In broker Gallagher’s webinar update last week on the state of the Group P&I Clubs, the contributors noted that free reserves recovered well in 2019-20, with $650-$700m in investment returns pulling back about half of the decline recorded in free reserves the previous year.
Gallagher noted that their update only had full reports from seven of the 13 clubs, with the Covid-19 pandemic leading to a later appearance than usual of the formal statements. However, Gallagher’s internal research, plus guidance from all but one of the group clubs (Japan), had enabled them to put together the numbers.
Divisional director Alex Vullo said that in Gallagher’s opinion the trend curve will be moving in an upward trajectory over the next three to four years.
The accumulation of the past 20 years’ worth of general increase, if you were to start with $1 a ton in 1999, the dollar value today would be:
On the higher end of the spectrum is London Club, West, North and American.
On the lowest side there is Shipowners’ Club, which is an exception because Shipowners’ is a small ship club that mainly competes with the fixed-premium insurers.
The other clubs at the lower end of the spectrum are Britannia, Skuld, Japan and Gard.
If one looks at the impact of undercalling and excess calls, this gives a slightly better idea of what members actually ended up paying.
Accumulation of GI 1999-2019 (Av rate incl. deferred call adjustments and cash returns)
The rank of the clubs remains roughly the same, but the high is reduced from more than 500% to 277%, and the differential between highest and lowest is sharply lower.
Vullo observed that, while these slides illustrated a general trend, it was unlikely that any member had ever paid the GI year after year for the past 20 years. “When you reflect on the impact of churn, competition, the five-year soft market, it’s probably safe to say that rates have been significantly reduced over that period”, he said.
Gallagher recently carried out a survey of large tanker rates over the past 20 years, and it showed that the average tanker rate in 2019 was actually 65% lower than it was in 1999.
|Britannia||No General Increase plus $15m capital distribution|
|Gard||Nill General Increase|
|Skuld||Abandoned General Increase Concept|
|American||Nill General Increase plus 40% unbudgeted supplementary call on previous years|
|West||2.5% General Increase|
|Shipowners’ Club||5% General Increase|
|Japan||7.5% General Increase|
|London||7.5% General Increase|
|North||7.5% General Increase plus $1,000 increase in deductible below minimums|
|Standard||7.5% General Increase plus 10% increase in deductible below minimums|
|Steamship||7.5% plus 10% increase in deductible below minimums|
|UK Club||“Target Increase” of 7.5% plus $3,000 increase in deductible below minimums|
The average market rise during 2020 was about 4%.
Gallagher’s predictions for 2021 were:
|Britannia||No GI||Combination of cashback and rate rise? Looking for rate rises of 5% to 7.5%|
|Skuld||No GI||Looking to increase rates 5% to 7.5%|
|Gard||2.5% to 5%||Combination of rate rise and deferred call adjustment|
|Steamship||2.5% to 5%||Great 2019 results. Combination of cashback and rate rise|
|Shipowners’||5%||Will be at lower end of GI as fixed market will apply slight commercial pressure|
|American||7.5% to 10%|
|London||7.5% to 10%||Needs to correct combined ratio –under pressure|
|North||7.5%||Normally follows the pack|
|Standard||5% to 10%||Needs to correct combined ratio – under pressure|
|2010 avge est.||5.9%|
Gallagher said that it expected to see a continuation of the three to four year hardening market, with the wealthier clubs using cash back as a means of diluting rate rises. Clubs would be less likely to offer multi-year deals as this inhibited clubs from achieving targeted rate rises.
Early renewals would be less likely going forward “as chief underwriting officers will be under more pressure to be robust in achieving underwriting targets in coming years.”
Vullo also concluded that, in many cases, Members who were overrated but who perhaps were unaware of that, “will still be able to look at long-term rerating as competition is still fierce in the market.”
Tomorrow: Group Claims over past six policy years – likely future developments.