Large pool losses, Covid-19, just two significant factors for Group Clubs: Gallagher

Pool losses of nearly $300m. a gross loss of $400m-plus to the system, adverse developments from 2019-20, and potentially pool-level claims relating to Covid-19 and repatriation, have all combined to make this a less than happy time for the Mutual P&I clubs, reports broker Gallagher in its pre-renewal 2020 review of the 13 P&I Clubs.

Malcolm Godfrey, executive director of the Marine P&I division said that the Clubs were presently underwriting to typical combined ratios of between 115 and 120%, with some significantly higher, with only Steamship Mutual at below 100%. Godfrey said that the high average combined ratio was the culmination of several consecutive years of nil general increases, leading CRs tospiral upwards. The trend had been exacerbated by rapidly deteriorating pool loss experience, which had seen two years with in excess of $400m of losses, and a 2020-21 year which at six months has losses of around $300m.

The gross loss so far this year already made it one of the worst years in the past decade, and there were still six months to go, including the traditionally costly North Atlantic winter. The 2019-20 policy year had been hit by significant adverse development of more than $100m, and stood at over $400m, or nearer $650m including Clubs’ retentions, said Godfrey.

Gallagher said that results that have emerged so far for H1 2020-21 pointed to a general slight improvement in underwriting results, with combined ratios remaining level to down. “Given the extremely poor pool record being experienced, this suggests that attritional, and to some extent mid-range, losses are declining. It is however way too early to draw too many conclusions on where the full 12-month result may go”, wrote Godfrey.

Turning to Covid-19, Godfrey pointed to bad news and good news.

He said that the pool had seen potentially three Covid-19 quarantine/repatriation pool level claims, “but with the cessation of almost all cruise operations, this exposure is at least staunched”.

He said that it was important for all Members across the Group to understand that a significant element of their premium requirements was governed by their Club’s exposure to the Pool. “Arguably, the smaller the Club, potentially the greater risk there is to instability in the level of these liabilities”, he said.

Interestingly, Godfrey said that for the moment it looked as if pool level losses were replacing mere large losses as the primary driver. “Perhaps the risk retention hunger shown in the steady increase of the pool limit to $100m and with Hydra’s involvement in the first excess reinsurance layer is beginning to bear bad fruit”, warned Godfrey.

IMN will be covering more of Malcolm Godfrey’s views, as well as other points of interest raised by Gallagher’s report, over the next couple of weeks.