Insurance broker Lockton Marine is expecting recent rate increases from P&I clubs to “taper off” at the upcoming renewal as lower claims improve their underwriting results.
At the 2022/2023 policy renewal in February, the 12 members of the International Group of P&I clubs increased rates by up to 15% in response to underwriting losses.
However, lower claims levels this year have helped clubs address the deficit.
Lockton said in its P&I Market Review 2023 that “stability seems to have been restored” on underwriting results and claims.
“The number and current value is notably concurrent with the average levels experienced in the early to mid-2010s and should be welcomed by all,” the broker said on the improved claims situation.
According to Lockton’s figures, the 12 clubs’ combined ratio has improved to a profitable 99.17% in the 2022/2023 policy year, compared to a loss-making 136.18% in the previous year.
“The underwriting results also seem to reflect some restoration of normality, with particular reference to the combined loss ratio performance,” Lockton said.
“As a result, the clubs have no option but to taper off the increases that have been requested previously as they appear to be entirely unjustified.”
Lockton pointed out the P&I mutuals do have other less positive issues to tackle.
P&I clubs are currently reporting claims and operational inflation of between 4% and 7%. There have also been issues with poor investment returns, particularly for those clubs with a large exposure to the bond market.
Two-tier market
Lockton has previously speculated that the P&I clubs could be heading for a two-tier market dividing the financially weaker and stronger clubs.
Consolidation between the North P&I Club and Standard Club to create the International Group’s second largest club NorthStandard in February seemed to increase the wealth divide. Industry leader Gard also continues to grow in size and financial strength.
Speaking to TradeWinds in an interview Stephen Hawke, managing director of P&I specialist broker Lockton PL Ferrari, said there is currently a wide range of financial performance among the International Group clubs, which will lead to a spread of pricing strategies at the upcoming renewal.
Scale does matter
He said the larger clubs are clearly better positioned.
“One thing that has become more and more obvious is that scale does matter these days, as it reduces volatility in the financial aspect of it all,” he said. “That is why we will see the top five or six clubs going for the lower end [of rate increases], and those below will be at the higher end.”
Lockton’s report said it is too early to assess the impact of the NorthStandard merger consolidation as the club heads for its first renewal next February.
Lockton said the merger should provide an opportunity to cut costs and be more flexible.
“Time will tell as to whether those costs will be enough to trickle down to the ultimate premium paid by the newly combined membership,” Lockton said.
Lockton’s marine insurance business is conducted by three separate companies Lockton PL Ferrari, Lockton Omni and Lockton Edge.
Each brand is 100% owned by Lockton and falls within the Lockton Marine entity that encompasses all of Lockton’s global marine offerings.
