Protection and indemnity executives have admitted this year’s policy renewal has been difficult, with some clubs losing members as they attempted to raise rates.
The traditional annual 20 February P&I renewal negotiations were set to be contentious.
After four years without raising rates, most P&I clubs were targeting increases of between 2% and 7.5%, as shipowners are coping with a poor market and the compliance costs of IMO 2020.
The increases also became more difficult to justify as it became clear a strong investment market had further bolstered the clubs' substantial financial reserves.
The windfall even tested some clubs’ resolve to raise rates.
The general view from the clubs was that many owners and their brokers strongly opposed the proposed increases.
Succumb to pressure
The London P&I Club was one insurer that did not buckle under pressure from its members and waver from its intention to raise rates to balance out an underwriting deficit.
Chief executive Ian Gooch said at renewal that the club achieved its revenue target and addressed its underwriting losses but admitted not all members were prepared to accept its position.
“In the vast majority of cases, we have been able to agree terms,” he said.
“The outcome is that the reduction in rates seen over recent years has been arrested and reversed, as planned, this being an important step to address the imbalance in risk exposure and premium created by the prolonged soft market.
New members
“We’ve also been pleased to welcome several new members and additional entries from existing members to the club. Unfortunately, in the case of a few renewals, it wasn’t possible to agree on the required uplift to rates, which meant that it wasn’t possible to maintain the membership in question.
"That’s something which we would have preferred to avoid, but it’s a reflection of our renewal objectives,” Gooch said.
Swedish Club chief executive Lars Rhodin agreed it had not been easy to convince some owners that it was time for the market to turn, and that loss-making underwriting performance needed to be addressed by raising premiums.
Rhodin said that while in the marine hull market there was an expectation that rates would rise because of capacity cutbacks at Lloyd's of London, in P&I, shipowners held a different view.
“Pricing wise, it has been a long time since we have had a general increase, so the renewal became about managing the expectations of our members, and we have been able to explain our point of view. In most of the cases, there was an understanding of what was needed,” he said.
However, he admitted that the club did not quite achieve its targeted general increase of 5%. “We almost achieved what we wanted,” he said.
Retention rate
Rhodin emphasised that the Swedish Club still achieved a high retention rate among its members and he expects this year the club will still grow about 5%, which is in line within the recent annual average.
Out of all the 13 members of the International Group of P&I Clubs, Norway's Gard probably had the easiest ride at this year’s renewal.
The company did not announce a general increase in rates and was able to determine members' premium simply on claims record, rather than attempting to secure additional revenue.
As a result, it made substantial tonnage gains and new members at renewal.
Gard announced that entries with the club had increased by 15m gt.
Following the renewal, chief underwriting officer Bjornar Andresen took advantage of the fact that all its competitors had irked their members by raising rates.
He was keen to let it be known that Gard is offering shipowners the most financial certainty.
In a statement, he said: “Insurance should be something which offers predictability, which is why delivering consistency in our product, pricing and service is the bedrock of what we do.
“We deliver clarity around our targets for financial strength, resilience in how we deal with claims of whatever size and local support from our global network of offices,” he said.
The North P&I Club also claimed an increase in tonnage despite pushing through with a 7.5% general increase in renewal.
