Willis' predicted during the period of uncertainty in 2008, when almost half the market made unbudgeted calls, that we did not expect this particular problem to spread to the stronger half of the market. This has been borne out by events. The recent trend has been that a very small number of stronger clubs have called less than their full estimated premiums while the vast majority of the market has performed on budget.
In late November 2015 Skuld announced the introduction of a 'premium credit' system for mutual P&I members. The exact size of the credit will not be decided until the Skuld's Annual General Meeting (AGM) in 2016, when the final financials for the 2015/16 year will be available. Their target is to distribute 20% of the surplus for the 2015/16 financial year, but the club has guaranteed that the premium credit will be a minimum of 2.5% of the 2015/16 mutual premium.
It is intended that after the AGM has approved on the final figure, appropriate credit notes will be issued.
As the exact approach of this rebate will not be decided until the AGM in 2016, it opens the possibility of two alternatives. If this premium credit is not conditional on owners renewing with the Skuld, then it is simply a mechanism for not charging the full estimated total call (in a similar way to Gard, Britannia and the UK P&I Club) and therefore just the use of differing terminology to express a well-established market practice. If however the premium credit is essentially a 'continuity credit' where the premium is credited against the 2016 premium for renewing members (only), it would represent a new approach within the mutual P&I market. This potential innovation, while interesting, would raise questions for the International Group (regarding the application of the International Group Agreement) and similarly could invite questions in respect of the concept of mutuality and policy year accounting.
As mentioned in the RELEASE CALLS section of this review, there has been a near doubling of the free reserves in the IG market since the last period of wide-spread unbudgeted calls. Consequently the P&I market is in a stronger position overall to withstand a recurrence of the events following the 2008 stock market crash.
Even in such a positive environment for mutual premium accuracy, we would not discount the potential for further isolated unbudgeted call announcements. As highlighted in this and previous reviews, there is a huge difference in financial performance between the strongest and weakest clubs in the IG.
At the weaker end of the market there remain two or three clubs that would be vulnerable should claim levels increase or investments return negative results. At the stronger performing end of the spectrum, 2014/15 saw a number of clubs report very strong results, which raises the question why more clubs have not followed the lead of Britannia, Gard, UK and latterly Skuld in rebating premium. In a challenging environment for ship operators, double digit increases in free reserves without a distribution to the membership of any of the surplus seems disproportionately parsimonious / conservative on behalf of those particular clubs.
The broad expectation is that the vast majority of clubs will continue to perform 'on budget' with possibly one or two isolated problem clubs at the bottom, contrasted with three or four clubs at the top granting rebates.