PL Ferrari has defended the decision of protection and indemnity insurers to maintain their plentiful free reserves and at the same time ask shipowners for higher premiums next year.
Many brokers have argued that members of the International Group of P&I Clubs should draw down on their collective $5.5bn in free reserves and postpone a rate rise at next February's renewal.
But Ferrari, which is part of the Lockton Group, argued that P&I clubs need to maintain their financial strength.
“Slavish parroting of the old mantra ‘the clubs have too much money, they are rolling in it’ might attract egregious headlines but conveniently forgets that those reserves are demanded by the regulators, are demanded by the rating agency and are set by the shipowner boards of the clubs,” Ferrari said in its annual P&I market review.
Exceptionally high year for claims
The insurance broker cited a decision by ratings agency Standard & Poor’s to review P&I club finances in the light of an exceptionally high year of International Group pooled claims as an example of the pressure faced by the mutuals.
Even Gard, which is the wealthiest of the P&I clubs, had an outlook downgrade as a result of the review.
Ferrari also pointed out that although the P&I clubs' free reserves seem to be increasing year on year, they are actually in decline as the insured world fleet grows — if viewed on a per-gross-tonne basis.
It warned that less rigorous financial management by the clubs could lead to unbudgeted supplementary calls, or higher release calls, and increased volatility in the P&I market.
Boom and bust
“Those who cannot remember the past are condemned to repeat it and a return to the boom and bust club volatility of some years ago is an outcome to be avoided at all measures,” Ferrari said.
Ferrari is advising owners that P&I clubs will be looking for general increases of between 5% and 10% to address underwriting losses caused by the high cost of pooled claims.
Ferrari told its clients that it would be “advocating vigorously on their behalf” but it warned, “the claims performance and the threat of financial rating downgrades seems to justify the need for more premium”.
