The pattern and causes of individual claims within the Pooling layer have been discussed in a number of previous Willis P&I reviews. As would be expected, the trend broadly follows the pattern of all P&I claims, as analysed in the Market Financial Commentary section.

In very brief summary, there has been an increase in the average cost of individual major claims, which naturally increases the potential for volatility.

This is further exacerbated by the greater retention levels within the Pool. P&I clubs as a consequence are now more vulnerable to the impact of statistical aberrations in claims levels.

With this greater potential severity and increased retentions for each claim, there is considerable focus on frequency of major claims. As highlighted earlier, a rare positive effect of the shipping downturn has been the stabilization in the number of Pool claims. To illustrate what may happen should there be a surge in numbers of large claims, the Pool results between 2004 and 2007 provide a clear snap-shot of the potential total cost impact of increasing claims numbers in a shipping boom. The longer the shipping recession lasts however, the more likely it is that a further issue may raise its head. In challenging economic times there is pressure on ship operators to defer maintenance until their revenue position improves. With the continued adverse trading environment, claims arising from issues connected with a lack of maintenance may increase materially.

Pool - Impact On Individual Clubs

All clubs contribute rateably to every claim which is large enough to impact the Pool. The cost of major claims into the Pool layer therefore directly affects every club's individual results.

With the material increase in the overall cost of large claims impacting the Pool layer, there were extensive discussions within the IG about whether the formula used to calculate each club's contribution to the Pool was equitable.

The Pool contribution formula uses the variables of premium, entered tonnage and loss record of that particular club into the Pool, to calculate each club's proportion of claims into the Pool. Historically, premium and tonnage were the dominant variables with loss record less significant (on the logic that large claims are largely random and are usually not directly related to the quality of the individual ship operator). Following considerable internal discussion within the IG, the Pool contribution formula was changed with effect from 20 February 2013. This revised formula increases the influence of clubs' loss records into the Pool and also allows for earlier alterations in each club's contribution, proportionate to their changing loss records over shorter periods.