West Of England update on renewals

West of England P&I Club has stated that for both Class 1 (P&I) and Class 2 (FD&D) entries a Nil standard surcharge has been set to apply to all mutual and fixed premium rates. Group reinsurance costs for owned mutual entries will continue to be charged as fixed costs per GT in accordance with the Club’s usual practice. For Members whose records are adverse, rates and terms will be increased and adjusted as appropriate to reflect record and/or risk exposure.

The Rules Deductible for Class 1 entries will be increased from $11,000 to $12,000; where individual deductibles are below this level they will be increased by 10% or by $1,000, whichever is the higher. For Class 2 entries no change will be made to the one-fourth deductible formula.

For both Class 1 and Class 2 risks the basis of charging for mutual risks shall be modified so that for 2018 and subsequent policy years the Club’s estimated total mutual call, which hitherto has been expressed as a net advance call plus an additional call (35% of the net advance call), will be re-expressed as a total mutual call to be payable in five equal instalments (each of 20% of the total mutual call). Four instalments will be paid during the policy year, with the fifth in August the following year.

Group reinsurance costs per GT for owned mutual entries will continue to be charged separately as a fixed cost in equal instalments, together with each total mutual call instalment.

West of England noted that, in practice, this simplification would make no material difference to the timing of or amounts payable by mutual Members.

For time charter and other fixed premium rates, no change will be made to current practice; premium will be payable in up to four equal instalments during the policy year.

Meanwhile, West of England noted that the Club’s overall financial position as of August 2017 continued to be “very strong”. The revised forecast for the year end in February 2018 predicts a total free reserve of $305m.

For Class 1 P&I, incurred claims for the Club’s Members for all policy years up to 2016 had continued to develop as anticipated. Although 2015 still had the highest net claim figure for an individual year since 2010, 2016 remained at a lower level than for any year over the same period except for 2014. Pool claims had also been “moderate and stable”.

However, West of England said that early indications about claims levels for 2017 were more mixed. After a moderate first quarter, claims increased during the second quarter and, since the Board’s May review, higher cost claims had been significantly more frequent than for recent years. The Club said that this indicated that a possible change in claims trend could be underway. “Whether or not this reflects generally more favourable trading conditions for Members remains to be seen”, said the Club.

It had therefore been assumed that the current policy year would be more expensive than any recent year. And that the combined ratio at February 2018 was likely to be in excess of 105%.

The Club’s net investment return on its financial assets for the period to August was 2.2%. The Club’s free reserve forecast assumes a flat return for the rest of the year.

For prior years, West of England said that members’ total incurred claims costs for the now-closed 2014 policy year and for older policy years have again fallen, and Pool costs had remained stable. In aggregate, the closed year surplus had increased by approximately $10m since February.

Claims costs for 2015 policy year were higher than for any year since 2010 and had taken more time to stabilize than earlier policy years. The overall figures had developed within projection. No further call was forecast and the year remains scheduled to be closed in May 2018. The release call was reduced to nil in May and remains unchanged.

Total claims costs for 2016 policy year continued to be low.

The forecast additional call of 35% was charged in August 2017 and no further call was forecast. The release percentage which was reduced to 10% (7.4% of the mutual ETC) remained unchanged.

For the current policy year, as a result of second quarter claims frequency and values, mid-year incurred claims for the Club’s Members for the current year were at a higher level than for any recent year. The Club said that, although incurred Pool claims for the first and second quarters were low, Pool claim notifications since then had increased. Based on initial projections, the year was projected to result in an overall loss before investment income.

The forecast additional call of 35% is due for payment by August 20th 2018. No change has been made to it or to the 20% release percentage (14.8% of the mutual ETC).

For Class 2 (FD&D) projected total claims for all closed policy years up to and including 2013 had not materially changed since February. The forecast surplus as at August was up by some $200,000 compared with the February position.

Incurred claims for all open years from 2014 to 2016 had developed within projections since February. No change had been made to any of the forecast additional or release call percentages as were set in May and all remain as advised in Notice to Members No. 6 2017/2018, published in May.

Claims costs for 2017 appeared similar at this stage of development to previous policy years, but West of England said that it remained too early to make any accurate predictions. No change had been made to the forecast additional call of 35% payable in August 2018 or to the release of 20% (14.8% of the mutual ETC).

A review was conducted at this meeting to determine whether or not there was potential for some form of return or reduction in call. The Board said in May that it would judge whether or not the recent positive claims trend as noted in May looked likely to be sustained against a background of what was clearly a steadily-declining level of premium across the industry as a whole. The Board has decided that indications that a change in claims trend may now be underway in 2017 require a cautious and conservative approach to be maintained, and so no return will be made at present.