PROTECTION AND INDEMNITY - Willis

ExPECTATIONS FOR ThE
REINSURANCE RENEwAL
AT 20 FEBRUARY 2009
INDIvIDUAL CLUB RETENTIONS TO INCREASE
As a general principle, there continues to be a stated aim of some of the larger and/
or better funded Clubs to further increase individual Club retentions. Despite the
background level and unpredictability of major claims, it looks likely that there will be a
consensus for another increase in retention at 20 February 2009.
We expect the individual Club retentions to increase from USD 7 million to USD 8 million
at 20 February 2009. This will probably be the only major change to the structure of the
IG reinsurance programme at the forthcoming renewal.
The IG continues to review the way they handle war risks. There is the possibility that
terrorism risks will cease to be excluded, and that the war programme will in a revised
form be rolled in to the main IG Excess of Loss programme. As ever, agreement needs
to be achieved across a diverse range of Club Boards to achieve this, consequently,
implementation of any changes is far from certain.
UPwARD PRESSURE ON ThE Ig REINSURANCE PROgRAMME COST
There has not been a single claim anywhere near the Excess of Loss programme so far in
2008. Unfortunately, there has been significant deterioration in the estimates for two or
three major claims in both 2006 and 2007.
The reinsurance market is also in a state of flux. The combination of the uncertain financial
market, major losses in the marine liability sector, and concern about the volatility of P&I
claims, all point towards a previously stable reinsurance market becoming firmer.
Therefore, pressure to increase the premium rating for the IG reinsurance programme
seems inevitable. The deterioration in the back years’ has only affected the lower layers
of the programme. Thus, the cost of these lower layers is likely to increase. Overall cost
increases should be lessened by results on the claims free upper layers of the programme.
Similarly, increases in world tonnage should also dilute overall cost increases when these
lump sum premiums are translated to a cost per GT in owners’ P&I rates.
In the current uncertain market, it would be prudent for operators to budget for an
inflationary increase on the IG reinsurance cost.
26 | Willis P&I Review 2008/09
The combination of the uncertain financial market,
major losses in the marine liability sector, and concern
about the volatility of P&i claims, all point towards a
previously stable reinsurance market becoming firmer.