As is evident from any number of recent headlines, the start of the year has already been an eventful one geopolitically, not least with the current tensions in the Middle East, notably Iran and the US sanctions announced under Executive Order 13871.
Marine PI

As a result of this and other economic pressures, an unsettled trading atmosphere continues to prevail. Our thoughts and best wishes also go out to all those affected by the extreme bush fires experienced in Australia.

In London, the market has returned from the festive period reinvigorated and the City as a whole is busy readying itself for the challenges and opportunities that lie ahead, especially as we move towards the next phase of the Brexit process. Many will have observed the rally in the UK stock market following the General Election, and the initial feedback from some in the International Group is of the materialisation of strong, global investment returns.

Whilst the claims climate does indeed remain challenging, we would not discount the notion of the Clubs collectively reporting further increases in free reserves as at 20th February 2020. How long this will last is, of course, the eternal question but should the Clubs be putting in place a mechanism to control any further growth in free reserves? For example, should they look to return any funds excess of a 100% combined ratio, be they investment or back year positive developments? You will recall we previously commented that the International Group held free reserves well in excess of what was deemed necessary to meet solvency requirements, a view subsequently endorsed by other brokers in the market.

In respect of P&I renewals, things remain lively with resumed momentum as we enter in to the final weeks of the 2019 policy year. For the first time in recent memory, and coming after a string of reductions, the International Group Excess Loss Reinsurance renewal was concluded with no change to be applied to the rates paid by Shipowners in 2020. Rates for 2020/21 are as follows:

2020/21   ETC Rate USD
Persistent Oil Tankers   0.5747
Tanker Clean   0.2582
Dry   0.3971
Passenger   3.2161

Turning to the mood of the renewal, whilst terms were concluded for some prior to Christmas, we have noted that there has been some hesitation from the Clubs in comparison to prior years. This is, in part, due to the uncertainty brought by the return of General Increases, but also the lack of appetite of Clubs to second guess the approach taken by their competitors. We feel it is unlikely that the Clubs will succeed in achieving the General Increase levels set, and foresee further consolidation of fleets between Clubs.

Whilst adherence to strict underwriting discipline has been the tone set by the Clubs, many will be watching how they conduct themselves in their negotiations with their members. Will this prove to be a true turning point in the market or a re-calibration in terms of what are deemed to be workable operating and rating levels? We predict that there will be headlines on both sides; those who stuck to traditional underwriting principals and potentially lost tonnage, as well as those who follow a different path in pursuit of growth.

These too are testing times for the intended sentiment and indeed practical application of the International Group Agreement. Come 21st February, it will be interesting to note the perceived winners and losers, and indeed how this places them and the whole concept of Mutuality for the 2020 policy year and beyond.

We look forward to following up on this in our post-renewal summary in March.

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