The UK Club P&I Club has advised its members that protection and indemnity rates need to increase to help it improve its underwriting performance.

The warning comes as the London-based mutual said its pure underwriting financial returns are “not in the acceptable range”.

In its report for the policy year ending February 2020, the club said its combined ratio for the year was 120%, indicating that it spent considerably more on claims and expenses than it earned in premium revenue.

The UK Club said: “Members have benefited from significantly reduced rates across the P&I sector over recent years, leading to the club’s combined ratio of 120% for the year, which continues to be above the club’s acceptable range.

"Although the cost of large claims is high, there remains the need for future action on premium rates.”

Despite the poor underwriting performance the UK Club managed to turn in a sizeable profit. In common with most of the P&I Clubs it earned a whopping profit from a buoyant investment market last year.

The UK Club made a 9.6% investment return which helped its free reserves grow by $54m to $559m at the end of the policy year.

Although many P&I clubs have been criticised for holding too much of member’s cash in free reserves the UK Club said the poor underwriting result “demonstrates the importance of scale and strong capital".

According to insurance broker Tysers, the UK Club had the third largest fleet of owned tonnage last year of 144m gt, with another 100m gt of chartered tonnage.

The UK Club has been aware of the need to reverse a four year decline in premium income across the P&I market for some time. It made an efforts to hike P&I rates at the latest February policy renewal and targeted a 7.5% increase in revenue.

At the time the club said it would focus more on individual member’s claims performance to try to increase income. It told members that a business model in which investment income subsidised loss making underwriting is unsustainable.

“Relying on investment return to cover an underwriting deficit is unsustainable over time and action is required now to restore underwriting balance,” the UK Club said in a circular to members.