Pool Claims – Deterioration of 2019 losses feared: Gallagher

In broker Gallagher’s webinar update last week on the state of the Group P&I Clubs, the contributors noted that free reserves recovered well in 2019-20, with $650-$700m in investment returns pulling back about half of the decline recorded in free reserves the previous year.

Gallagher noted that their update only had full reports from seven of the 13 clubs, with the Covid-19 pandemic leading to a later appearance than usual of the formal statements. However, Gallagher’s internal research, plus guidance from all but one of the group clubs (Japan), had enabled them to put together the numbers.

Gallagher Divisional Director Will Baynham noted that within the club’s retention levels the majority of losses had been from harder hitting claims, but the attritional claims losses had not been so prevalent in terms of the overall club losses.

He said that there were a number of possible reasons for this. The trend over the past few years of deductibles creeping up would have cut out a lot of the lower-level claims. In addition the value of average claim was creeping up. Two interrelated factors were working to cut out the attritional level, with those losses that did materialize tending to be more significant in nature.

A look at the pool claims shows that there had been 118 pool claims over the past six policy years. Standard had been particularly heavily hit, with 16 claims. Gard has had 14 such claims, but Baynham observed that this was perhaps less surprising, given the size of the club and the number of vessels that it has entered.

Five of the Standard claims were in the 2018 policy year.

Pool Claims by Club 2014 to 2019 inclusive (claims in excess of $10m)
Standard 16
Gard 14
Steamship 13
Britannia 12
North 12
West 11
UK 10
Japan 7
Skuld 6
Shipowners’ 6
London 5
American 3
Swedish 3
Total 118

The next table shows the number of claims by club and year. Baynham noted that there was jump to 27 claims in 2018, and unsurprisingly that policy year had been described by most clubs as an incredibly onerous year.

Club 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20
Gard 3 2 1 1 4 3
Britannia 2 3 0 0 4 3
West 0 2 1 3 1 0
Skuld 0 0 2 3 1 0
North 3 1 1 1 4 2
UK 1 1 2 3 2 1
Steamship 3 3 2 3 0 2
London 2 0 1 0 2 0
Shipowners’ 1 1 1 0 2 1
American 1 0 2 0 0 0
Japan 0 1 1 2 1 2
Swedish 1 0 1 1 0 0
Standard 2 3 1 2 3 5
Total 19 17 16 19 27 20

Baynham observed that , given the potential and values involved, deterioration could have a huge impact on the positions of individual clubs when it comes to claims profiling. The deterioration snapshot table below shows that pool claims move by varying amounts between the 12-month and 24-month time frames.

2012 and 2015 had The worst examples of second-year deterioration pre-2018 were 2012 and 2015, where there were deteriorations of almost $100m between the 12 months point and the 24 months point. But 2018 saw almost $150m of deterioration, and there were fears that 2019 could be a repeat of this, or even worse.

Baynham said that it was worth commenting where that deterioration had come from in 2018. Two claims in particular, the fire on ULCC Maersk Honam (IMO 9784271) (IMN March 8th 2018 and elsewhere) and the Sola TS (IMO 9724350) in the incident involving the Norwegian Navy frigate Helge Ingstad (IMN November 9th 2018 and elsewhere), had swung out significantly in year 2.

Pool Claims Deterioration (12 months/24 months)

Policy Year 12 months deterioration 13-24 months deterioration Total at 24 months  
2019 259.2 n/a 259.2
2018 306.1 149.7 455.8
2017 227.2 42.4 269.6
2016 84.0 41.9 125.9
2015 198.4 78.3 276.7
2014 179.6 14 193.6
2013 279.8 47.2 327.0
2012 368.6 85.3 453.9
2011 231.0 46.9 277.9

Looking ahead for year 2 deterioration in 2019, Baynham said that it was too early to be sure, but said that the feeling from some clubs was that “we are looking at a development more like 2018 than 2017.”

He noted that Britannia had recently provided a report where it was commented that the total for 2019 could even swing out to as much as $590m (i.e., $300m second-year deterioration), or, on a more prudent basis, $530m ($240m second-year deterioration). “That makes it unlikely that we are looking at a 2017 scenario, and heavy development on the Pool Claims is anticipated”, Baynham concluded.

Tomorrow: Investment Results at the Group Clubs