In its strategic report for 2018/10, Steamship Mutual Underwriting Association Ltd reported a rise of 1% in owned entered tonnage, to 85.6m gt. Total entered tonnage for owned and chartered entries increased by 1.3% to 160.1m gt.
Gross premium written decreased to $306.7m, from $320.9m the previous year, a 4.4% decrease that Steamship said reflected improved Members’ records, cancellations due to sanctions and some losses at renewal.
The combined ratio for the Association (excluding return of premium in 2017/18) increased from 101.9% to 107.4%, which Steamship said was due to reduced premium and higher claims and higher pool costs.
The balance on the technical account for general business was a deficit of $6.4m for the financial year (2018: $4.1m). Free reserves decreased from $110.7m to $105.4m.
A 10% capital distribution meant that $21.9m had been credited to members since year-end.
Chairman of the board Armand Pohan said that2018/19 policy year claims were now projected to be greater than originally expected, accompanied by lower levels of reserve releases. Pool claims were also higher than in preceding years. There were 18 claims exceeding retention notified to the Pool, none involving vessels entered with Steamship.
The Club’s average combined ratio over the most recent six year period was an “acceptable” 91.6%.
After a distribution of capital to renewing Members, free reserves remained comfortably in excess of required levels for regulatory and rating agency purposes, Pohan said. Free reserves reduced from $516m to $489m, before the capital distribution to Members of $21.9m, leaving year end free reserves at $467m.
Investment income for 2018/19 policy year was $18.8m, below that achieved in the two preceding years.
Charles Brown, head of claims, said that the cost of claims within the $10m retention level fell by 2.5% compared to the previous year, despite the Club incurring no pool claims. This was higher than original projections at the outset of the year. The number of large owned claims – those involving claims in excess of $250,000 – increased, but their average value declined, resulting in a total almost 13% lower than in 2017. This was largely attributable to the Club not having any pool claims in the 2018 policy year.
The Club incurred 67 claims in excess of $250,000 in 2018. The total estimated exposure for those large claims at the year-end, net of individual claims deductibles, was approximately $105.8m. The comparable figures for the preceding year were 50 claims estimated at a total of $172.6m.
Chartered claims net of reinsurance increased substantially in total value over the previous year, mainly as a result of four claims in excess of $1m.
Brown said that “looking at the corresponding figures for previous years there does not appear to be evidence to support a trend of increasing charterers’ claims and it may well turn out that the 2018 policy year was anomalous in this respect”.
Despite a significant increase in the number of FDD claims, there was a substantial decrease in the total amount of expenses incurred to the lowest level in five years.
It was anticipated that the ultimate cost of Pool claims for the 2018 policy year would be significantly higher than the prior year.
There were no claims in 2018 to involve the International Group pooling reinsurance, whereas the Club incurred three pool claims in 2017. Brown said that this factor alone accounted for an overall reduction in the claims experience for 2018 of approximately $91m. However, that reduction was offset by an increase of $24.4m in the value of large claims up to $10m. There were 66 such claims, valued at $73.8m in 2018, compared with 47 claims totalling $49.4m in 2017.
In contrast to past recent experience, claims in respect of chartered entries constituted both the most frequent and most severe exposure in 2018. Next in severity were fixed and floating object (FFO) and passenger liability claims. There were 36 claims overall in these three categories (54% by number), and collectively these constituted over 75% of the value of the overall large claims exposure for the year.
Cargo: There were nine large cargo claims involving owned entries with an overall value of $6.1m, approximately 6% of the total.
Chartered: There were 15 large claims incurred in respect of chartered entries, with an overall value of $42.4m. In contrast to the experience of cargo claims on owned vessels, the overwhelming majority of the chartered claims arose on one category of vessel; container. There were 12 claims involving container vessels and these contributed 92% of the overall exposure in this category.
Fixed and Floating Objects: There were 12 large FFO claims with a total value of $20.8m, representing 20% of the overall large claims exposure. Both frequency and severity were higher than in the previous year and the claims involved six different vessel types. As may be expected with this claim category, the most frequent claims arose from damage caused when vessels were manoeuvring either to approach or to depart a berth. There were four such incidents, which contributed 22% of the overall FFO exposure.
The most severe claims arose as the result of operational errors whilst ships were manoeuvring within a port environment. There were three incidents of this nature, which contributed 55% of the overall exposure.
Passenger: There were nine large passenger claims with a total value of $17.7m, representing 17% of the overall large claims exposure. Frequency and severity were both higher than in the previous year. Claims that involved physical injury to passengers were in the minority. Five claims, which contributed 89% of the overall passenger claim exposure, arose from the curtailment of cruises. There were two such claims that arose following failures in propulsion machinery; another two arose when vessels’ rudders and propellers were damaged following groundings, and one was the result of an outbreak of viral illness.
Crew: There were 12 large crew claims with a total value of $10.5m, or 10%, of the overall large claims exposure. Whilst the frequency of these claims was lower than in the preceding year, their severity was 34% greater. Eight of the claims involved injury, and the other four arose from illness. As in the previous year, the overwhelming majority of the large crew claims (75%) arose on vessels either registered in or operated from the USA. The injury claims amounted to 74% of the value of the claims in this category.
Collision: There were six large collision claims in 2018 with a total value of $5.2m. The severity and frequency of these claims were both greater than in the preceding year. The causes of these claims involved familiar issues of failure to keep a proper lookout and to appreciate the risk of collision. The severity of these claims was compounded by the deaths of nine individuals and injuries sustained by a further 11 persons in three of the incidents. These involved collisions with two fishing vessels, and a recreational vessel respectively. These three incidents constituted 72% of the total value of the large collision claims.