Insurance broker Gallagher expects protection and indemnity clubs to seek even higher rate rises from their shipowner members at next February's renewal than they did this year.
The impact of the increase on shipowners' costs is also set to be compounded by significant hike in the International Group of P&I Clubs' reinsurance costs.
Gallagher’s analysis of the last policy year’s financial results showed the $5.5bn combined free reserves of the 13 members of the International Group of P&I Clubs remained roughly intact despite all of the mutuals reporting technical underwriting losses.
The average combined ratio, which indicates the balance of premium, claims costs and expenses, was a loss-making 120%.
But investment and diversified income streams helped the P&I clubs balance the underwriting losses.
Gallagher still expects the P&I clubs to step up their attempts to increase premiums, but believes they may find it difficult to convince their members.
“Essentially, the results are probably not what the club’s wanted as it is harder to justify premium increases when they can survive a global pandemic and the worst pool claims in living memory, and still come out smelling of roses with free reserves unscathed,” said P&I head Malcolm Godfrey, in a client webinar, quoting Gallagher's financial consultant, Roger Ingles.
Despite the underwriting losses, Godfrey believes the robust finances of the P&I clubs mean they should be in a position to return money to members.
“Our repeated view is that clubs could return collectively $750m to their members and remain in a healthy financial position,” he said.
Last year, clubs asked members for general increases of between 5% and 10%.
Gallagher director Alex Vullo said he expects the requested hike to be between 7.5% and 15%, based on the technical underwriting results of the P&I clubs. He suggested the hardening market that began in 2020 still has some way to run.
But he added that clubs with diversified income streams are probably slightly better placed financially to withstand the market pressures.
“Well-established diversified clubs are better positioned today than mono-lined clubs,” he said.
One of the main drivers of underwriting losses is the increased number of International Group pool claims, under which the grouping's members share those of more than $10m.
Gallagher is estimating the 2019/2020 year pool claims at $440m, and the 2020/2021 policy year about $460m, but potentially as high as $650m. That compares with a more average year of $310m in the 2017/2018 policy year.
Gallagher is concerned about the potential impact of the recent rise in expensive claims on the International Group’s two-year reinsurance policy that will be renewed next year.
The broker is predicting an increase in reinsurance costs of about 10% in four out of five ship types covered in the reinsurance scheme.
It predicts that the recently created fifth category for containerships, which has been one of the main sources of large casualty claims, could be as high as 15%.
Gallagher suggested that will create a “significant increase” in addition to the general rises that the P&I clubs are lining up for their members.
