A restructuring of the International Group of Protection & Indemnity Clubs’ massive $3.1bn reinsurance programme looks set to provide a more cost-efficient model for the shipping industry.
Discounts have been won for shipowners under the annual renegotiation of the Group General Excess of Loss and Collective Overspill Insurance Programme, which provides reinsurance cover for 90% of the world fleet, for the insurance year 2019 to 2020.
A recent rearrangement of the brokerage has seen brokers Millers and Aon work together to come up with a new reinsurance structure that will allow the 13 International Group members to retain more risk, helping to reduce costs.
The two brokers had previously worked separately on different aspects of the General Excess programme.
Reduction in rates
As TradeWinds reported, the headline reduction in rates for all ship types covered by the reinsurance scheme ranges between 1.68% and 1.74%.
It is the fifth year in succession the International Group has won a discount on rates, reflecting the continuing soft reinsurance market and the low claims record of the group.
But industry sources said the more significant change is the restructuring of the reinsurance programme, in which there is more retained risk through a re-layering of the cover levels, increased risk retained in the International Group’s captive facility Hydra, and increased private placement that has been locked for three years.
Changes to the structure of the reinsurance programme for 2019/20 should deliver enhanced value to shipowners, balancing a cost-effective commercial market placement with a robust and well-funded risk retention strategy that strengthens the financial position of the Group’s captive, Hydra
From February, the first layer of the revised programme will provide cover from $100m to a new upper limit of $750m, the second will cover from $750m to $1.5bn, and the third from $1.5bn to $2.1bn.
There will be no change to the collective overspill layer, which will provide $1bn of cover in excess of $2.1bn.
Also from February, Hydra will retain 100% of the pool layer from $30m to $50m, and 92.5% of the pool layer from $50m to $100m. In addition, Hydra will retain a $100m annual aggregate deductible in the market share of 80% of new first layer of the General Excess programme.
Private placement
A new 10%, multi-year private placement has also been introduced into the first layer of cover increasing overall private placement from 15% to 20%.
International Group secretary general Andrew Bardot said the changes are “innovative” and helped “future proof” rates at a time when many expect reinsurance rates to harden.
“It is a more efficient structure providing more value for owners,” he said.
Reinsurance committee chairman Mike Hall said: “Changes to the structure of the reinsurance programme for 2019/20 should deliver enhanced value to shipowners, balancing a cost-effective commercial market placement with a robust and well-funded risk retention strategy that strengthens the financial position of the Group’s captive, Hydra.”
