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Member, Beacon International Group, Ltd.
The cost of the reinsurance program for the International Group of P&I Clubs may increase by as much as 40% when the renewal is completed, experts say.
Reinsurers bore the brunt of heavy losses on the container ship Rena, which sank off the coast of New Zealand in October 2011, and the Costa Concordia, which sank off the coast of Italy in January 2012, Standard & Poor's Corp. said in a report last week.
S&P said that while these losses have demonstrated the robustness of the International Group's reinsurance arrangements, they have led to an increase in costs of about 40%.
The program, which still was in the process of being placed last week, likely will see a rate increase of at least 35%, said Nick Taylor, head of P&I in the marine practice of Marsh Inc. in London.
Last month, the International Group announced several changes to its reinsurance arrangements intended to offset the impact of rising premiums.
Those included:
? An increase in individual clubs' retentions to $9 million for the 2013-2014 policy year from $8 million for the 2012-2013 policy year.
? The excess point on the general excess-of-loss reinsurance contract will increase to $70 million from $60 million. The extra $10 million will be retained within the group pool that is reinsured by the group's captive Hydra Insurance Co. Ltd. Bermuda-based Hydra reinsures $40 million in excess of $30 million of the International Group's exposure.
? Hydra's coinsurance share in the first layer of the group's general excess-of-loss coverage will increase to 30% from 25%.
? For the 2013-2014 year, there will be a three-layer pool structure for the general excess-of-loss program. That structure will include a lower pool layer from $9 million to $45 million, an upper pool layer from $45 million to $60 million, within which there is a claiming club retention of 10%, and an upper pool layer from $60 million to $70 million, within which there is a claiming club retention of 5%.