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In contrast to the 2013 policy year, which was one of the most expensive years in the history of the Club,the 2014 policy year has been less costly.
The total number of claims notified to the Club during the 2014 policy year has fallen and the cost of claims brought to the Club through the Group’s pooling mechanism has been much lower. 2014 also saw far fewer large claims within the Club’s retention; these claims had been a particular feature of the 2013 policy year.
After twelve months, the total cost of claims notified to the Club relating to the 2014policy year is more than $40 million (or 20%) lower than for the 2013 policy year at the same stage of development; it is also $20 million lower than the average of the previous 10 years.
Over the last ten years there has been a reduction in the number of casualty and personal injury and illness claims. In addition, the Club’s contribution to Pool claims continues to reduce as a result of the Club’s good record on the Pool. These factors have all contributed to the favourable loss experience on 2014.
The cost of notified claims after 12 months’ development of the 2014 policy year is one of the lowest in the past 10 years. The 2011 policy year is remarkable for its very low claims experience.
The frequency (the number of claims per year) of notified claims below $0.5 million has continued to fall across almost all categories of claim. The reduction is particularly noticeable in illness and injury claims. The number of claims being brought to the Club today is 20% lower than it was five years ago.
Nine out of every ten claims notified to the Club, have a cost below $50,000, and it is the frequency of these smallest claims that has reduced over the last ten years.The larger and more complex claims are therefore of increasing importance. Over the last year, the Club has increased resources and expertise in the claims handling teams to meet the demands of the more complex cases.
Despite the reduction in the number of attritional claims, their aggregate cost has remained broadly consistent over the last five years. This is because the average claimis 20% more expensive than in 2009 and 50% more expensive than a decade ago.The increase in the average cost per claim can be managed while the frequency of these claims remains low but, if claims numbers return to pre-2009 levels, the full effect of the inflation in the average costs of claims would immediately feed through into Members’ records and into the Club’s results.
The frequency of large claims – those in excess of $0.5 million - remains low;approximately 3 such claims are notified to the Club each month, and this is less than 1% of all claims by number. However, in aggregate, these claims represent approximately half of the total claims cost of the Club.
These more random claims bring increased volatility to total claims cost. The Club has purchased specific reinsurances to manage the volatility in this category of claim and to protect the Club from a significant number of large claims occurring in an individual policy year. The 2013 policy year proved to be one of the most intense for large claims and the reinsurance protection has responded to support the Club’s continued stable underwriting results.
The number of large claims in the 2014 policy year has markedly reduced from the very high number seen in 2013.
As a result of the Club’s excellent Pool claims record, the Club’s contribution to the Pool sharing mechanism is below its market share. This, combined with a relatively inactive Pool in 2014, means that the Pool cost incurred by the Club in 2014 is one of the lowest in recent years. The Club’s share of notified claims in the 2014 policy year is approximately one third of the comparable figure for the 2006 and 2007 policy years when the Club’s pool share was at its height.
The UK Club has not been notified by its Members of any claims in the 2014 policy year of a size sufficient for pooling. Therefore the Club’s credit balance on the Pool and the resulting improvement to Pool share has been protected for a further year.
Prior policy years
Over the first half of the financial year, claims cost rose quickly in the most recent policy years, particularly the 2013 policy year, and produced a half year combined ratio of109%. However, that development slowed considerably in the second half of the year with favourable currency exchange rates and good outcomes on a number of cases.The total cost of the 2010 policy year also continued to decline.
The favourable development in the second half of the 2014 financial year helped the Club deliver a combined ratio close to the 100% break-even point. However, the benefit of favourable development in prior policy years was less significant to the result for the financial year to 20 February 2015 than in previous years. This trend of lower prior-year claim releases, which was highlighted in the Club’s October Review in 2014, confirms the need to ensure that premium rates remain sufficient to meet the cost of claims going forward.