How do you see the overall results reported by the IG Clubs – any surprises/comments? On the basis of these, what would your prediction be for the possible range of general increases that may be called in the autumn?
The results broadly reflect what many of the Clubs have been reporting for the last 12 – 18 months and the average combined ratio across the International Group has deteriorated markedly over the last three years. Large losses have increased in frequency and cost in the last two years, something that claims notified to the IG Pool reflect too. This has put pressure on the Clubs’ operating results however, the real strain has come because premium across the industry has reduced reflecting some benign claims’ years and the capital strength of Clubs. Compounding this, churn is impacting Clubs as older tonnage is replaced with younger vessels paying less premium for a similar risk exposure. This model cannot continue (the impact of “Decile 10” on Lloyd’s and marine portfolios is a perfect example of this) but for the time being Clubs generally remain capital rich and rate poor which is why the corrective measures across the whole industry have been slow to materialise.
How this will influence a Clubs decision at the next renewal is still too early to predict as there are many factors to consider (claims performance, investment return, back year claims development etc.) when determining whether a general increase is necessary or not, although it is clear that all Clubs are concerned about the current rating levels and this will inevitably lead to corrective measures being introduced in the future. The question is when?
West of England were bold in announcing a General Increase last year of 5%. On reflection of the results, how does this sit with you and do you feel this went far enough?
Whilst many in the industry have complemented us for being bold for announcing a 5% General Increase (which is not a true 5% as we only applied this adjustment to the net rate and not the Group Reinsurance element of the premium), we don’t see it this way!
Difficult market conditions require a decisive approach by Club managers backed by a strong and supportive Ship Owner Board which the West has and this was reflected in making this decision.
The results announced by all the Clubs in addition to the deterioration in the Pool highlight the challenges facing our market however, whilst we are not afraid to take corrective action when required, we remain entirely committed to fair and balanced underwriting supporting all of our Members in difficult trading conditions.
Our Members want a financially strong Club who react to changes in the market quickly and confidently and the Management Team at the West delivers on this consistently.
If you could change one thing in respect of how the market operates, what would it be?
I entirely understand why pricing is the focus of so many. At a time when the shipping market is under pressure with regulation changes on the horizon and freight rates continuing to remain low, all are looking to reduce their operational expenses however, the P&I product is dangerously close to being commoditised which would be to the detriment of the buyer. P&I is a service industry and this should not be overlooked.
Premium is incredibly important, but if a claim is handled efficiently and in a timely manner the benefit to the Member can be significant and far exceed any savings in the rate.
There are 13 Clubs and all are different from one another and there should therefore be more focus on finding the right Club for the owner whilst at the same time obtaining the most competitive terms available.
With regards to market competition, and in terms of vessel appetite and products on offer, where do you see any new battlegrounds forming?
Competition is healthy and the International Group provides choice for the market which I believe is positive however, none of the Clubs are the same and each has different risk appetites and business models.
Some are monoline insurers and some have diversified with mixed success, yet I see this as a potential area for change with some Clubs looking to offer additional classes of business to their Members to attempt to offset the downward pressure on P&I premiums. This could increase competition within the International Group, but also with the commercial market too.
West are investigating new products and are working closely with our Ship Owner Board to ensure our Members needs are met using the vast knowledge and expertise we have at the Club, whilst at the same time not compromising the Club’s strong financial position.
One battleground which is already extremely competitive is charterers business which I see intensifying with the forthcoming proposed changes to the IGA.
How do you view the Gallagher P&I team within the broking community?
The Gallagher team are highly respected across the P&I world and this is illustrated by the support you receive from your clients and also the Clubs too.
The P&I market can be an esoteric place and ship owners / charterers need to rely on their service providers more than ever before to ensure their interests are protected and they are given the best possible advice at all times and Gallagher consistently delivers on this which is why the West enjoy working so closely with your team.
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