The Swedish Club 2022-23 – further details: IG Captive reinsurer Hydra recapitalized

In its P&I Circular to members The Swedish Club said that the club currently insured about 1,550 vessels for owners’ P&I. Total Owners gross tonnage was now 61m gt, with an additional 32m gt of Charterers’ entries.

The Club said that the claims level in 2021 had been beyond what was expected and that a higher combined ratio was anticipated for the year than had been experienced in 2020 (itself well above 100%).

The Club said that, approaching the end of the policy year, it was becoming clear that 2021 deficits in the P&I market were likely to be the worst since the early 1990s.

A general increase of 12.5% was announced for 2022-23. However, the Club said that the gap between premium level and expected claims would take time to correct fully, and the Club would be budgeting for a deficit also in 2022/2023.

While the overall frequency of claims remained stable the Club said that it had seen a notable increase in claims frequency in respect of large claims. In addition, Covid-19 related claims had impacted the Club substantially. There was an increase in average cost of claims, in particular for claims in excess of $500,000. It was estimated that the annual claims inflation was running at about 3%.

Swedish Club also confirmed what had been understood in the market for some months, that the International Group’s captive reinsurance operation Hydra would need recapitalization.

Hydra provides cover for all claims between $30m and $100m, plus a $100m Annual Aggregate Deductible (AAD) for claims in excess of $100 million. Claims outpaced premiums by a wide margin for the first 6 months of 2021, causing the contingency capital of Hydra to fall below statutory requirements. This triggered a mandatory replenishment/injection of capital from the Clubs of $240m. The Swedish Club’s share of this was $12m. Premium levels for Hydra were anticipated to increase by 30% to 40% in 2022/2023.

For external reinsurance, the Club predicted that reinsurers were likely to look for a premium increase of 30% to 40%, together with exclusions for communicable diseases and cyberattacks. Swedish Club observed that “such exclusions are however problematic as International Group Clubs are obliged to provide cover in accordance with international conventions, not allowing for such exclusions”. It said that a solution would be constructed, most likely with sub-limits.

The release calls in P&I for years 2020/21 through to 2022/23 inclusive were set at 15%, with a 0% estimated supplementary call for all years. The release call for 2019/20 was 5%.