IG says loss experience on reinsurance programme remains favourable

The loss experience of the reinsurance programme on the 2012/13 to 2016/17 (year to date) policy years remains favourable to reinsurers, notwithstanding some past year claims deterioration, the International Group of P&I clubs said Wednesday in its December 2016 renewal update.

Given surplus market capacity, the positive financial development of the group captive, Hydra, and “the effective use of multi-year placements”, the Group said that it had achieved advantageous reinsurance renewal terms ” with reductions across all layers of the programme and on the Excess War P&I cover, resulting in a further year of reinsurance rate reductions across all vessel categories”.

The individual club retention remains unchanged at $10m for the 2017/18 policy year. The attachment point on the Group GXL reinsurance programme will be increased to $100m from February 20th 2017.

On the participation of Hydra, the layer from $80m to $100m is currently reinsured 75% by Hydra and 25% by the first layer of the market GXL placement. From February 2017 Hydra will reinsure 100% of this layer. Hydra also currently reinsures 60% of the layer from $100m to $120m. From February 2017 it will reduce this participation to 30%, with the remaining 30% being absorbed by the market GXL placement. “The objective of these changes is to simplify the current Group reinsurance programme structure through the introduction of a “flat” attachment for the GXL and private placements at $100m”. the Group said.

The first of the three current 5% private placements, covering the first and second layers of the Group GXL placement ($1bn excess of $100m), expires in February 2017. A new 5% three-year private placement will replace this expiring placement “on more favourable terms and pricing”. IG has also negotiated an extension to the second 5% three-year private placement for two years beyond February 2018, also on favourable terms and pricing.

As part of the solution developed by the Group clubs to meet shipowners’ certification requirements under the financial security provisions of the Maritime Labour Convention, which come into force in January 2017, the Group clubs have collectively arranged a market reinsurance cover of $190m excess of $10m “at a competitive cost which is will be included within the overall reinsurance cost for allocation at 20 February 2017”.

Effectively this means that Retention runs to $80m, the Hydra Layer from $80m to $100m, while from $100m up, Hydra keeps 30%, GXL has 55%, and three private placements take 5% each.

For 2017/18 the biggest percentage price declines (down 9.32%) are for dirty tankers and dry cargo vessels. The other four categories – clean tankers, passenger vessels, chart tankers and chart dries are being reduce by between 5% and 6.02%.

The Group said in its update that, following the principle of “moving towards a claims versus premium balance for each vessel type over the medium to longer term”, it had reviewed the updated historical loss versus premium records of the vessel-type categories.

In the clean tanker category the 2015 “Alpine Eternity” claim continued to impact the clean tanker record, while the dirty tanker record continues to show improvement.

In the dry cargo category during 2016/17 the claims and premium record continued to develop favourably. “The absence of any significant container vessel claims arising during the 2016/17 policy year to date means that there still remains insufficient historical claims data to support separate treatment of container vessels from dry cargo vessels for reinsurance cost rating purposes for the 2017/18 policy year”, the Group said.

In the passenger category, after several years of significant increases in reinsurance costs as a result of the claims arising from the Costa Concordia incident, the claims and premium record once again developed favourably. IG does not anticipate that there will be any further significant development on these claims.