S&P Global Ratings predicts protection and indemnity mutuals will target an average 7% increase in rates at next year’s February policy renewal.
Despite improvements in underwriting performance this year, the ratings agency believes technical rates in the sector still require further improvement.
In 2022, S&P expects underwriting performance among the 13 mutual P&I clubs will be profitable after losses over the previous three years.
The improvement is based on higher premium levels, following an average 11% general increase at the last policy renewal, and zero International Group of P&I Clubs pool claims.
International Group clubs share claims above $10m and up to $100m, and in the previous two years they have been hit by record highs in pool claims.
As a result, S&P expects the P&I clubs to report a profitable average combined ratio of between 95% and 100% this year.
But, earnings have also been hit by negative investment income, due to worsening global economic conditions, which it believes could affect capital adequacy levels.
Currently S&P has a negative outlook on eight of the 13 members of the International Group and stable outlook on the remaining five.
S&P Global Ratings said it needs to see more sustained improvements in underwriting performance before it starts to upgrade the P&I clubs’ ratings.
The improvement in this year’s underwriting performance is likely to mean that the clubs’ attempts to raise rates will be opposed by their shipowner members who themselves are under financial pressure.
“Discussions with shipowners will be tougher this year both as a result of the clubs’ improved underwriting performance and a return to more normal trading conditions in the shipping markets following significant increases in freight rates last year,” S&P said.
The ratings angecy also said has not yet made any ratings decisions on the North P&I Club and Standard Club which are due to merge in February next year.
“While the merger would create a larger entity with potential longer-term benefits, these will take time to realise,” S&P said.
