Shipowners face an on average 33% hike in the International Group of P&I Clubs’ general excess of loss (GXL) reinsurance costs following a renegotiation of its two-year contract.
The increase in GXL reinsurance costs — mainly covering claims in excess of $100m and up to $2bn — will be added by protection and indemnity clubs to shipowner’s premium at next February’s policy renewal.
The increases, which apply to the International Group’s pool claims system, vary between different ship types, with container ships set to pay the largest increase.
In a more positive development, the International Group has retained a level of cover for malicious cyber, Covid-19 and pandemic risks.
Over the last two years, many reinsurers have been seeking to remove these risks from their policies.
International Group reinsurance committee chairman Mike Hall, who is also chief underwriter at Britannia P&I, said the renewal negotiations had been "challenging".
The negotiations took place in a hardening reinsurance market. The International Group’s reinsurers were also seeking to recover losses from a series of high-cost casualties in the last two years. The wreck removal for the 7,700-ceu Golden Ray (built 2017) cost in excess of $800m and was largely met by the International Group’s reinsurers.
"A combination of hardening market conditions, a global pandemic, a number of coverage issues, plus a worsening claims record, have all resulted in the 2022 renewal being particularly challenging to negotiate," Hall said.
Unique nature
He described the result as satisfactory. The International Group’s reinsurance costs have been falling over recent years, and the latest increase will put them back to levels in the 2014 and 2015 policy years.
Hall said: "Our longstanding reinsurance partners have understood the unique nature of the group’s coverage requirements, in support of the global shipping community, and we are grateful to them and the group's brokers for their continued support in finalising this year's reinsurance programme."
The International Group's claims pool system is divided between multiple layers of cover including the individual club's own retention, the International Group's own captive Hydra, the reinsurance policy in excess of $100m and a number of private placements.
Some changes have been made to the structure of the cover in the reinsurance renegotiation.
Cyber, Covid and pandemic risks have been retained in the GXL reinsurance cover over $100m and up to $550m.
In excess of $550m, reinsurers will provide $2.15bn of annual aggregated cover for these three risks. International Group clubs will pool losses that exceed the limit.
Reinsurance rates for clean oil tankers and bulk carriers have increased by 40%, rates for container ships, which have seen a number of high-cost casualties, have increased by 55%.
Rates for passenger vessels, which have seen reduced trading during the pandemic, have increased by 18.6%. Persistent oil tankers will pay the lowest increase of 15%.
The increase in International Group reinsurance costs will come on top of planned general increases in P&I cover costs from individual clubs ranging between 5% and 15%.
