North of England P&I Club’s directors met virtually on November 16th to review the Club’s financial position and to consider requirements for the 2022/23 policy year.
The Club said that a combination of increased severity of IG pool claims over almost four years, coupled with an increased frequency and severity of Covid-19 related claims, “had made the task of correcting the premium rating erosion across the P&I industry more acute”.
With claims costs expected to increase due to a variety of inflationary pressures, further premium corrections were now necessary to redress the prevailing claims trends, the inadequacy of current premium rating levels and the anticipated lack of investment subsidy, the Club said. At the end of October 2021, North’s investment portfolio delivered a return of around 0.46% ($5m) with returns driven by favourable conditions in equity markets, offset by reductions in the value of bonds. Overall, this was in line with North’s expectations. The Club said that there were “indications that lower investment returns may be typical over the next few years”.
North will therefore set a 15% General Increase in P&I premium rates for the 2022/23 policy year. It said that 7.5% of the increase was directly attributable to the costs of meeting the Club’s contribution to the escalating value of IG pool claims, which had more than doubled over the past four years. “Therefore, the Directors have decided that this contribution will be expected of all mutual P&I Members, irrespective of their record and performance, and will be key to ensuring sustainable underwriting in the future.” The remaining 7.5% was attributable to the Club’s own retained claims experience and the need to increase premium levels to ensure sustainable underwriting in the future.
North said it believed that a transparent general rating increase remained “the most appropriate mechanism to communicate the Club’s overall budgetary requirements for the next policy year”.
Because of inflationary pressures on claims arising from higher commodity prices, higher charter rates, social inflation and the increased severity of crew claims, all deductibles below $50,000 will be increased. The crew claims experience for 2021-22 to date was put at approximately double the cost of a typical year.
The Club said that all owned deductibles below $50,000, apart from those relating to crew and other people related claims, will be increased by a minimum of $2,500 per deductible. The rise however in the value of crew and other people-related claims, this year in particular, required these deductibles below $50,000, to be increased instead by a minimum of $5,000 per deductible in order to ensure that equitable and sustainable levels of risk are retained by Members.
A general premium rating increase of 7.5% will be applied to all FD&D risks written for the 2022/23 policy year.
North warned that the renewal of the International Group’s General Excess of Loss and Collective Overspill (GXL) Programme was due in February 2022 and that the severity of losses to this programme over the past two years, coupled with the hardening of reinsurance pricing conditions and the reinsurers’ own market Covid-19 losses and reserves, had caused “significant upward pressure in terms of the pricing environment”. The Club said that “the likelihood, therefore, is that we will see significant increases imposed, in addition to coverage changes”.
These likely reinsurance adjustments would be in addition to any other premium adjustments at the forthcoming renewal.
North noted that the year to date had seen a further increase in the cost of Pool claims, with the result that the aggregate value at the half-year point was even more severe than the historically high-level of last year. “The inescapable conclusion is that the elevated experience on the Pool will continue into the future, particularly now that global trade has returned to pre-pandemic levels of activity”, the Club said.
The Pool claims trend was coinciding with an increased frequency and severity of retained Covid-19 related crew claims; all of which had been exacerbated by the fact that mutual premium rates remained generally inadequate across the P&I sector.
North said that as a result it was projecting a technical underwriting deficit at the financial year-end 2022, with a combined ratio in excess of 110%. Free Reserves were expected to fall as a consequence.
North also noted that there had been subdued investment returns through the year to date. “The uncertainty surrounding future investment performance means that Clubs can no longer rely on this to subsidise underwriting deficits”, the Club said.
For the FD&D class for mutual and fixed premiums a 7.5% general increase in premium rates will be declared, with the FD&D Rules deductible remaining unchanged.
In the Club’s Pre-Renewal Report 2022 the Directors said that they were satisfied that the Club remained in strong financial health and said they were confident that the “robust 2022 Renewal strategy” would position the Club appropriately to meet the continuing challenges posed by the rising trend in claims and the ongoing volatility and uncertainty from the Covid pandemic.
Open Policy Years: P&I Class and FD&D
2019/2020 This Policy Year will be reviewed in May 2022, no additional calls are anticipated, and the final cost is expected to be on target at 100% of the originally estimated total premium. The Release Call is 0%.
2020/2021 This Policy Year will be reviewed in May 2022, no additional calls are anticipated, and the final cost is expected to be on target at 100% of the originally estimated total premium. The Release Call is 5%.
2021/2022 This Policy Year will be reviewed in May 2022, no additional calls are anticipated, and the final cost is expected to be on target at 100% of the originally estimated total premium. The Release Call is 15%.
2022/2023 The Manager’s assessment of Release Calls is 15%.
James Tyrrell, North Chairman, said that “over the last year, the prevailing marine insurance environment has faced many challenges, with rapidly rising IG pool claim costs posing the most significant risk. Allied to this, there has been a rise in the number of COVID-19 related crew claims linked to the resumption of more usual global trade patterns.”
He said that, although North benefited from the contribution of its diversified lines and a small positive investment return, this did not offset the substantial costs being incurred across the mutual P&I sector.