No general increase from American Club; deductibles unchanged

Following its meeting in New York on November 16th, American Club has said that the 2018 renewal will feature no general increase on expiring estimated total premium for mutual P&I entries with, as is standard, the group reinsurance cost component of premium to be adjusted separately.

The 2018 renewal will also feature no general increase in premium for both mutual and fixed FD&D covers, and for fixed P&I and Damage to Hull (DTH) covers.

There will be no standard increases nor prescribed minimums, to apply to renewing deductibles for the 2018 policy year.

On previous, still open, years, the Club said that 2015 was in substantial surplus. The release call was reduced from the current 10% to 5% of estimated total premium for the year. Closure, expected within the first half of 2018, would be in accordance within original premium forecast.

Contrariwise, 2016 was exhibiting a deficit at this stage of development, but the position had improved since year-end 2016. The Club said that circumstances were likely to improve over time. The release call was reduced from 20% to 15%.

The 2017 policy year was developing in a positive manner, much in line with the experience of 2015. The release call margin will remain at 20% over and above the current estimated total premium for the year, with the position being reviewed during the first half of 2018.

The Club noted that some of the trends which have characterized the marine insurance market in recent years had continued into 2017. In particular, the churn effect continued to influence both the level of turnover and the risk profile of vessels entered with the Club, although the impact had been less marked than in earlier years.

Tonnage and annualized premium income for 2017 had increased substantially over the period since February 20. Class I (P&I) tonnage had grown by 10% since the renewal, while Class II (FD&D) was up by 11%.

This had translated into a P&I premium income increase of 7.5%, and a 10% rise in FD&D premium income. Class III (charterers) business had also grown “respectably” during 2017, the Club said.

The average rate per ton for vessels entered for P&I risks was down 2.5% year on year but, in a continuingly soft rating environment, the Club saw this as an encouraging trend, the more so since the attenuation of premium pricing had slackened over the past 12 months.

The Club said that the modest reduction in average rates for P&I cover needed to be seen in the context of claims development in the recent past, which had been a major driver in the pricing of risk.

The aggregate value of claims for the Club’s own account for 2017, as of mid-November, was less than half that for 2016 at the same point of development, and about 8% less than that at the equivalent stage for 2015 – which was itself an excellent year in this respect, the Club said, noting that retained losses for the current policy year were “emerging at a volume and tempo which suggests a solid result in due course, albeit that the year is still immature”.

The Club said that the International Group Pool was currently exhibiting a higher level of exposure for 2017 than the two previous years at the same point of development, but this was still less than earlier years.

By the end of October the Club’s investment portfolio had generated a year-to-date return of nearly 7%, up from 2% at the same point last year.

The Club said that its surplus on closed policy years grew by just under $5m during the nine months to September 30th 2017. This took account of unrealized gains on the Club’s investment portfolio as well as some improvement in outstanding claims reserves for earlier years, including 2014, which was closed without call in excess of the original forecast at the Directors’ meeting in June.

After consolidating the start-up costs of American Hellenic Hull Insurance Company Ltd into the figures, the growth in the Club’s overall contingency funding amounted to $2.3m as of September 30th, contributing to an improvement in the Club’s surplus of approximately $3.6m since year-end 2016.

The adjusted excess of assets over liabilities for closed and open years stood at $55m on September 30th, up from $46.6m at the same period last year ($51.4m on December 31st, 2016).

The Club’s statutory surplus was $67.2m on September 30th, some $11m higher than a year before, ($66.3m at year-end 2016).

Open policy years details

2015 continued to develop in substantial surplus, at $8.8m as of September 30th, an improvement of roughly $2.8m over the first nine months of the present calendar year. The release call margin for 2015 was to be reduced from the current 10% to 5% of estimated total premium.

Attritional exposures for 2016 were broadly the same as they were for 2015 at the same stage of development. However, an increase in claims severity experienced at the beginning of the year, together with a conservative projection of ultimate losses, had combined to generate a continuing deficit. The Club noted that this had improved by some $2.7m since year-end 2016, and that there were also grounds for optimism that the deficit would continue to diminish as the year moved toward closure, scheduled to take place during the first half of 2019. The release call margin for 2016 would be reduced to 15% of estimated total premium from the originally mandated figure of 20%.

The Club’s retained claims for the 2017 policy year were said to be developing “very favourably”. The Club at present was maintaining a conservative projection of ultimate losses which by September 30th had caused the year to exhibit a modest deficit at this early stage. In the meantime, the release call margin of 2017 will remain at 20% of estimated total premium as originally prescribed, but the position will be reviewed again during the first half of 2018.

Following the European Commission’s decision during 2012 to conclude its investigations into the International Group of P&I Clubs’ claims sharing and reinsurance arrangements, all clubs agreed to publish, with at least an annual frequency, a statement of their release call percentages, including factors taken into account in calculating those percentages by reference to the actual assessment of enterprise and other risks.

Premium requirements for the 2018 policy year details

Having considered a range of factors, including those to which reference is made above, the American Club Board said it had decided to implement a zero general increase for the 2018 policy year.

In addition, “out of a desire to extinguish the economic burden on Members” the Club will impose no standard increases or minimum amounts that should apply to any expiring deductibles.

American said that recent developments in the freight markets had given rise to optimism that the longest shipping slump in recent memory might “at last” be coming to an end. However, notwithstanding this, it was clear that the need to reduce operating overhead remained at the top of the maritime community’s collective agenda.

American Club also warned that it was not unreasonable to assume that claims costs, which had been subdued over recent years, would start to increase again, particularly as growth in seaborne trade continued to gather momentum.

The Club said that it was encouraged by the continuing success of the Eagle Ocean Marine fixed premium sector of the Club’s business, which remained “solidly profitable”, and of its investment in American Hellenic Hull Insurance Co, which the Club said had exceeded original growth and other financial projections.

http://www.american-club.com/files/files/cir_29_17.pdf