After five years of losses, P&I Clubs seek change
P&I Clubs will seek significant price improvements at the February 2022 renewal in response to deteriorating claims experience, said a Best’s Market Segment Report.
The move comes after the costs of pooled claims were at a record high for the first half of the year, surpassing the peak reached in 2020.
The 13 P&I Clubs, which comprise the International Group, provide marine liability cover (protection and indemnity) for approximately 90 per cent of the world's ocean-going tonnage.
Among them are Bermuda companies Gard P&I (Bermuda) Ltd, Skuld Mutual Protection and Indemnity Association (Bermuda) Ltd and The Steamship Mutual Underwriting Association (Bermuda) Limited.
Steamship Mutual is one of the largest and most diverse P&I Clubs in the world and as a member of the International Group of P&I Clubs, participates in the international group pool.
Through the unique group structure, the member clubs, remain individually competitive, but share between them their large loss exposures, and also share their respective knowledge and expertise on matters relating to shipowners’ liabilities and the insurance and reinsurance of such liabilities.
For 2021-22, AM Best expects P&I clubs to return a combined underwriting loss for the fifth consecutive year.
And for the third consecutive year, the majority of P&I clubs have announced general increases ahead of the February 20, 2022 protection and indemnity (P&I) renewal date for shipowners, amid deteriorating claims experience.
The general increases announced for the policy year 2022-23 are above the previous year, ranging between five per cent and 15 per cent, and have been attributed to: an increase in the cost of pool claims; the cost of attritional Covid-19-related claims; and, the erosion of premium levels up to 2019 to a level considered unsustainable.
AM Best considers the level of general increases modest, given the underwriting loss expected for 2021-22 and expects that further rate adjustments will be needed to reach price adequacy.
As mutual insurers operating for the benefit of their members, the 13 clubs must balance the need to maintain their financial stability with the economic constraints of their membership.
Certain segments of the shipping industry, such as containers and bulk carriers, have recently started to benefit from a spike in the price of transport.
This is likely to ease the renewal process for clubs this year, with members having more funds to cope with rate adjustments.
Over the past few years, renewals have become increasingly informed by analysis of individual loss records and risk exposures, with deductibles used to control exposures.
AM Best noted that member-specific pricing adjustments were also carried out by clubs applying general increases.
The International Group reported an underwriting deficit of $519 million for the 2020-21 financial year, based on the combined accounts of the 13 principal clubs of the International Group.
On the same basis, the combined ratio rose to 117 per cent from 114 per cent in the previous year, according to AM Best data.
Call income increased by approximately six per cent, driven by the general increases applied by the majority of the clubs during the 2020-21 renewal.
As in the previous financial year, all 13 clubs reported a technical loss. Claims incurred rose by ten per cent in 2020-2021, following a seven per cent increase in the previous year, and were above the five-year average.
The clubs’ expense ratio decreased in 2020-21 to 20.3 per cent, having fallen in the previous financial year. However, even with this drop, AM Best noted that the expense ratio was higher by approximately two percentage points than that of the period before 2016.
Factors continuing to influence claims trends, asserting an upward pressure on costs include: the increasing size of vessels, which adds complexity when they suffer severe incidents; an upward trend in shipowners’ liability limits; technological advances allowing deepwater wreck removal; and social inflation, according to some of the clubs.