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Napoli 3 October 2013

Napoli 3 October 2013. Alistair Groom Director, Charles Taylor plc CEO, Standard Club. P AYING FOR LARGE CASUALTIES SHIPPING AND THE LAW 2013. Contents. h ow large claims are funded IG Pool r einsurance c ost allocation f uture. How are claims funded. Pool claims ($9m - $70m).

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Napoli 3 October 2013

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  1. Napoli 3 October 2013 Alistair Groom Director, Charles Taylor plc CEO, Standard Club PAYING FOR LARGE CASUALTIES SHIPPING AND THE LAW 2013

  2. Contents • how large claims are funded • IG Pool • reinsurance • cost allocation • future

  3. How are claims funded

  4. 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

  5. Pool claims ($9m - $70m) Clubs contribute to Pool claims according to a formula, reflecting each club’s size and performance

  6. 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

  7. Reinsurance costs • 4 ship categories: • dirty tankers • clean tankers • dry cargo • passenger ships • reinsurance costs apply across whole International Group

  8. P&I reinsurance rates history $ per gt

  9. 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

  10. 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

  11. 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’

  12. 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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