Circular 13/98: International Group Agreement (IGA)

INTERNATIONAL GROUP AGREEMENT (IGA)

We refer to previous circulars on this subject, and in particular to

A progress report has been issued in the form of a press statement by the International Group on 2nd September, 1998, in the following terms:

"Possible resolution of the IGA issue with European Commission

Managers of International Group P & I Clubs met yesterday to consider recommending to Club Boards of Directors proposals in relation to the remaining issue still outstanding in the Group's discussions with DGIV - the objection made last year by the Commission to the terms of the International Group Agreement [the IGA].

Under the terms of the IGA a Group Club must respect the rate quoted by the existing Club, since that rate is based on the existing Club's experience of the historical risk profile and likely performance of the business in question. In 1985 the IGA was granted an exemption by the Commission from the relevant provisions of European competition law on the grounds that it provided a measure of discipline between Clubs in the Group necessary to preserve the International Group and its Reinsurance Pool.

One part of the proposal is that Clubs' internal costs will no longer be included in the rating calculation to which the IGA applies. The IGA will continue to maintain rating discipline in relation to retained claims costs, Pool costs and reinsurance cost. At the same time the "transparency proposal" which was outlined to DGIV by the Group working party in November last year would be adopted. This will require all Group Clubs to incorporate into their annual Accounts an audited five year benchmark for administration costs, calculated on a common basis.

All Group Managers present at the meeting yesterday endorsed the proposals and appropriate steps will be taken to seek approval from Club Directors.

George Greenwood, Chairman of the Group, said,

"We are pleased by the progress which has been made in our discussion with DGIV. If Club Directors accept the proposals we are hopeful that this will open the way to a successful conclusion of our discussions with DGIV and the removal of potentially damaging uncertainties about the future of the Group. The proposed amendment of the IGA preserves the rating discipline between competing Clubs which is vital for the long term preservation of the Group system.

The Commission has recognised the unique benefits in terms of cover and cost which the shipowners, through their co-operative self insurance system, provide to consumers, claimants and governments. Shipowners' organisations from around the world have made this possible through their forceful support of the essential features of the existing system".

You will be kept informed of further significant developments.

, circular ref: 12/98 of July 1998 which reported that discussions with the European Commission Competition Directorate were continuing in a constructive manner.