On 2 October, the Japan P&I Club will celebrate 70 years in protection and indemnity marine insurance — but 2020 could turn out to be one of the most difficult years in its history.

Although still relatively young by P&I club standards, the Tokyo-based mutual has good reason to mark the milestone.

Today, it has an insured fleet of 4,198 coastal and oceangoing vessels amounting to 96.2m gt, compared with just 630 ships when it started out from a small office in Kobe in 1950.

Post-war growth

Japan P&I's expansion has been built almost entirely on the dramatic post-war growth of the Japanese shipping industry, which saw the country become one of the world’s largest shipowning nations.

As its 70th birthday approaches, the Japanese mutual is in robust financial condition. Its Standard & Poor's rating is BBB+ with a positive outlook and its free reserves are ¥25.7bn ($241m).

But costly claims this year are set to put a damper on the planned celebrations.

The Wakashio, which ran aground off Mauritius, could prove to be a very costly claim. Photo: Bloomberg

The grounding of the 203,000-dwt Wakashio (built 2007) off Mauritius in late July is almost certainly going to be the costliest individual claim it has ever faced. The job of cleaning up widespread pollution on the Indian Ocean beauty spot is set to put its claims handling capability to a severe test.

Hefty claim

It is also facing a hefty claim from the collision between the K Line 13,870-teu containership Milano Bridge (built 2018) and a container crane and two more ships at the port of Pusan Newport, South Korea, in April.

In both cases, the liability will almost certainly fall on the Japanese owners involved, both of which have P&I cover with the club.

The International Group of P&I Clubs claims pooling system and liability limitation laws for oil pollution will help to soften the financial blow. However, they will still turn out to be costly claims for the Japanese mutual in a difficult market.

In its annual review for the last policy year, Japan P&I noted that it had already been experiencing an uptick in claims, against the backdrop of a soft insurance market and declining premiums.

In the 2019 policy year, it paid out, or made provision for, claims amounting to $92m for its oceangoing fleet, compared with $77m in the previous year.

In the same period, its combined ratio — a measure of the balance of claims and expenses against premium income — was 113%, indicating significant underwriting losses.

The Milano Bridge hit a crane and two other ships at Pusan Newport. Photo: Contributed

In its annual report, director general Shizuo Takahashi said strong competition for newbuilding business was pushing down rates as claims costs were rising.

While the numbers of claims are on the rise, insurance premium income has been decreasing

Shizuo Takahashi

“While the numbers of claims are on the rise, insurance premium income has been decreasing. One reason for this is a drop in average insurance premiums for newly entered vessels,” he said.

Against this background, the Japan club was forced to put up rates by 7.5% at this year’s renewal and is likely to do the same at the next renewal in February.

Despite the hardening rates in the market, competition between clubs remains strong and many of the International Group members have been targeting Japan club business, particularly for newbuildings.

The Japan P&I is at something of a disadvantage to its rivals because it is unable to invest in equities to the same extent and cannot rely on investment income in the same way as others have done in recent years.

Raising its game

In response, the Japanese mutual has tried to raise its game to win back the loyalty of domestic shipowners. It has embarked on a midterm business plan, Leap Forward 2023, Your First Club, Our Best Service.

The key aim of the plan is to recover its share of the domestic market, and to branch out further into the non-Japanese market.

The plan is geared up to make the club more customer friendly.

Japan P&I chairman Tadaaki Naito said: “To achieve the aims, we will be revising our insurance schemes, improving our claims handling quality, enhancing our consulting services and provision of information, as well as further expanding our loss prevention activities.”

He added: “We will continue to strive to improve our services with new determination.”