the new p&i working layer · the new p&i working layer: a bluewater perspective 5 negative...

THE NEW P&I WORKING LAYER: A BLUEWATER PERSPECTIVE1

AMERICAN INSTITUTE OF MARINE UNDERWRITERSAMERICAN INSTITUTE OF MARINE UNDERWRITERS

THE NEW P&I WORKING LAYERTHE NEW P&I WORKING LAYER

A BLUE WATER PERSPECTIVEA BLUE WATER PERSPECTIVE

Joe HughesJoe Hughes

New York, May 10, 2011New York, May 10, 2011

The American ClubThe American Club

THE AMERICAN CLUB BUILDING ON THE PAST, WELCOMING THE FUTURE


THE NEW P&I WORKING LAYER: A BLUEWATER PERSPECTIVE

Background Themes

Negative trends

• Economic conditions generally

• Inflation, especially in relation to commodity prices

• Unfriendly jurisdictions

• Legal expenses

Underwriting/risk control responses

• Pricing

• Cover Terms

• Loss prevention

• Proactive claims handling



0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

2005 2006 2007 2008 2009 2010

-10%

10%

30%

50%

70%

90%

110%

%V

alu

e%

Num

ber

= % by value (LH scale)% by number (RH scale)

Figures as of 2.20.2011

THE CLAIMS COST LANDSCAPE

Proportion of claims < $1 million compared to total (gross) by year


0

1

2

3

2004 2005 2006 2007 2008 2009 20100

10

20

30

THE CLAIMS COST LANDSCAPE (con’t)

Average claims size: </> $1 million

Average cost of claims for own account after reinsurance recoveries as of 2.20.2011

$M

illio

ns$

Thou

sands

and right-hand scale: average value of claims < $1 million per claim.and left-hand scale: average value of claims > $1 million per claim.


NEGATIVE TRENDS (1)

Commodity price inflation, 12 months to 4.26.11

0%

10%

20%

30%

40%

50%

60%

70%

All items Food Allindustrials

Nfa Metals Oil(WTI)

Source: The Economist* Non-food agriculturals

*


NEGATIVE TRENDS (2)

Unfriendly jurisdictions

• West Africa

• North Africa

• Middle East

• Parts of the US

• Parts of Europe

• Parts of Asia

Different types of unfriendliness!


UNDERWRITING/RISK CONTROL RESPONSES

Pricing

• Know your client

• Know your exposure

• Know your overhead

• Be open-minded

• Be disciplined

• Review and create feedback



Cover terms

• Know your cover terms

• Know implications of cover terms

• Be judicious as to deductibles



Loss prevention

• Know in-house capabilities of client

• Share expertise

• Encourage partnership thinking

• Adopt rigorous but realistic standards

• Monitor and encourage feedback


Proactive claims handling

• Take an interest

• Be skeptical where necessary

• Get handle on costs upfront

• Properly reserve

• Diary-date and monitor

• Don’t be afraid to challenge assumptions



American Club: Frequency of claims

PRACTICAL RESULTS OF INITIATIVES

0

500

1000

1500

2000

2500

3000

3500

4000

2004 2005 2006 2007 2008 2009 20100

50

100

150

200

Num

ber

ofc

laim

s

Number of claims notified and number per million GT: annual counts to 2.20.11.Excluding files relating to survey costs only and International Group Pool claims

Num

be

rperm

illion

GT

and left-hand scale: number of claims. and right-hand scale: number per million GT.

* Initiative taken to consolidate business in 2006

*


American Club: Moderating claims development


High/Median/Low/2010

0

20

40

60

80

100

120

12 24 36 48 60

Progress of annual claims development: 2004 to 2010 inclusive as of 11.20.10.

2010Months

$M

illio

ns

2005 (High) 2004 (Median) 2007 (Low)

9


American Club: Improving loss ratios


2004 2005 2006 2007 2008 2009 2010

70%

80%

90%

Cumulative net loss ratios for all business: historical five year “look back” at 8.20 in each year, current year excluded.

Net

Loss

Ratio


Conclusions

Over 99% by number of international, blue-water claims < $1 million

Aggregate value varies as percentage of gross total

Negative trends broadly follow US experience

Underwriting/risk control responses of universal application

Know your clients, insuring conditions and proper price!

Clear focus can have measurable impact on improving results!


BUILDING ON THE PAST, WELCOMING THE FUTUREBUILDING ON THE PAST, WELCOMING THE FUTURE


the new p&i working layer · the new p&i working layer: a bluewater perspective 5 negative...

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