General Increases, the starting point for renewal negotiations, range between zero and 10 percent, which is in stark contrast to two years ago when owners faced General Increases in the 10 to 29 percent range. In an unprecedented move in recent times, four out of the 13 International Group (IG) Clubs called for a nil general increase, compared to a market average of 3.07% for the 2011 renewal.
Steve Griffiths, director of Aon Risk Solutions’ marine team comments: “The latter part of the last decade were a very trying time for the P&I clubs, with the implications of placing an ever increasing emphasis on investment returns coming home to roost at renewal time. It does seem, though, that the 2011 renewal is the calm after the storm, with improved claims trends helping many clubs to achieve a relatively flat renewal.”
If clubs achieve their targets, approximately US$91 million of additional premium will enter the P&I system on 20 February, 2011. Reflecting improved market conditions, this is significantly down on the previous two renewals, where the market was inflated by an additional US$485 million in 2009 and US$159 million in 2010.
The IG Excess of Loss Reinsurance contract has been renewed with an increase in the attachment point to US$60million from the current level of US$50 million per claim. This has the effect of stretching the pool from the individual club retention of US$8million to US$60 million. Consequently, the upper limit of the reinsurance contract has increased by US$10 million to US$2,060 million.
When taking into account the increase in tonnage insured by the IG, the reinsurance contract saw a modest reduction in premium, equivalent to about 5%. Consequently, individual rates have been reduced in the range of between 4.09% and 8.40% depending upon the category of vessel. In the majority of cases, clubs have automatically passed these reductions onto their members. However, in some cases clubs resisted attempting to retain the savings for their own account, a position which is clearly unacceptable given that in a rising reinsurance market, clubs are quick to pass on the additional cost.
Griffiths continued: “The 2011 renewal season also saw EU enquiry into the IG non competition arrangements gather momentum. Club managers faced a new challenge, as the commission’s fact finding teams requested information from each club relating to fleet movement within the IG system, dating back over a 10 year period. The EU and IG are due to meet in March to review the findings, and although it is likely to take some time before a final landing is reached, the ‘easy money’ is on the IG being maneuvered into lowering release calls in an attempt to assist competition.”