PAYING FOR LARGE CASUALTIES
SHIPPING AND THE LAW 2013
Alistair Groom
Director, Charles Taylor plc
CEO, Standard Club
Napoli
3 October 2013
Contents
– how large claims are funded
– IG Pool
– reinsurance
– cost allocation
– future
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How are claims funded
Claims in
club
retention
< $9M
IG Pool
claims
$9m - $70m
Reinsured claims
$70m - $3,000m
Overspill claims
> $3,000m
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Pool claims ($9m - $70m)
–
–
–
–
–
each club pays a percentage share of each Pool claim
percentages change each year
intention is that each club should pay its way over time
what a club claims from other clubs should equal what it pays to other clubs
contribution formula is improved periodically to ensure fairness
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Pool claims ($9m - $70m)
Clubs contribute to Pool claims according to a formula, reflecting each club’s size and performance
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5
Premium
Tonnage
Claims
Record
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Reinsurance programme ($70m - $3,000m)
– reinsurance programme uses all available international markets
– unusually favourable reinsurance terms
– unlimited numbers of claims payable
– full follow terms
– capacity is not the problem; pricing is the issue
– IG captive (Hydra):
– facilitates risk retention
– optimises reinsurance buying
– is internal to the IG
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Reinsurance costs
– 4 ship categories:
–
–
–
–
dirty tankers
clean tankers
dry cargo
passenger ships
– reinsurance costs apply across whole International Group
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P&I reinsurance rates history
$ per gt
$4.0
$3.5
Reaction to Costa
Concordia
$3.0
$2.5
$2.0
Fewer
tanker
pollution
claims
Reaction to
Exxon Valdez
$1.5
Perceived
risk
exposure
$1.0
$0.5
$-
Dirty Tankers
Clean tankers
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Non tankers
Passenger
Reinsured claims
– major casualties
– 38 claims have entered the commercial reinsurance layer (above $30m in 2000,
$70m in 2013)
– 70% were groundings and collisions
– navigational errors – not deficiencies in ships, or cargo problems
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Reinsurance costs and allocation
–
–
–
–
–
reinsurance premium rises
who pays what?
tonnage-rated
driven by record and risk exposure
but large casualties are few, large, volatile and random – very hard to
scientifically allocate reinsurance cost:
– is a cruise ship the same risk as a ferry?
– is a container ship the same risk as a bulk carrier?
– is a gas carrier the same risk as a wine tanker?
– no simple or right solution, evolutionary process
– overriding principle: fairness between members
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Payment for record and risk
– all shipowners should pay for their own ‘burning’, i.e. routine, claims (<$1.5m)
– all shipowners need to contribute to the cost of large / Pool claims – even if
they haven’t (yet) had any
– all shipowners need to contribute to the cost of reinsurance purchase
– the bigger the ship / the lower the premium, the lower the ‘acceptable loss
ratio’
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The future
–
–
–
–
–
–
the IG system generally works well
huge limits for maximum cover
bulk purchasing for 90% of shipping industry
large claims have gone up in cost and frequency
reinsurance costs will reflect claims
cost allocation under review
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www.standard-club.com
www.ctplc.com
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