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International Group of P&I Clubs experience favourable reinsurance renewal: A.M. Best

7th March 2017 - Author: Luke Gallin

Members of the International Group of P&I Clubs, which dominate the marine protection and indemnity (P&I) industry, experienced a favourable reinsurance renewal for the 2017/2018 policy year, according to international rating agency, A.M. Best.

Both within the International Group and an expanding fixed premium market, rates in the marine P&I sector are under pressure and competition high, as several years of strong earnings has resulted in strong levels of free reserves for the club, while their ship-operating owners face a challenging economic landscape and are therefore trying to lower costs.

In a recent briefing on the sector, analysts at A.M. Best highlighted a favourable, February reinsurance renewal for the sector, which is when clubs in the International Group cede a little over 20% of premiums written, a figure that A.M. Best says has been on the rise during the last five years.

“The International Group’s general excess of loss (GXL) reinsurance contract for the 2017/2018 policy year was renewed, as in the previous year, with an improvement in terms,” said A.M. Best.

According to A.M. Best the International Group achieved rate reductions across all vessel categories, driven by a lack of large losses and the abundance of capital in the global reinsurance market, from both traditional and alternative sources. The rating agency also attributed the favourable reinsurance renewal to the International Group’s captive, Hydra Insurance Co. Ltd (Hydra), and its ability to retain more risk.

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In order to achieve better terms, the International Group’s pooling arrangement means that members mutually reinsurer each other by sharing claims above $10 million for the 2017/2018 policy year, an increase from the $9 million in the previous year, with individual clubs purchasing their own reinsurance protection below their $10 million retention.

“The level of protection purchased depends on each club’s risk appetite, and is influenced by the size of its capital base and its ability to absorb large losses,” says A.M. Best.

As well as the increase in retention to $10 million for the 2017/2018 GXL reinsurance contract, the attachment point also increased from $80 million to $100 million, and Hydra will now cover 100% of that $20 million layer, up from 75%, and in addition to its previous reinsurance of the Group’s pool of $50 million in excess of $30 million, explains A.M. Best.

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