The arrangements for the renewal of the International Group General Excess of Loss (GXL) reinsurance contract and the Hydra reinsurance programme for policy year 2019/20 have been finalized. These include the Collective Overspill Cover, Excess War Risks P&I cover and MLC cover.
The general structure of the IG reinsurance programme for 2019/20 policy year will be:
- Club retention: $10m
- Group retention: $100m
- General Excess Loss Cover: $2bn above $100m
- Collective Overspill Cover: $1bn above $2.1bn
Limits on the Cover
- Oil Pollution: $1bn
- Passenger: $2bn
- Passenger and Crew combined: $3bn
The IG Reinsurance rates for 2019/20 policy year
The IG Reinsurance rates per GT for 2019/20 policy year, including the excess war risks cover and MLC reinsurance cover, are:
|Category||2019 PY ($/GT)||% change from 2018PY|
|Persistent Oil Tankers*||0.5747||-1.68|
|Dry Cargo Vessels||0.3971||-1.67|
*The “Dirty Tankers” category has been renamed “Persistent Oil Tankers”.
The loss experience of the reinsurance programme between the 2012/13 to 2018/19 (year to date) policy years inclusive remained acceptable to reinsurers, notwithstanding the claims development during the 2018/19 policy year, said IG. This factor, combined with continuing surplus market capacity, the consistently positive financial development of the Group captive, Hydra, and the effective use of multi-year private placements, enabled the Group “to achieve another satisfactory reinsurance renewal terms which results in a further year of reinsurance rate reductions across all vessel categories”, the Group said.
Following the changes introduced in the pool structure ($30m to $100m) for 2018/19, no further changes to the structure will be introduced for the 2019/20 policy year.
Reinsurance structure changes
Following the Group reinsurance broker tender process undertaken during the spring of 2018, and the appointment of Miller and Aon as co-brokers on the Group General Excess of Loss (GXL) and Collective Overspill reinsurance programme, a review was undertaken with the brokers of the current reinsurance programme structure, and a number of recommendations for changes to the current structure were made. These had the aim of ensuring sustainability, while improving the cost-efficiency of the collective reinsurance arrangements.
The main changes to the programme structure for 2019/20 involve an adjustment of the current programme second- and third-layer attachment points, the introduction of a new multi-year private placement, and the introduction of a $100m annual aggregate deductible (AAD) within the 80% market share in first layer of the programme.
The first layer of the revised programme will provide cover from $100m to an increased upper limit of $750m. The second layer will cover from $750m to $1.5bn, and the third layer from $1.5bn to $2.1bn. There will be no change to the Collective Overspill layer (which provides $1bn of cover in excess of $2.1bn).
One of the three 5% multi-year private placements ($1bn, excess $100m) expires on February 20th 2019. This will be replaced by a new multi-year 10% private placement within the new first layer ($650m, excess $100m), increasing the private placement participation in the first layer from 15% to 20%.
Within the market share (80%) of the first layer, there will be a $100m AAD, which will be retained by the Group’s captive, Hydra
From February 20th 2019, following the changes to the reinsurance structure outlined above, Hydra will continue to retain 100% of the pool layer $30m to $50m, and 92.5% of the pool layer from $50m to $100m. In addition, Hydra will retain a $100m AAD in the market share (80%) of new first layer of the General Excess Loss programme.
The market reinsurance cover will be renewed for a further 12 months from February 20th 2019 with the expiring cover limit of $200m (excess of $10m) at what IG described as “a competitive cost which is included within the overall reinsurance cost”.
The Group said that excess War P & I cover would be renewed for 2019 at a reduced premium which will be included in the total rates charged to owners.
2019/20 Group GXL structure
Reinsurance cost allocation 2019/20
IG said that, in accordance with its general reinsurance cost allocation objectives, principally that of moving towards a “claims versus premium” balance for each vessel type over the medium- to longer-term, the Group’s Reinsurance Strategy Working Group and Reinsurance Subcommittee had again reviewed the updated historical loss versus premium records of the current four vessel-type categories.
This review included a focus on claims by vessel type, and consideration of whether the available claims data merited extending the current vessel-type categories for the purposes of the reinsurance cost allocation exercise.
In the tanker category, both the premium for clean tankers and persistent oil tankers (formerly called dirty tankers) and claims records continued to develop favourably, and the tanker tonnage share (as a percentage of total tonnage) remained flat (persistent oil tankers 20% clean tankers 13%).
In the dry cargo category (excluding passengers), the tonnage share (61% of total tonnage) remained flat; during 2018/19 the claims and premium record continued to develop favourably. The subcommittee once again reviewed the desirability of, or necessity for, separating container vessels from dry cargo vessels for reinsurance cost rating purposes. It again concluded that there remained insufficient historical claims data to support separate treatment for the 2019/20 policy year.
In the passenger category, tonnage share (3% of total tonnage) remained flat and the claims and premium record has continued to develop favourably.