imports, is paid to the brokers, thence to the company and on to the Exchange after a lapse of 45 to 60 days. Therefore, there is a lag on imports of four or five months; on exports, two or three months. This became a source of great concern when U-Boats were active off the Atlantic coast in 1942. War rates were fixed as of the sailing date. Because of the delay in payment of premiums, the Exchange did not benefit from increased rates for months, but claims from sinkings had to be paid promptly. On the other hand, this delay provided a cushion to offset unknown and unreported claims.
The Organization Committee suggested an Excess Line Cover be arranged in London to provide automatic reinsurance in excess of $2,500,000 per voyage by any one steamer. Exchange members issued separate War Risk open policies and excluded them from their regular London reinsurances, which released enough reinsurance capacity to complete a treaty for $2,000,000 excess of $2,500,000 per vessel, being the utmost then available in London. This provided an underwriting capacity of $4,500,000 per vessel.
Subscribers were requested to indicate the amount of liability they would be willing to undertake on the basis of a probable maximum exposure for all of $2,500,000 per vessel. It was anticipated that war would bring inflation; therefore the above $2,000,000 treaty was arranged as a cushion for occasional heavy lines. As a matter of fact, inflation resulted in values over $7,000,000, but with specifically placed reinsurance, such values were readily absorbed.
To safeguard the position of subscribers, provisional declarations were requested on large lines. Also, subscribers were permitted to arrange their own reinsurance for amounts they might receive as their share of the Exchange in excess of $2,500,000.
A Current Update
Hows the Exchange doing now? Fine, but actually there have been no claims on member companies from The Iran/ Iraq War in the Red Sea or the Gulf. Cargo War policies include coverage for malicious mischief. There were instances of warehouses being looted, but since these goods could have been stolen or looted by the authorities, the resulting claims were not paid as war related losses. There was a case of alleged piracy in the South China Sea that could not be proven as a war peril. In 1979, a vessel was seized by the Cuban government, which made demands to release it; the goods were never released. The U.S. companies paid the claims. The only recent loss was that of cargo on the Korean airliner.
All present eligible risks are ceded 100 percent and then redistributed according to proportion of interest, which is based upon premiums ceded during the immediately preceding 12 months. Almost all American and licensed foreign companies are members.
As to the future, the Exchange will continue to handle war risks on essential cargoes afloat. If war does break out, the companies again will become agents of the U.S. government, handling shipments and paying losses in the same manner as developed in World War II.
While we glow with pride that U.S. reinsurers responded so admirably to the wartime sea losses, one wonders if U.S. companies could develop similar solutions to more pressing current reinsurance problems.
My thanks to Mr. George A. Jones, Senior Vice President -Maritime, of the Atlantic Mutual Insurance Company, for his constructive help, including the data on the current status of the Exchange. We are also greatly indebted to those who gave countless hours to the organization and continued operation of this vital Reinsurance Exchange. It was no simple feat to obtain cooperation between aggressively competitive underwriters.