Protection and indemnity clubs will ask members to swallow hikes in premium of up to 10% at next February’s renewal, brokers say — despite unexpected investment windfalls.

P&I club financials for the policy year ending 20 February 2021 have been characterised by underwriting losses, following on from years of similar woes.

The results cast a spotlight on their current dependency on investment returns — as opposed to their traditional core business — that cannot be relied upon in the future.

Paul Jennings, the North P&I Club chief executive who also heads the International Group of P&I Clubs, said: “The technical underwriting results are not where we want them to be, although ours have improved, but the P&I industry has certainly been helped by investment markets.”

Thanks to above-average investment returns, all of the clubs that have reported so far have managed to maintain their AAA capital reserve ratings, which are often taken as the clearest indicator of financial strength.

Investment gains have been substantial, with returns averaging between 5% and 7%.

The West of England P&I Club earned $33m off its investments, Britannia $59m, Steamship Mutual $54m, Gard $113m and North P&I $64.5m.

Britannia P&I chief executive Andrew Cutler admitted the investment windfall is largely down to “luck” and could not be relied on in the future.

Britannia P&I chief executive Andrew Cutler said P&I clubs cannot always rely on investment income. Photo: Britannia

The buoyant equities market — fuelled by a combination of optimism over an economic recovery and government spending — are masking the underlying difficulties P&I clubs face in addressing losses in their pure underwriting activities.

All of the clubs that have reported so far have combined ratios that reflect the balance of premium income and expenses of more than 100%, indicating an underwriting loss.

The highest combined ratio to be reported so far is 149% from the UK P&I Club and the average combined ratio is 124%.

Britannia’s underwriting losses amounted to $20m and North P&I $44.9m.

The P&I clubs have been keen to point out that the 2020 policy year has been “exceptional” because of Covid-19-related claims and an abnormally high level of expensive International Group claims.

The 13 members of the International Group share claims of more than $10m, with claims exceeding $100m covered by its reinsurers.

While the Covid-19 crew and passengership-related claims may start to decline, that does not seem to be the case for International Group claims.

There is no sign that the run of high-value claims is coming to an end. In the current policy year, there is a major $600m claim now being negotiated with the Suez Canal Authority over the grounding of the 20,388-teu Ever Given (built 2018) on 23 March.

The run of expensive boxship fires and container losses appears to be continuing with the blaze on the 2,743-teu X-Press Pearl (built 2021), which also looks like turning into a pooled claim.

Diversified businesses

Some P&I clubs, such as Skuld, Swedish Club, North P&I, American Club and Gard, can use diversified businesses such as hull and machinery cover to help support the mutual P&I business.

Brokers also suggest the biggest clubs, such as Gard and Britannia, have the financial strength to limit rate rises.

But they concede that most P&I clubs will have little option but to turn to their members again for more income if they need to turn around the underwriting losses.

The P&I clubs are reluctant to comment on their policy towards rates at the next renewal, ahead of their autumn board meetings.

But brokers estimate that they will at least seek increases in line with the last policy renewal of between 5% and 10%, if not more.

The International Group is facing a hike in its reinsurance costs because of the high cost of the recent run of high-value claims. The additional costs will also be passed onto shipowners at the next renewal and are likely to make next year's rate rises even more painful.