Leading protection and indemnity mutuals earned more than $700m in combined investment earnings in the last policy year, according to broker Aon.

Its figures reveal the extent to which the clubs relied on investment returns to support underwriting losses.

So far, Steamship Mutual is the only one of the 13 members of the International Group of P&I Clubs that has reported an underwriting profit.

Even Skuld, which had 10 consecutive years of underwriting profits under its belt, fell into an underwriting loss last policy year.

P&I clubs reported $732m in total investment profits for the year, according to Aon.

Less positive

The figure does not include the earnings of the Japan P&I Club, which has yet to report.

Norway’s Gard earned the biggest return of $117m, followed by the UK P&I Club ($106m).

At the other end of the scale, the lowest return came from the International Group’s smallest member, the American Club, which still earned $15m.

However, the International Group clubs’ underwriting returns, which balance premium income against claims costs and expenses, are less positive.

Underwriting performance is calculated through a combined ratio, with figures of more than 100% indicating a loss.

The London P&I Club had the worst underwriting figures, with a combined ratio of 137%, followed by the Standard Club (131%). The average was around 127%.

We do not want to see a knee-jerk reaction with a hike in premiums to all

Aon

Aon said underwriting losses had “eaten up” the clubs’ impressive investment returns. It said the ­figures highlighted their “reliance on investment returns to offset ­rising claims costs and reducing premiums”.

Increased financial reserves

In most cases, with the exceptions of the North P&I Club and the Standard Club, the investment returns exceeded underwriting losses and the mutuals increased their financial reserves.

Aon suggested that the clubs might not be able to rely on investment returns to balance the books in the current policy year. The Covid-19 pandemic has affected the investment market, and the prospect of another year of windfall investment profits seems unlikely.

Aon said: “Following the crash on 12 March 2020 and its subsequent partial recovery, we expect the mid-year figures to be reduced, especially for those clubs with a higher proportion of their investment in equities, such as the ­London and American clubs.”

The question for the mutuals is whether they need to take further action to increase their premium income in the face of a troubled investment market.

Many clubs opted for a general increase in premiums last year, but they still have the comfort of huge financial reserves to fall back on even if the investment market ­falters.

Aon said the decision for P&I club underwriters will not be clear cut.

“We do not want to see a kneejerk reaction with a hike in premiums to all,” the broker said, even though it recognises using investment income to offset underwriting losses is unsustainable.

P&I clubs usually make a declaration on whether to raise rates in the autumn, after their annual ­general meetings.

Meeting maritime needs

While underwriting perform­ances are increasing pressure on the clubs to raise rates, many of their members will be struggling with the financial difficulties caused by the pandemic and cannot afford to see rates go up.

Aon’s view is that the mutuals remain in good financial health despite the recent dependence on investment returns.

“Given the circumstances, there is little doubt the group is in great shape and, whilst clearly some clubs are performing better than others, they continue to meet all the maritime industry’s needs,” it said.