Marine insurance broker Gallagher is predicting a softening of recent protection and indemnity rate rises ahead of next February’s renewal.
This year shipowners were hit with an average 12% general increase, and hefty reinsurance hike, from mutual P&I clubs that were running up underwriting losses.
An exceptional year for International Group of P&I Clubs’ pool and Covid-related claims in 2021 had hit P&I finances hard.
This year, there have been no International Group pool claims reported in the first half of 2022, while Gallagher said it expected Covid claims to be at “manageable levels” this year.
The sector’s strongest clubs, led by Gard, but also including Shipowners’ Club, Britannia P&I and Steamship Mutual, will be at the lower end of rises, Gallagher predicted. Smaller, struggling clubs, like the London P&I Club and the Japan P&I Club, probably need more, it suggested.
“Gard will probably set the tone at a 5% general increase, with the average around 7.5%, but some others will still need 10%. There will be a small reinsurance increase with container ships paying the most,” predicted Gallagher’s head of P&I Malcolm Godfrey in a webcast for clients.
This year, the 13 International Group P&I mutual reported an average loss-making combined ratio of 110%, Gallagher calculated, compared to 120% in the previous year.
There is still a considerable spread in the improving financial performance of clubs, which is likely to be reflected in pricing at the next renewal. The most profitable, Gard, had a 96% combined ratio compared to a loss-making 150% at the London club.
Price spread
Gallagher divisional director Nick Roblin said there is likely to be a greater spread of pricing, in contrast to last year, when International Group club’s strategies seemed to be aligned.
“Some clubs are going to be able to be more generous, let’s say, in terms of their general increase, and some will still have a lot of hard work to do, so we might see a divergence in what the clubs are asking for after just one year of coordination,” he said.
The clubs such as Gard, Skuld and the Swedish Club are benefiting from their diversification into hull and machinery insurance, which has seen rates hardening for the past three years.
However, the worsening financial climate is impacting on P&I clubs’ investment returns, which have propped up underwriting losses over recent years. Gallagher estimates P&I clubs saw investment returns decline by 12% in 2022.
Major claims could also start to pick up again.
Merger gossip
Gallagher predicts that the upcoming merger of North P&I Club and the Standard Club will trigger more consolidation in the P&I world.
“The gossip is still going on,” said Godfrey. “Whether it’s Skuld, UK, West [of England], or Steamship I’d be surprised if by next spring there isn’t another announcement,” he added.
Gallagher’s brokers agreed the struggling London club seems the most likely to be a future merger candidate.
“It thinks a smaller club will be taken over by a slightly bigger club, rather than two big clubs coming together, that is just my guess,” said executive director of marine P&I Alex Vullo.
