Most of the members of the International Group of P&I Clubs will face a general increase of between “5% and 10%” in premiums next year, according to marine insurance broker Gallagher.
Gallagher believes the protection and indemnity market is entering a “transitional period” of hardening rates after years of premium erosion.
Only the financially strongest of the 13 International Group clubs will be able to resist the upward trend in rates, according to Malcolm Godfrey, executive director of the marine division at Gallagher.
“We expect the majority of clubs will demand a general increase from 5% to 10%.
“However, subject to the incidence of unexpected events, Gard, Britannia and perhaps Steamship Mutual should be able to renew without a general increase and hopefully continue to give money back.
“This will be the start of a three-year transitional cycle where all clubs try to increase rates, as Lloyd’s have finally started to do.”
Cash rich
Godfrey described the P&I market as “cash rich and revenue poor”, reflecting a recent historic high in free reserves achieved by the clubs at a time when premium income has been in decline.
The International Group clubs’ free reserves have risen by $2.3bn, or about 75%, over the past three years, he added.
But he urged International Group clubs not to use their healthy free reserves that are in excess of $5bn to resist an increase in premiums.
Godfrey said clubs had for too long been avoiding “grasping the nettle” of raising rates to address premium erosion.
“For the long-term health of the market, it needs to boost premiums and ratings to a sustainable level, whilst at the same time recognising that it still holds vast amounts of members’ money.
“It is no longer good enough to use those reserves to soak up the losses, the underlying premium inadequacy has to be addressed now,” Godfrey suggested.
Godfrey’s comments are in contrast to those of competitor P&I broker Wilson Europe, which last week suggested clubs could afford to keep rates down because they are sitting on high levels of free reserves.
Godfrey is also critical of the growth strategy of P&I clubs at a time when rates are low.
“What value is there to that growth, if it is achieved by taking on business that is increasingly loss making?” he questioned.
