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Shipowners face small increases in marine liability coverage costs

P&I reinsurers still paying claims from prior years

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Shipowners face small increases in marine liability coverage costs

Relatively few losses in the past year means shipowners generally will face single-digit increases for marine liability coverage provided by protection and indemnity clubs at the upcoming renewals.

General increases among the 13 clubs comprising the International Group of P&I Clubs range from zero to 6.5% with an average of just more than 3.0%, London-based insurance and reinsurance brokerage Tyser & Co. Ltd. said in an analysis.

P&I coverage renews Feb. 20, which traditionally is the date the Baltic Sea is free of ice, allowing ships to navigate its waters. The International Group of P&I Clubs said in January that it had finalized reinsurance program details for the 2015/2016 year in which individual club retentions will remain at $9 million

The group's reinsurance program has three layers that include a group captive, Bermuda-based Hydra Insurance Co. Ltd. For 2015/2016, the program has 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 million, and a top pool layer of $60 million to $80 million — within which there is a claiming club retention of 5%.

The international club also said the excess point on its general excess-of-loss reinsurance would remain unchanged at $80 million.

“Further development during 2014 in the 2011/2012 policy year, which produced the first- and third-largest ever claims on the group pool,” has continued to affect reinsurers, “in particular on those participating on the third layer of the program,” the international club said.

The International Group said that incurred losses since the 2014 renewal grew by about $400 million, largely driven by deterioration in the losses from the 2012 Costa Concordia disaster — for which the captain was sentenced last week to 16 years in prison for manslaughter — and the 2011 Rena disaster.

But the international group said reinsurance losses for the past three policy years were limited, retentions have been increased using the group captive, a multiyear fixed placement deal and increased capacity enabled it to “achieve favorable reinsurance renewal terms.”

While rates for many lines of reinsurance are soft because of abundant capacity, the P&I clubs' loss history and fewer reinsurers underwriting P&I risks have meant the international group and its members have taken fairly high retentions to reduce the cost of reinsurance and support shipowners by using capital more efficiently, said Bjornar Andresen, senior vice president and chief underwriting officer at Gard P&I (Bermuda) Ltd.

Three major trends are affecting all P&I clubs, said one underwriting source who asked not to be named.

They include the difficult economic environment, including competition and reduced investment returns that are affecting shipowners, he said. Because P&I clubs are mutual, they do not want to drastically increase insurance costs. Thirdly, the cost of large claims has increased, he said in citing the Costa Concordia disaster — the largest maritime insurance loss ever at an estimated $2 billion.

“This is where the break afforded by the reinsurance comes in,” said Gard's Mr. Andresen. “We can support shipowners for their total bill.”

“We are very aware of the pressure that shipowners are under, but we are very keen to take a firm line to make sure that our members pay a premium that is commensurate to their claims record and the risk they present to the club,” said Jeremy Grose, CEO of Charles Taylor & Co., which manages The Standard Club.

Most P&I clubs have had fewer but more expensive claims, which need to be factored into their premiums, said Mr. Andresen.

For the 2015/2016 year, Gard is asking members for a 2.5% general increase.

Another factor that is affecting P&I clubs is the increase in shipowner liability imposed by many nations to remove wrecks and clean up any pollution, he said.

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