Three core agreements underpin the governance and functioning of the Group, the Group Constitution, the International Group Agreement (the “IGA”) and the Pooling Agreement.
The Group operates under a written constitution, which defines the three core objects of the Group, namely;
- The operation of the claims pooling arrangements between Clubs for claims in excess of the individual Club retention (US $10 million for 2019/20), and the collective reinsurance of pooled liabilities, and
- providing a forum for the exchange of views and expertise on matters pertaining to shipowners’ liabilities and the insurance of such liabilities, and
- the external representation of the Group and engagement with States, regulators, IGOs and national and international shipowner and marine insurance associations.
The Constitution also provides for the appointment of Group officers and matters relating to resignation and termination of membership.
International Group Agreement (IGA)
The IGA, which was last updated in 2019, governs the way in which Clubs compete as between themselves. In particular, it;
regulates the manner in which Clubs can accept entries from shipowners who wish to move their insurance from one Club to another.
specifies how Clubs may quote rates and the information which they should obtain from each other before quoting rates.
specifies the factors to be taken into account, and processes, for the setting of release calls for vessels moving to another Club/insurer.
specifies the sanctions for failure to follow the terms of the IGA.
contains a requirement for Clubs to disclose in their annual financial statements their Average Expense Ratio.
The claims-sharing mechanism provided by the Pooling Agreement, and the very high limits of cover provided by the Group Clubs pursuant to the Group pooling and reinsurance arrangements, are underpinned by the IGA, which is an essential element in ensuring mutual trust and cooperation between the Group Clubs, and the effectiveness of the pooling arrangements.
Although the Group Clubs compete with each other for business, it is to the benefit of all shipowners insured by Group Clubs for the Clubs to pool their larger risks. Pooling is regulated by the annually renewed Pooling Agreement which defines the risks that can be pooled, those risks which are excluded from cover, and how covered losses are to be shared between the participating Clubs. The Pool provides a mechanism for sharing all claims in excess of US$ 10 million up to, currently, approximately US$ 8.2 billion.
The Pooling Agreement addresses amongst other matters:
- the principles on which claims can be pooled, and
- the types of claim which can be pooled, and
- the types of claim which are excluded from pooling, and
- the method by which claims are calculated for pooling purposes, and
- the claims contribution basis, and
- the arrangements for collective reinsurance purchase and allocation of reinsurance cost, and
- provisions relating to applications for membership of the Group and participation in the pooling and reinsurance arrangements
Because Group Clubs share claims through the pooling system, they have a common interest in loss prevention and control, and in the maintenance of quality standards throughout the membership.