Protection & Indemnity 2016

Introduction

Reinsurance and Pooling costs represent approximately 40% of average P&I premiums paid by ship operators (although in some sectors the fixed costs can account for in excess of 85% of premiums).

This section outlines the results of the International Group (IG) Reinsurance renewal negotiations at 20 February 2017. It also discusses the trends in Pool claims (and very large claims generally).

For future consideration we again include a suggestion regarding a potential change to the cost allocation system that would smooth out the impact of major catastrophes on the distribution of reinsurance costs to different ship types.

Results of the IG Reinsurance Renewal at 20 February 2017

Structure

  • Individual club retention remains unchanged USD 10 million
  • The attachment point of the reinsurance programme will remain at USD 80 million
  • Simplification of Hydra's participation in the Pool Layer, with Hydra taking 100% of the risk for the first USD 20 million layer in excess of the Pool (with the previous USD 20 million excess USD 100 million layer dropping out)
  • Berkshire Hathaway's 5% multi-year placement of USD 1 billion excess of USD 100 million will be replaced by a new alternative market with effect from 20 February 2017

The 2017 structure of the IG Reinsurance programme will be as per the structure chart.

International Group Reinsurance Structure Anticipated for the 2017 Policy Year

Cost Changes

  • Average reduction in reinsurance rates per GT: -7.2%
  • Reductions in all ship categories, dirty tankers and dry cargo ships fare the best.
  • Percentage decreases are as follows:
    • Dirty tankers: -9.3%
    • Clean tankers: -5.0%
    • Passenger: -5.0%
    • Dry / others: -9.3%

The long term trend in the IG reinsurance rates is also shown in the IG reinsurance cost progression graph.

IG Reinsurance, Cost Changes by Vessel Type

International Group Reinsurance Changes 20 February 2017

Vessel Type 2016/17
(USD, per GT, per annum)		 2017/18
(USD, per GT, per annum)		 Decrease
(USD, per GT, per annum)		 Percentage
Decrease
Dirty tanker 0.6567 0.5955 -0.0612 -9.31%
Clean tanker 0.2816 0.2675 -0.0141 -5.0%
Dry / other 0.4537 0.4114 -0.0423 -9.3%
Passenger 3.5073 3.3319 -0.1754 -5.0%