American Club will not be imposing a general increase for the 2020/21 policy year, choosing instead to “employ an approach which takes better account of the different profiles of Members”, and “allowing for a more Member-specific treatment of pricing and terms of cover”.
However, the club will be applying a supplementary call of 22.5% for policy year 2016, and one of 17.5% for policy year 2017. 2018 will maintain its release call at 20%.
The Club said that “in order to maximize its future potential, your Board sees a need to strengthen the Club’s financial position”.
The Club’s contingency fund grew by about $9.4m – or about 15% – to slightly under $74m during the nine months to September 30th 2019. It said that this growth was mainly attributable to unrealized gains on the Club’s investment portfolio, which had recorded a year-to-date return of just under 9% as of the end of October, and to largely favourable adjustments to outstanding claims reserves for earlier years.
However, for the 2016 policy year, despite its predecessor year having been closed in substantial surplus just over a year ago, and 2016 itself having experienced a level of attritional claims similar to the favourable results of 2015, policy year 2016 was negatively affected by “an untypical incidence of certain large claims, two of which exceeded the Club’s pooling retention and impaired its overall underwriting results for the period”.
As of September 30th 2019 the 2016 policy year exhibited a combined ratio of just under 123%. The Club said that, although this was capable of subvention to some degree by investment income, was “nonetheless at a level which in your Board’s view should be treated on a stand-alone basis, rather than be subsidized by the Club’s contingency fund”. Accordingly the Club has ordered that a supplementary call of 22.5% of currently estimated total premium be levied to cure the deficit for the year and thereby bring 2016’s overall results into equilibrium.
The supplementary calls in question will only apply to Members entered during the 2016 policy year for coverage of P&I (Class I) risks and will not be levied in respect of its Freight, Demurrage and Defense (Class II) business.
For Policy Year 2017, American Club said that the combined ratio was just over 116%. While the financial year in question enjoyed a favourable investment return, its overall operating results were negatively impacted by an uplift in retained exposure, particularly as the year drew to a close in January and February of 2018, and more recently as certain claims reserves had experienced untypical deterioration over the past several months.
For the same reasons as applied to the 2016 policy year, a supplementary call of 17.5% of current estimated total premium. As in the case of the calls for 2016, these supplementary contributions will be debited in two equal instalments due for payment on May 20th and October 20th 2020 and will apply to all open entries of record as of September 30th 2019.
The Club said that there was not expected to be a need for any further calls for this year which would be scheduled for formal closure in the first half of 2020. In the interim, the release call for the 2017 policy year would be reduced to 5% of originally estimated total premium for both P&I (Class I) and Freight, Demurrage and Defense (Class II) entries. The calls for 2017 will apply only to the Club’s P&I (Class I) business and not to its Freight, Demurrage and Defense (Class II) entries.
Policy year 2018 continued to develop favourably as to the Club’s retained losses, at levels similar to those recorded in 2015, which the Club described as “an exceptional year in this respect”. On the downside, International Group Pool claims were cumulatively at a figure already very close to that experienced for the significantly more mature 2012 year, which has so far proved to be the worst year for Pool claims since 2005.
As of September 30th 2019, the 2018 policy year was showing a modest deficit, taking account of the Club’s exposure to those Pool claims, of which, the Club noted, it submitted none for its own account during the period. The deficit was expected to moderate over the longer term as more investment income was credited to the year in due course. The Club expected that it would eventually be closed without call in excess of original estimates in the first half of 2021. The release call margin for 2018 in the meantime was maintained at 20%.
The Club’s retained exposures over the first six months of the current policy year were emerging at a level even better than that experienced during both 2017 and 2018 at the same stage of development. However, the Club noted that, as part of a trend seen elsewhere among Group clubs, the more recent trajectory of losses had been significantly higher, “although the spike of the last two months may be more a matter of timing rather than a longer-term trend”, the Club said.
The losses so far notified to the IG Pool for 2019 were also tracking rather higher than the median of more recent years, but that Club said that it was too early to say with confidence where the year would eventually settle. In the meantime the release call margin for the 2019 policy year would remain at 20% of estimated total premium, as originally mandated, for both P&I (Class I) and FD&D (Class II) entries.
Referring to the decision to adopt an individual pricing strategy rather than a general increase, American Club said that, in considering the American Club’s premium requirements for the 2020 policy year, the Board was mindful of the fact that both current risk pricing and conditions of cover were, for many Members, both historically justified and prospectively sustainable. However, it said that there was “a cohort of Members whose current level of premium, or terms of entry, may require reassessment not principally by reference to past experience but more in relation to the intrinsic risk they bring to the mutuality going forward, particularly in an era of rising claims”, adding that “there are some Members whose historical results – as a chief indicator of likely exposure for the future – are at a level requiring adjustment more immediately, in order to create better equilibrium between their experience and those of the rest of the membership”.
No standard increases will be applied to expiring deductibles.
The Club said that the board was “aware that certain elements of the American Club’s intended future action as set out above will not be welcome, but it remains resolute in its commitment to consolidate the financial standing of the Club in order to provide a firm footing for the exploitation of the exciting prospects for its core and related businesses over the years ahead”.