International Group reinsurance renewal update

The International Group (IG) has finalized the renewal of its General Excess of Loss (GXL) reinsurance contract and the Hydra reinsurance programmes for 2018/19.

IG said that, notwithstanding the uncertainty in the insurance and reinsurance markets following the 2017 windstorm, earthquake and wildfire events, it had, with the support of its programme leader and panel of reinsurers, once again been able to advance the traditional renewal timetable by about a month, thus assisting both shipowners and clubs in their negotiations for the 2018/19 P&I renewals.

The Group said that the loss experience of the reinsurance programme on the 2012/13 to 2017/18 (year to date) policy years had remained acceptable to reinsurers, notwithstanding some claims development over the year. It said that this, combined with continuing surplus market capacity, the continuing positive financial development of Group captive Hydra and the effective use of multi-year private placements, had all enabled the Group to achieve what it termed “satisfactory” reinsurance renewal terms. These would generate another year of reinsurance rate reductions across all vessel categories.

Individual club retention will remain at $10m. The attachment point on the Group GXL reinsurance programme will remain at $100m.

At present, the lower pool layer attaches from $10m to $45m and the upper from $45m to $80m. For policy year 2018/19 the lower pool layer ceiling (upper pool attachment point) will rise to $50m. The layer from $80m to the GXL attachment at $100m will be absorbed into the pool and merged with the upper pool layer which from next year will attach from $50m to $100m. There will be an individual club retention of 7.5% across the layer.

Currently the layer from $80m to $100m is reinsured 100% by Hydra. From February 20th 2018, following the changes to the lower and upper pool layers, the Hydra reinsurance within this layer will be reduced to 92.5%. Hydra also currently reinsures 30% of the first layer of the GXL ($100m to $600m) which will remain unchanged for 2018/19.

The three multi-year private placements covering the first and second layers of the Group GXL placement ($1bn excess of $100m) will remain in place for the 2018/19 policy year.

The market reinsurance cover ($190m with an excess of $10m), in place from January 18th this year 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, will be renewed for a further 12 months from 20 February 2018. There will be an increased limit of $200m, “at a competitive cost” which will be included within the overall reinsurance cost.

IG’s general reinsurance cost allocation objectives is to move over the medium to longer term towards a “claims versus premium” balance for each vessel type. Its Reinsurance Strategy Working Group and Reinsurance Subcommittee have again reviewed in detail the updated historical loss versus premium records of the current four vessel-type categories, including 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.

  1. In the clean tanker category, there had been further development during 2017 which continues to impact the clean tanker record, whilst the dirty tanker record continues to show improvement.
  2. In the dry cargo category during 2017/18 the claims and premium record continued to develop favourably. The subcommittee concluded that there still remained insufficient historical claims data to support separate treatment for the 2018/19 policy year.
  3. In the passenger category, the claims and premium record continued to develop favourably.

The reinsurance subcommittee did not consider that there was a compelling case to prefer one sector over others, and felt that the appropriate approach for 2018/19 was an even spread across all categories.

Tonnage Category2018 rate per gt% change from 2017
Dirty tankers$0.5845% -1.85
Clean tankers$0.2626% -1.83
Dry cargo vessels$0.4038% -1.85
Passenger vessels$3.2707% -1.84
Chart tankers$0.2196% -1.83
Chart dries$0.1073% -1.83

IG said that this was another positive reinsurance renewal for the Group and its Members, “particularly when viewed against the challenging background of the significant impact on the global insurance and reinsurance markets of the 2017 natural catastrophe events”. Paul Jennings, Chairman of the International Group Reinsurance subcommittee noted that it represented a fourth consecutive year of renewal premium reductions on the Group programme.

If a claim were to exceed $2.1bn – the limit of the Group’s excess of loss contract – the overspill would be pooled amongst the International Group Clubs. The overall Group Pool limit for such an overspill claim will remain unchanged at 2.5% of the Property Limitation fund under the 1976 Limitation Convention of all ships entered in the International Group Pool Clubs.

Mutual Members remain ultimately liable to pay an overspill call up to a maximum of this limit for each entered ship. For the 2018 policy year, the Group has once purchased reinsurance protection on behalf of each club for an overspill claim of up to $1bn. This reinsurance will be available to all Group clubs to reduce the need to make an overspill call on their members.

The limit of the Association’s aggregate liability for claims in respect of oil pollution will remain at $1bn for each event in respect of each ship entered by or on behalf of an owner (not being a charterer other than a demise or bareboat charterer).

The Association’s aggregate liability for claims will be limited to $2bn for each event in respect of liability to Passengers, and to $3bn for each event in respect of liability to Passengers and Seamen, in respect of each ship entered by or on behalf of an Owner (not being a charterer other than a demise or bareboat charterer).

Details of the Club’s special war risks P&I excess cover for the 2018 policy year will be provided in a forthcoming circular.

The US oil pollution surcharge will remain at nil for the 2018 policy year.