loss contract for reimbursement.

Should a claim ever exceed the upper limit of the Excess Loss contract (no claim has ever done so), it would then fall back onto the Pool and be borne by each Club pro rata according to its limitation tonnage. Such a claim is known as an overspill claim, and would be funded by each Club either from reserves or by making a special "overspill call" on its Membership. Members’ liability for overspill calls is limited to 2½% of the limitation fund of each entered vessel under the 1976 Limitation Convention. This means that the aggregate potential overspill liability of all Members of International Group Clubs will not exceed approximately $3,400,000,000 in excess of the Group’s Excess Loss reinsurance programme. Furthermore, the first $1,000,000,000 of any such claim is covered by an additional Group reinsurance.

Apart from the Class 1 P&I reinsurance arrangements centred around the Pool, the Club also has various other reinsurance contracts which have been arranged to provide protection against other covered risks within the Club’s retention.

Members may also need one off covers to meet particular requirements and, depending on the circumstances, the Club may be able to provide special cover for such risks, backed by an appropriate reinsurance protection.

Lastly the Club’s net retained liabilities are reinsured through The Steamship Mutual Underwriting Association (Reinsurance) Limited ("Reinsurance"), a wholly-owned subsidiary of Steamship Bermuda, into "the Trust".