Wednesday, November 28, 2018

Good News for Specialist Ship Owners as Insurance Rates Stay Stable

Despite Deficit Underwriting Group Defers General Increase
Shipping News Feature
WORLDWIDE – Some good news for the ship operating community this week as specialist maritime underwriting group the Shipowners' Club announced it will not introduce a General Increase for 2019. This despite an underwriting deficit marginally higher than budget reported in the Half Year Report at $6.17 million. The Club stated it has always sought to support Members, especially in times when the shipping industry is depressed and, as a consequence, has not sought a General Increase since 2014.

The Shipowners’ Club works with over 600 brokers to insure more than 32,000 small and specialist vessels globally. The Combined Ratio deficit of 106.4% was as a result of claims in the year at a higher level than 2016 and 2017, and development of those years being slightly worse than anticipated. The Club’s Board noted that the 2018 position had been impacted by two claims in excess of US$ 5 million and also noted that the quantum of claims reported by Clubs to the International Group through the Pooling mechanism was likewise higher than at the same stage in 2017.

These results led to the anticipation that there will follow an underwriting deficit for the year, reflecting the decision to utilise investment income generated in 2016 and 2017 to subsidise the Underwriting position and hence to support Members. The Club continues to absorb changes to reinsurance premiums on behalf of the Membership.

The Club’s year to date return on investments has been lower than expected, leading to a total loss for the Club of US$ 20.1 million for the six months to 30 June being reported. Whilst the third quarter saw those losses reduce, markets have continued to be volatile and the Board does not anticipate a sufficient improvement to eradicate the losses incurred during the first half.

It is however not all bad news. Looking ahead to 2019, the Club expects to continue to see growth in tonnage and vessel numbers and there has been encouraging organic growth coupled with new enquiries. Claims are broadly expected to be in line with 2018. Whilst volatility in larger claims remains, the overall cost of lower value claims remains similar year on year with risk management, newer vessels and a policy focusing on quality all offsetting other inflationary factors. The Club nevertheless expects a small underwriting deficit in the 2019 financial year.

The continuing strong financial position of the Club has enabled the Board to agree to utilise the Club’s healthy capital position to subsidise the underwriting position, essentially returning capital to Members by providing insurance at below cost. Therefore no General Increase for 2019 will be applied. This will be inclusive of any adjustment for reinsurance premiums.

The Club has however warned that the Board agrees with sentiments expressed in recent widespread market commentary, from other clubs, brokers, regulators and the Lloyd’s market that premiums are now at levels that are unsustainable in the longer term, and that increases are likely to be required in the near future to restore underwriting balance.