The contradictory trends in the market results have resulted in some challenging decisions for clubs when making their general increase decisions in the lead up to the renewal season in 2019.
The market is evidently facing deteriorating underwriting results. The impact of these has been masked by extremely positive investment results. Despite the underwriting trend, investment income has pushed the free reserves of the IG clubs to continued new record high levels.
Against the background of such positive capital positions for the clubs, the majority of clubs will not announce a general increase. There are a couple of ‘outliers’ whose underwriting results are so adverse that they may have to seek some form of increase, but even in these exceptions we don’t anticipate that anyone will stray higher than 5%.
Similarly, reflecting the material increases in capital held by the clubs, we anticipate that there will be a number of announcements on returning premiums (or not charging full deferred calls) and/or capital rebates before the end of the 2018/19 policy year. With the increases in free reserves across the majority of the market, this would be an entirely equitable and expected outcome.
Another outcome of the increased capitalisation across the market is that maintaining material release calls becomes even less justifiable. We expect that a number of clubs will reduce and/or eliminate release calls prior to the end of the 2018/19 policy year. This will be a logical and sensible development (and a long lobbied issue by Willis Towers Watson).
It is likely that a number of clubs will again try to increase deductibles as part of the renewal ‘package’ (even if only to be used as a negotiating point combined with low announced general increases).
Similarly we expect the approach of routinely applying deductibles to costs, fees and expenses to embed further across the market.
Following the tender of the IG reinsurance placement in 2018, we are expecting the programme to be restructured at 20 February 2019. The end result is expected to be approximately cost neutral to ship owner members and this will be expanded upon in the IG Reinsurance Section of our P&I review.
