West announces 10% General Increase

West of England Club is to apply a 10% General Increase on P&I premiums for 2023-24. Members with adverse records will experience “additional action”.

The standard surcharge for FD&D premiums will be 15% for 2023-24.

P&I rules deductibles will be unchanged at $14,000, but other deductibles will rise by 10%, with a minimum increase of $2,500. FD&D deductibles are unchanged.

West said that it was pleased to note the Club’s improved financial performance, with a combined ratio of 97.9% at the mid-year point, as well as the current Policy Year experiencing an almost complete absence of new Pool claim notifications. However, despite the CR improvement following a targeted reduction in gross tonnage at the previous renewal, West recognized that premium remained insufficient to meet current and expected future claims costs, “especially having in mind the potential impacts of high global inflation”.

The changes in detail are as follows:

i) Class 1 (P&I) Owned Mutual

For Class 1 (P&I) entries a 10% standard surcharge has been set to apply to all mutual premium rates. For Members whose records are adverse, additional action will be taken where necessary with rates and terms adjusted as appropriate to reflect record and/or risk exposure. No change will be made to the Rules Deductible for Class 1 entries however all other deductibles will be increased by 10%, and a minimum increase of $2,500 will be applied. A release call of 15% shall apply. In addition to the 10% standard surcharge, rates will be adjusted to reflect any changes in the cost of the International Group reinsurance programme, whether up or down

ii) Class 2 (FD&D) Owned Mutual

West said that inflation in the level of legal fees had impacted directly on the performance of this Class. Reinsurance costs were also expected to increase in 2023. The Board therefore decided as follows:

For Class 2 (FD&D) entries a 15% standard surcharge has been set to apply to all mutual premium rates. For Class 2 entries no change will be made to the one fourth deductible formula. As with Class 1, a release call of 15% shall apply.

West said that reinsurance costs associated with these classes of business had significantly increased in recent years across the entire industry. Indications were that they were expected to increase further so, while the Board has not set a standard surcharge, rates and terms would be increased and adjusted as appropriate to reflect the increased reinsurance cost, Member’s record and/or risk exposure.

Policy Years and Release Calls

Class 1 (P&I)

2020/21 – Release call maintained at 10% of estimated total mutual call

2021/22 – Release call maintained at 15% of the estimated total mutual call

2022/23 – Release call maintained at 15% of the estimated total mutual call

Class 2 (FD&D)

2019/20 – Release calls maintained at 0% of the estimated mutual call

2020/21 – Release calls maintained at 10% of the estimated total mutual call

2021/22 – Release call maintained at 15% of the estimated total mutual call

2022/23 – Release call maintained at 15% of the estimated total mutual call

A further Notice to Members will be issued later in the year to detail any changes in the Group reinsurance rates, scope of cover and limits.

West’s CEO Tom Bowsher said that there were three big drivers of the results at mid year. The first was investment market pressures – a negative consideration for the whole industry. The second was the Pool, which had been exceptionally benign, with only one claim notified in the current policy year. This has had a positive effect on combined ratios across the group. Thirdly, the Covid experience had alleviated.”.

Bowsher noted that West’s investment allocation remained low-risk, which had protected the club from the worst of the recent downturn. “It is also low-risk relative to other clubs. Liability matching portfolio makes up 73.3% of investment. 9.4% is in cash and 17.4% is allocated to the growth portfolio”.

Of that 17.4%, just over half is allocated to equities (thus, 9.4% of total portfolio). “This is a very low holding compared to most of our peers”, noted Bowsher. Real Estate, private debt and infrastructure represents 8% of the total portfolio.

Investment return at the half-way mark of the policy year was minus 2.9%, equal to minus $20m. “While not good news, we think it is a position of relative strength”, said Bowsher.

The mid-year combined ratio was 97.9%, with 4.5pp a result of Covid claims. That compared with 114.4% CR for full-year 2022, with 13.7pp allocated to Covid claims.

Referring to West’s individualistic but bold moves for the 2022-23 renewal, Bowsher said that “it is well-documented that West parted company with certain members at the last renewal. This was not a decision that was taken lightly.” The Club’s GT reduced by 19m, equal to nearly 20% of the portfolio, and represented a roughly 10% decline in vessels covered . However, rate increases meant that premium income declined only slightly.

Bowsher noted that the International Group’s average CR over the past five years had been 114%, and that this was “simply not sustainable”, hence the market hardening seen at the last renewal.

“We hear too much about the West being small, but we have a gross premium of $285m. We have derisked, but we continue to receive the support of the mutual entry”, said Bowsher, who also noted that fixed entry premiums had grown, with chartering “following suit”.

On claims trends, Bowsher said that back years were performing better than expectations.

“Our pool share has fallen from 10.27% to 7.29% within one year”, noted Bowsher, this being the result of zero pool claims from West during the last policy year. “Our current model shows that the share will be less than 7% for at year-end”. That decline represented a saving for West of about $15m to $20m a year, said Bowsher, although, with Pool claims for this year currently being virtually zero, that benefit would only kick in when Pool claims returned to a more normal level.

On the pool side, Bowsher said that use of the word “exceptional” was relevant. “It is over 15 years since there were no notifications at the six-month point”. “Policy year 2022, at nil, compares to $350m for policy year 2021, and policy year 2020 at $289m”.