West of England is to implement a 5% standard surcharge to all mutual and fixed premium rates for P&I-owned (Class 1) entries, while keeping a 0% surcharge for owners’ FD&D (Class 2) entries. Charterers will face no increase for either class.
The estimated total mutual call of 100% for 2018/19 remained unchanged, as was the 15% release percentage.
West of England said that at its recent meeting in Luxembourg the Board had observed “an increased frequency of higher cost claims in the 2017 and 2018 policy years for both the Club’s own Members and in the international Group Pool, and that this trend appears to be reflected in the wider marine insurance markets”.
As a result of a number of fortuitous large losses, mid-year incurred claims for the Club’s Members for the current year were at a high level. Pool claims were also higher than in most recent years at this early stage. The policy year was consequently projected to result in an overall loss before investment income.
The Board recognized that, in the face of a move away from the benign claims environment enjoyed in recent years, premiums across the industry had been “driven down to unsustainable levels”.
WoE revealed that higher cost claims had been significantly more frequent both in 2017 and 2018 to-date and consequently the Club’s free reserve was forecast to fall for the first time in a number of years, to a little below $300m as of February 20th 2019, down from $308.5m as of February 20th 2018. Also, the Board’s primary operating objective of achieving a three-year combined ratio average of better than 100% would not be met. The three-year average combined ratio to February 20th 2018 had been 95.6% and there has not been a three-year average over 100% since 2015.
Earlier this year, when reporting its results for the year to February 20th 2018, West of England noted that “the magnitude of claims in 2017 is forecast to reach a level not seen for many years and has included an unusually large number of losses arising from collisions and navigational errors”. It said at the time that it was “also not clear whether or not the claims development in 2017 was simply an aberration or is evidence of a more sustained increase in claims across the industry. If claims values are moving away from the stable levels the Club has enjoyed over recent years, then premium will need to respond to meet this new pattern.”
The investment return as at August 2018 was 0.9%. The recent sale of the Club’s building in London, Tower Bridge Court, will also add positively to the return at the year end.
The Club noted that its capital position remained “very strong and well in excess of the AAA level for S&P”.
The standard surcharge will not apply to the group reinsurance component of the rate.
WoE said that its conservative investment policy had protected the Club from the worst of the recent volatility in the investment markets, but warned that continued uncertainty in this area would mean that significant investment returns could not be relied upon to address underwriting deficits.
WoE said that it was important to Members that their Club retained a strong capital position and the Board therefore resolved that “some affirmative action should be taken now to address the evolving market dynamics in a prudent and controlled manner”.
Tom Bowsher, Managing Director of the Club’s Managers, said that “whilst the Board recognised that premium increases are never welcome for shipowners especially when freight markets continue to be challenging, they felt that it was right to deliver a measured response to changing market conditions now rather than deferring a decision for another year”.