The London P&I Club's decision to levy a supplementary call on its members is being viewed as a sign that years of discounting by insurers to win new business could be coming to an end.
A supplementary call — in which shipowner members are asked for additional contributions to make up for a deficit in club finances — is generally regarded by P&I clubs as something to be avoided at all costs.
The London Club is now the second club, after the American Club in 2019, to make the move recently.
The supplementary call will generate around a year's additional premium for the London Club.
The funds will be used to plug an underwriting deficit of about $38.5m and $31.9m in the past two policy years.
As a result of the underwriting losses, the club's free reserves have shrunk from $194.6m in December 2018 to $153.6m in February this year.
Although the insurer remains within statutory capital requirements, the depleted reserves are a concern.
"This is a large supplementary call by the London Club, but at least they have tackled it head on and sorted the problem out in one go, rather than drag it out," said one broker.
"In some ways it's a clever move too. It will increase the financial commitment members have to the club, and that will make it more difficult for them to leave."
London P&I's supplementary call comes after years of discounting by mutuals to win new business that has depressed rates across the industry and led to underwriting deficits when claims rise.
The London Club's figures show that its P&I premium income was 11% lower in the 2020/2021 policy year than in 2015/2016, even though there had been an 8% increase in tonnage over that time.
More realistic approach
Higher-than-average claims have also added to its troubles. Its net mutual P&I claims are set to top $50m in this policy year, more than double last year's figures.
While International Group of P&I Clubs pooled claims have had an impact, they represent around half of the London Club's claims; the rest is made up of its own retained claims.
London P&I covered the 2,743-teu X-Press Pearl (built 2021), which was lost off Sri Lanka in May, and its retained share of the total claims will hit the club this year.
Chief executive Ian Gooch said the club would be pricing risk more realistically and "focusing on a sustainable underwriting strategy backed by increased discipline around risk selection".
The feeling among brokers is that the other clubs will also call time on discounting. The West of England set the tone for the next renewal with the announcement of a 15% general increase.
Even brokers suggest the discounting needs to end when bidding for new business.
"Our hope is clubs put long-term plans in place where possible rather than a heavy hike in premiums. Once again, we have to raise the issue of underwriting discipline when new tonnage is on offer," Aon said in its latest P&I report.
