Half of last year’s decline in Group Club reserves was “voluntary” says AJ Gallagher

At first glance 2018/19 was not a great year for the Group Clubs, with a $400m decline in free reserve, noted Malcolm Godfrey, executive director, marine P&I division, in the 2019 Gallagher Pre-Renewal P&I review. However, he pointed out almost half of this was voluntary, with returns of premiums, capital distributions and a redemption of loan capital accounting for $200m of the decline.

Real trading produced a $221m reduction in free reserve. Investment income did not prove to be as negative as projected earlier in the year. There was an investment yield of around $102m, albeit coupled with a $64m exchange loss.

On average, on a financial year basis, combined ratios were in excess of 100%, but not dramatically so. Godfrey said that “some 50% of the financial year underwriting loss would appear to be down to diversification”.

Godfrey said that premium continued to fall after successive zero general increases and was fast approaching unsustainable levels. Claims were slowly ticking upwards, while pool claims continued to be volatile. Godfrey said that “the inherent volatility in frequency and increasing severity of large claims is defining the landscape”.

The high levels of investment income seen in preceding years had allowed the Clubs to defer “clutching the nettle of falling premium rates”. But the drop off in 2018/19 had brought this into greater focus, he said, adding that “we have seen five years of declining premium per GT and probably will see that happen again in 2019/ 20”.

IMN will be looking at the AJ Gallagher report in greater detail over the next few days.