Following a period of tonnage and premium growth over the past two renewals, American Club said that it had experienced significantly better operating results during 2023 than was the case in earlier years.
The Club said that it was “cautiously optimistic that this will continue, always in the context of prudent pricing and careful risk selection”.
Despite negative developments in regard to the 2020, 2021 and 2022 policy years (see below), 2023 was said by the Club to be on a much more positively balanced trajectory, “indicating that the measures taken at the last renewal, together with organic growth and the acquisition of new business, are having the intended effect upon prospective operational results”.
Nevertheless, the Club said that, as had been the subject of extensive industry comment over recent months, premium pricing was “still in need of upward adjustment to appropriately meet the realities of the current global risk environment and attain overall pricing adequacy”.
The Club will not be imposing a general increase, but will be seeking to target an increase of 7.5% on expiring rates overall for all classes of the Club’s business.
While the Club said that it was approaching the 2024 renewal with greater premium and a relative levelling of claims, the current year combined ratio to date being about 95%, deficits on earlier years remained (for details, see below), which in the case of 2020 would necessitate a final call of 25% on P&I and FD&D business, and for 2021 would see a 40% call in both classes.
For 2022 policy year the release call margin both P&I and FD&D business will be increased from 20% to 35% over and above the currently estimated total premium for the year.
The Club said that many of the issues identified 12 months ago as negative influences on the business landscape had persisted through 2023. These included geopolitical tensions, macroeconomic uncertainty, social inflation, and volatile investment and commodity markets, as well as a generally elevated claims value environment.
The Club noted that the better underwriting results reported by several clubs for the current year had been “inhibited by continuingly anaemic investment returns, market abnormalities resulting from increasingly complex and often conflicting sanctions regimes, the rising cost of reinsurance protection, and the deterioration of Pool claims for earlier years, notably 2021”.
American Club’s fixed premium facility Eagle Ocean Marine (EOM) continued to contribute to the mutuality, with improved underwriting results over the past 12 months.
Development of closed and open policy years
Closed policy years
The Club said that development of closed policy years had deteriorated since the end of 2022. This was caused mainly by unrealized losses on the Club’s investment portfolio over the period, exacerbated by an increase in both retained and Pool exposures on earlier years.
Open policy years
Despite some recent improvement in the development of this policy year, it remained in deficit, notwithstanding support from the additional call levied in June 2022. In order to close the year in balance, the Board has ordered that an additional and final call of 25% of originally estimated total premium be levied for the 2020 policy year for both P&I and FD&D mutual business. The final call will be due for payment in a single instalment on April 20th 2024.
As the Club had already reported, 2021 began to emerge unfavourably at an early stage. Exacerbated by negative development of the 2021 policy year’s extraordinarily high Pool claims, over recent months, these trends had continued. As a result a further supplementary call of 40% of originally estimated total premium for both P&I and FD&D will be made. The additional supplementary call of 40% will be debited in two equal instalments, due for payment on May 20th and November 20th 2024. In the meantime, prior to closure, the release call margin for the year will be 2.5% over and above the 40% supplementary call mandated for payment.
Although 2022 developed favourably at an early stage, benefiting from an increase in premium levels, the positive results began to fade as the year progressed, negatively impacted by the Club’s first Pool claim since 2016 and other individually large claims, with negative performance across all lines of the Club’s business. In addition, 2022 marked the worst performance for most major indexes in the last 15 years, substantially impacting the Club’s investment funds.
As a result, the release call margin for the 2022 policy year for both P&I and FD&D business will be increased from 20% to 35% over and above the currently estimated total premium for the year. The development of the year will remain under review by the Board over the months ahead.
Consistent with predictions forecasted earlier in the year, the current underwriting results for 2023 have given rise to cautious optimism as to the ultimate development of the year, although investment returns have remained weak. Claims so far have developed as budgeted, while premium has grown by over 20% from 2022 to 2023 on an annualized basis.
In these circumstances, the release call margin for both the P&I and FD&D classes will be maintained at 20% over and above the total estimated premium for the year.
All fixed premium P&I and DTH entries (e.g., those for charterers’ risks) will also be subject to an overall target increase of 7.5%.
Fixed Premium FD&D entries will also be subject to an overall target increase of 7.5%.
Any uplift in the cost of the Club’s own reinsurances regarding mutual and fixed premium business will be adjusted separately and additionally.