UK Club to increase rates

Nov 08 2019

The UK P&I Club is to raise its mutual rates by 7.5% at the 2020 renewal.

The club said that its premium rates had declined through soft market conditions in recent years and are no longer sufficient to cover the cost of claims and expenses.

The club also claimed it was financially strong with free reserves in excess of $500 mill, it said in an update.

As a result, the standard deductible will increase from $12,000 to $15,000 per event, including fees and expenses.

Also any change in the cost of the International Group reinsurance will be passed on to the mutual members.

At its meeting held on the 4th November, 2019, the Board reviewed the financial position, including the performance of the open and closed policy years and decided on the required premium levels for the 2020 policy year.

Although the Club’s financial position remains strong, premium rates are no longer sufficient to cover the cost of claims and expenses.

Members have benefited from significantly reduced rates across the P&I sector over recent years and this led to an underwriting deficit being announced at the end of last year. This mirrored the experience of the P&I market as a whole which reported its first deficit for over a decade.

The number of attritional claims has continued to fall. This has mitigated the impact of the underlying claims inflation, which has continued to run at around 4% year on year. While the attritional claims picture is stable, the Club was exposed to the more volatile larger claims (typically those costing more than $2 mill).This was evident last year when just six claims above the average expected added $40 mill to the overall claims cost.

After six months, the overall cost of claims for the current policy year is developing in line with the previous year. Since premium rates declined further at the last renewal, the combined ratio reported this year may be higher than the 114% announced last year.

However, much will depend on the Club’s large claims experience during the second half of the year, it said.

During the first six months of the year, strong returns from the Club’s investment portfolio have covered the underwriting deficit. However, relying on investment return to cover an underwriting deficit is unsustainable over time and action is required now to restore underwriting balance.

Given the variation in premium adequacy across the membership, the Board decided that a general increase is not appropriate; instead the Club will target an overall 7.5% premium increase by approaching each member’s renewal in a fair manner based upon the risk that they bring to the Club, it said.

Given the decline in attritional claims, loss records are becoming less reliable as an indicator of future risk. Even those members operating claims free in recent years were exposed to the unexpected large losses that any owner faces.

These members are unlikely to require the full 7.5% premium increase targeted. Other members,whose unfavourable claims performance has contributed to underwriting deficits, should anticipate appropriate corrections, which may exceed 7.5%.

For the 2020 policy year, the standard deductible will increase from $12,000 to $15,000 per event, including fees and expenses (or the dollar equivalent in other currencies).

For the 2017 and 2018 policy years, there was no supplementary premium estimated. The release calls were set at 5%.

For the 2019 policy year, there was also no supplementary premium estimated but the release call was set at 10% of mutual premium, plus any outstanding instalments of mutual premium.


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