Dorothea Ioannou: This disconnect between claims exposure and rates needs to be balanced

The renewals for the American Club, fluctuated at very encouraging levels despite the very difficult market conditions, points out Ms. Dorothea Ioannou, Deputy Chief Operating Officer – E.V.P. of the Club, to maritimes, gr, while regarding Eagle Ocean Marine (EOM), points out that the American Club’s fixed premium brand, has continued to make progress into 2022, and most importantly, EOM continues to make a profitable contribution to the Club’s mutuality.

She talks about the growing trend of claims worldwide, emphasizing that “To understand the magnitude of the large claims trend, the American Club’s average annual contribution to other Clubs’ Pool claims for the last three years has doubled in comparison to the average contribution of the three years prior.”

Referring to the Greek office of the American Club, Ms. Ioannou emphasizes that ” We are very proud of the office in Greece which started out with a staff of 5 in 2005 and today boasts 15 executives! “, Adding that this office, like all our offices around the world, provides immediate support and assistance, with a personalized approach.

– First I would like you to give us an overview of how the policy year ended for the American P&I Club and the Eagle Ocean Marine? How did the renewal go?

As was announced in a recent press release, the American Club experienced an encouraging 2022 P&I renewal season. Both its mutual and fixed premium portfolios renewed well, with increases in rating for its mutual business somewhat exceeding Board mandates, and its EOM fixed premium book continuing to show growth in both revenue and market share.

Although tonnage entered for Class I (P&I) risks dropped slightly specifically over the renewal period (just prior to the renewal date) – by about 3%, the average rate per ton on renewing business, excluding the effect of the substantial rise in the International Group’s market reinsurance costs, grew by a margin of about 3.5% above the Club’s minimum requirement of 12.5% as mandated by its Board last November.

When looking at the tonnage position from the prior renewal, however, the Club experienced a 13% growth in P&I tonnage over the twelve months since February 20, 2021. On this basis, in conjunction with the increase in average rate, the Club begins the 2022 policy year with projected income about 20% higher than that at the commencement of the previous year. Moreover, increases in deductibles and the variation of other terms of cover, targeted and based on a detailed risk evaluation and analysis conducted during the year, will provide additional value to these rises in premium by comparison with expiring revenue and expiring terms.

The Club’s renewing Class II (FD&D) business remained, in tonnage terms, largely the same as it had been twelve months earlier, but net premium income grew by approximately 11% year-on-year. Similar growth is expected to emerge during 2022 in relation to the Club’s Class III (Charterers’ insurance) portfolio.

Eagle Ocean Marine (EOM), the American Club’s fixed premium brand, has continued to make progress into 2022. Premium development for the current policy period indicates a year-on-year revenue growth of about 8%, implying a compound increase in income of about 15% per annum over the last five years. Most importantly, EOM continues to make a profitable contribution to the Club’s mutuality.

Overall, we can say it was an encouraging renewal despite very challenging market conditions.

– It was widely reported that all Clubs asked for high increases this year. Why did this happen at this time? Is it due to claims? What was the position of the American Club?

Unfortunately, we are currently experiencing an industry global upward trend on claims. This applies to all claims on all levels, both at the Club’s own retention level and at the level of International Group Pool claims, although the American Club has thankfully not had a pool claim since 2016. To understand the magnitude of the large claims trend, the American Club’s average yearly contribution to other Clubs’ Pool claims for the last three years has doubled in comparison to the average contribution of the three years prior. This is an increase of 100%. The pool overall levels have reached historical highs which impacted the Group’s General Excess of Loss program as well, which had benefited last year from a two-year program which this year came up for renewal. Naturally reinsurers of that program were going to seek significant rises and indeed they did. Furthermore, COVID also had a slow yet significant impact on claims exposure. While the initial hit was felt by the passenger cruise industry, shutdowns delayed its impact on other sectors. As trade opened up later in 2020 and then in 2021, incidents of outbreaks increased with higher costs related to repatriation on all types of ships insured. Another factor that cannot be ignored is inflation. Just as inflation affects the cost of living, it is directly connected to the cost of claims. Demanded losses are affected by the rising cost of inflation, both in connection to cargoes and commodities as well as to compensation demands due to personal injury, illness, and death. This negative development was also compounded by a background of 5-6 years of weakening premium pricing as a result of the previous period of relatively benign claims environment. Almost all Clubs have now experienced several years of underwriting losses with investment income softening the impact. This disconnect between claims exposure and rates needs to be balanced and this is really what the American Club, and other IG Clubs are endeavoring to do. The value that comes with P&I cover is extraordinary, with the ability to absorb up to $3 billion in cover. As a sector, the P&I industry has been key to facilitating its members in moving global trade. Often, P&I rates are compared to Hull rates, but this is inappropriate. Hull underwriters limit the cover to an agreed insured value of the ship itself. IG P&I Club cover provides $1 billion in oil pollution cover and $3 billion generally, and for most types of liabilities, within these limits, the cover is only limited by applicable law and convention, even if these amounts by far exceed the value of the ship. I am not sure there is another type of insurance that provides this level of cover as well as actual expert assistance on all matters connected to cover (and even non covered matters) and claims handling, in the way that IG P&I Clubs do.

– After this renewal, do you believe pricing will stabilize?

As the rising claims environment occurred over a period of decreasing premiums and increasing costs such as those related to regulatory oversight, compliance and, most importantly, reinsurance – both at retention and pool level – it is very difficult to say whether the adjustments achieved this past renewal will result in stability at this stage. Unfortunately, 2021 has followed the pool claims trend of 2020 and 2019 with over $500 million already projected without taking into account two of the most recent incidents. I do not lkie to make predictions, but I believe it is unlikely that one renewal will correct the imbalances that occurred over several years.

– Tell us about the Greek office

We are very proud of the office in Greece which started out with a staff of 5 in 2005 and today boasts 15 executives! There are 9 claims experts which include lawyers qualified in three different jurisdictions and combined experience of over 100 years in the industry. We also now have dedicated staff supporting the accounting department in NY as well as for analytics and have experienced business development and market liaison executives. This office, like all our offices provides hands on assistance, with a very personalized approach. The American Club and its Managers always believed in investing in and cultivating local talent, in all its offices across the world. The Piraeus office is now managed by Joanna Koukouli, triple qualified lawyer with over 22 years of experience and with the Club’s Manager’s Piraeus Liaison Office for over 11 years now. The Regional Director of Claims is Andrew Dyer, qualified Solicitor with over 25 years of experience practicing and previously a partner with one of the top global shipping English law firms. Elina Souli, qualified lawyer with over 20 years in marine insurance is our FDD Manager and Business Development Director. Our claims executives are also very well known in the field, namely, Antonis Bavas, Marivi Banou, Danai Manta, Niki Tigka, Chrysanthi Paplomata, and Christina Tsimpouklidi, supported by Claims Processors Stavroula Leondara and Victoria Podaras. Our Market Liaison is Charalampos Tsimpoglou and Accounts and Data Specialist is Maria Filippidou, supported in Accounts by Konstantinos Ntounis. Of course, nothing would get done without coordination and management by our Executive Administration Manager, the well-known Annie Papadimitriou. The office has a reputation for prompt and efficient responsiveness, and oriented towards cost effective solutions.