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Introduction

Renewal was very much as expected, with another year of zero general increase and a small but welcome reduction in Group Reinsurance. Whilst claims have shown a marked increase during the year, coupled with a number of Pool claims deteriorating, the bottom line is that clients with favourable loss records still enjoyed premium reductions.

All good news and long may it continue. However, whilst we have no interest in talking up the market, we must add a word of caution. One cannot ignore the fact the Group’s premium base is dwindling and, despite claims patterns remaining benign over the past few years, this trend is showing a marked degree of escalation. This coupled with the so-called churn, as well as new tonnage entering the market at favourable rates, will inevitably add more pressure.

Winning formula

Is this cause for concern? We think not. In recent years, and after a great deal of lobbying from Aon, mutuality has proven to be a winning formula. The record level of free reserves has enabled a number of clubs to return premiums to their members, whilst still retaining more than adequate solvency requirements. With the clubs more reliant on underwriting performance, and for the most part de-risking investment programmes, any jump in interest rates would prove a welcome bonus.

Will this signal the end of premium returns or, in the case of Britannia, an innovative cash distribution? Probably not. However, we feel it will help to highlight the gap between top performing clubs and the rest of the Group.

The memory of unbudgeted calls is now distant; let’s hope it will remain so. The balance of financial strength and marketability is crucial. If that shows signs of cracking, expect more merger talks.

We must again applaud Britannia in taking the decision of waiving release calls for the past three years and the current year. If only some of the other clubs could tune into the same frequency.

Challenges

Given the soft approach at this renewal, it's no surprise little movement was seen across the clubs. What this tells us is the Group enters a new year in good shape and ready to tackle the challenges ahead.

And challenges there are…the recent decision by the Spanish authorities in refusing to allow limitation in the case of the Prestige – ruling that the right to limit can be lost – is a huge concern. This is not the first time a court has handed down such a decision, but it was unexpected from an EU member. Should this decision take root in other courts of law, the ramifications would be far reaching and undoubtedly cause havoc with risk assessment.

On Brexit, clubs that are likely to be affected have made their plans. Other than some additional costs, we expect it to be business as usual.

Cyber is seldom out of the press and for good reason, with the potential for catastrophic risks ever present. The maritime industry has already been burnt but Cyber is not a specific exclusion from P&I cover, yet. However, as reinsurers follow settlements in all respects, the considered view is the market will bear one major loss before pushing the button on a Cyber exclusion. The issue, as we know, is aggregation. This area is under constant review and we expect some clarity soon. Whatever plans are put in place, it is most likely to come in the form of a cap and/or aggregate limit and we will be on hand to support you with your risk assessment.

Reinsurance

There is little doubt the reinsurance market has taken some big hits, especially those heavily exposed in the US. We have seen a little hardening of rates but, whilst there is such an abundance of capacity, we doubt there will be any significant moves. Selection may be a factor, with bespoke reinsurance programmes within the retention and non-poolable risks coming under closer scrutiny.

Customised or commoditised...

The International Group has stood the test of time and in fact has never been stronger. Still many find the world of mutual P&I esoteric and out of date.

Many classes of insurance have become commoditised and marine is no different, with old school now new. As e-trading becomes increasingly prevalent across insurance, the question is: should the clubs follow suit? Firstly, one of the main drivers of any modernisation is profit. The fact that the Group is non-profit makes the landscape somewhat different. Having said that, running a mutual club is costly, often eating into something like 10% of annual premium.

The nature of P&I is complex and requires a hands-on approach. We have little doubt that, as systems evolve, more automation will take place. Whilst embracing new technology, we expect little change in the near future. Nobody wants to see a drop in standards but should certain clubs look at tightening their belt in some areas? In today’s climate of small margins, every penny counts.

Fixed P&I

The International Group is not alone on 20 February - there are a number of fixed P&I providers vying for business. It is important to bear in mind that 90% of the world’s tonnage is insured by 13 group clubs, leaving the balance to be insured by as many fixed P&I providers with no International Group Agreement to rely on. No wonder the competition is fierce.

We have seen some recent moves: Navigators, one of the oldest Fixed P&I providers, has been sold off to the Thomas Miller empire and will join its fixed P&I offering, Osprey. Most recently Lodestar Marine was sold off from Tawa Associates to the Ryan Speciality Group.

In previous bulletins, we have highlighted the struggles the fixed P&I market faces and with little changing its wise to expect further consolidation. In a similar vein to owners, charterers are enjoying premiums reducing. In our next bulletin we will comment on the charterers’ liability insurance market, analysing the market place and highlighting the exposures facing operators today.

 

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