Italian marine insurance broker PL Ferrari has warned that a decision not to have a general increase at 12 of the 13 members of the International Group of Protection & Indemnity Clubs is “masking” worsening market fundamentals that are set to trigger rate increases in the coming years.
The commentary came after all the P&I clubs have recently announced their position on rates for the coming year with only the West of England opting for a general increase of 5%.
Ferrari, now a part of the US Lockton group, said that the situation is much worse for the mutuals than the decision to hold firm on rates suggests.
“The announced zero general increase requirements this year mask an emerging sentiment that the time has come to put a handbrake on the consecutive reductions of the past renewal negotiations, the broker said.
“Volatility of investment returns, a creeping increase in claims for retention and pool claim activity is pitched against premium levels that would appear to be vulnerable to such changes, producing combined loss ratios in excess of 100% for a number of the clubs.”
Ferrari said P&I cover is being provided increasingly on a “pure loss-making” basis with free reserves cushioning the imbalance, Ferrari said.
Ferrari also pointed out that many of the clubs are already signalling to members their intention to push on with rates increases in the coming years. It that the overriding sentiment among the P&I clubs is to raise rates.
The broker quoted a statement from the Shipowners P&I Club as an example of the mood of the clubs on future rates.
“There has been widespread market commentary from other clubs, brokers, regulators and the Lloyd’s market that premiums are now at levels that are unsustainable in the longer term and that increases are likely to be required in the near future to restore the underwriting balance. The board noted and agreed with the sentiment,” Shipowners said.
An alternative view comes from Gard chief executive Rolf Roppestad, who said that premium policy is based its member's interests and a long term view.
Announcing Gard's decision to maintain rates at the current level, he said: “Our premium policy is based on this strategy of long-term steadiness and sustainability. We want to support our shipowners in challenging times by keeping costs as low as possible.”
