The International Group of Protection & Indemnity Clubs cited the “current favourable state” of the marine reinsurance market at its latest renewal for the 2017/18, saying that has taken opportunity of pricing conditions to save itself money on premiums paid.
The International Group said that arrangements for the renewal of its International Group General Excess of Loss (GXL) reinsurance contract and its Hydra reinsurance programs have both been finalised for its renewal.
As well as benefiting from the softened state of the reinsurance market, the International Group said that thanks to the long relationship it enjoys with its panel of marine reinsurers it has been able to bring forward its marine reinsurance renewal timetable by around one month.
That also enables the International Group to avoid the most competitive part of the renewal at year-end, meaning it has secured its pricing and terms early which will also have been appealing to reinsurers.
The retention level for each individual club remains unchanged for the 2017/18 policy year at $10 million, the International Group explained. But the attachment point on its Group GXL reinsurance programme, which has sat at $80 million since 2014, will rise to $100 million from 20 February 2017.
It also explained that as its reinsurance program loss experience has been favourable to reinsurers in recent years, despite some past year claims deterioration, which will have helped it to achieve rate enhancements.
“This factor combined with surplus market capacity, the positive financial development of the Group captive, Hydra, the effective use of multi-year private placements and a number of structural changes, has enabled the Group to achieve advantageous reinsurance renewal terms, with reductions across all layers of the programme and on the Excess War P&I cover, resulting in a further year of reinsurance rate reductions across all vessel categories,” the Group explained.
Overall, Paul Jennings, Chairman of the International Group Reinsurance subcommittee, explained; “This is another positive reinsurance renewal for the International Group and its Members, and over the last three renewals premium savings of approximately $100M have been delivered from the Group programme.”
Further details on the International Groups reinsurance renewal are below:
Hydra participation
Currently, the layer from US $80 million to US $100 million is reinsured 75% by Hydra and 25% by the first layer of the market GXL placement. From February 2017, Hydra will absorb the 25% market share in this layer and will therefore reinsure 100% of the layer. Hydra also currently reinsures 60% of the layer from US $100 million to US $120 million and, from February 2017, will reduce this participation to 30%, with the remaining 30% being absorbed by the market GXL placement. The objective of these changes is to simplify the current Group reinsurance programme structure through the introduction of a “flat” attachment for the GXL and private placements at US $100 million.
Private placements
The first of the three current 5% private placements covering the first and second layers of the Group GXL placement (US $1 billion excess of US $100 million) expires at the end of the current policy year in February 2017. A new 5% three-year private placement will replace this expiring placement as from 20th February 2017 on more favourable terms and pricing. In addition, the Group has negotiated an extension to the second 5% three-year private placement for two years beyond 20th of February 2018 on favourable terms and pricing.
MLC cover
As part of the solution developed by the Group clubs to assist and meet shipowners’ certification requirements under the financial security provisions of the Maritime Labour Convention which will enter into force in January 2017, the Group clubs have collectively arranged a market reinsurance cover (US $190 million excess of US $10 million) at a competitive cost which is will be included within the overall reinsurance cost for allocation at 20 February 2017.
Reinsurance cost allocation 2017/18
In accordance with the Group’s general reinsurance cost allocation objectives, principally that of moving towards a claims versus premium balance for each vessel type over the medium to longer term, the Group’s Reinsurance Strategy Working Group and Reinsurance Subcommittee have again reviewed the updated historical loss versus premium records of the current four vessel-type categories. This review included a focus on claims by vessel type, and consideration of whether the available claims data merited extending the current vessel-type categories for the purposes of the reinsurance cost allocation exercise.
Tankers
In the clean tanker category, the 2015 “Alpine Eternity” claim, on which there has been further development during 2016, continues to impact the clean tanker record, whilst the dirty tanker record continues to show improvement.
Dries
In the dry cargo category, during 2016/17 the claims and premium record has continued to develop favourably. The absence of any significant container vessel claims arising during the 2016/17 policy year to date means that there still remains insufficient historical claims data to support separate treatment of container vessels from dry cargo vessels for reinsurance cost rating purposes for the 2017/18 policy year.
Passengers
In the passenger category, following several years of significant increases in reinsurance costs as a result of the claims arising from the Costa Concordia incident, the claims and premium record is developing favourably. It is not anticipated that there will be any further significant development on these claims, and, in the absence of any further major passenger vessel incidents, the sector should continue to move towards claims/premium equilibrium over the medium term. Based on its review of comparative performance by vessel type category, and reflecting the most improved performance within the dry cargo and dirty tanker categories, the subcommittee approved reductions in reinsurance costs for 2017/18 of approximately 9.3% for dry cargo vessels and dirty tankers, and approximately 5% for clean tankers and passenger vessels. Chartered rates are reduced by approximately 6% for chartered tankers and chartered dries.
