Marine mutuals split over 2020 P&I renewal rate increases

Protection & indemnity (P&I) clubs could call general rate increases of up to 7.5% when buyers renew in February 2020 but are closely watching to see who will make the first move, according to a new market report from Lloyd’s broker Tysers. Tysers says it is too early to know which way the market will swing, but explains there are “clear signals” that some clubs will be looking to raise rates and predicts a range between 0% and 7.5%. “Many clubs feel that premium rates have dropped to unhealthy levels. In particular, UK, West and Standard are adamant rates must rise while others such as Gard and Britannia appear quite content with the current state of play,” Tysers states in the report. But it adds that free reserves and the International Group of P&I Clubs stand at a “solid” total of $5.3bn, undermining the case for strong rate increases. Tysers named American Club, London Club, UK Club, West of England and Standard as the most likely of the 13 International Group members to call for general rate increases at the next renewal. Britannia, Japan Club and Shipowners are unlikely to need a general increase, Tysers says, while Gard, North, Steamship Mutual and Swedish Club are likely to follow the market trend. “All clubs, with the possible exception of London Club, could happily get through another renewal with no general increase and rely on surplus reserves in the event of a poor claims or investment year,” Tysers says. The broker also points out that Skuld has opted out of calling for general increases since 2011, basing each renewal on its own merits, and thinks other clubs could follow suit. “We do wonder whether other clubs may follow the Skuld strategy [at this renewal] and seek increases without any official headline figure,” it says. The report notes that at 2019 renewals, West was the only club to impose a general increase, at 5%. Clubs driving the push for rate increases are acting on a number of large claims recorded in 2018/2019. Tysers says “a trend of increased frequency of large claims” is troubling. By February 2019 renewals, the International Group had recorded 18 claims to the pool, totalling $306m. Tysers believes a further eight claims have since been lodged and estimates claims on the pool at more than $425m by August 2019. Tysers says the “bad” year in 2018/2019 is likely to be the worst since 2013, which recorded pool claims totalling $409m. In the first half of the current 2019/2020 year, the pool has received seven claims totalling $87m gross of the 7.5% individual club retention limit, borne by clubs for claims within the pool’s $50m to $100m layer. Fire risk is a major concern for P&I Clubs, and in particular the increase in frequency of fires on container ships, Tysers says. In 2019, the average number of cargo-related fires on container ships has been slashed from the 20-year average of one every 60 days to one every 30 days. Tysers says charcoal/carbon cargo is at the root of the increase in fire frequency. P&I clubs and container lines are working to mitigate the problems through the categorisation of dangerous cargo. Other risk concerns include problems over liquefaction of ore cargoes from Indonesia and the Philippines, following the death of 25 crew on board bulk carrier Nur Allya – missing in Indonesian waters with a cargo of nickel ore. In 2018/2019, the International Group of P&I Clubs recorded an underwriting loss of $333m, with the average combined ratio running at 111%, up from 104% in 2017/2018. Japan Club, Skuld and Swedish Club were the only three of the 13 members to record an underwriting profit and achieve combined ratios of less than 100%. London Club recorded the highest combined ratio at 140% and its free reserves have dropped by 13% to $169m. Tysers said last year that the London Club should merge with another International Group club “while the going is comparatively good”, but has now urged the club to “get a move on”. Last month, IUMI said marine hull and cargo markets had bottomed out but added that the 2018 rise in premium is not enough.

Marine mutuals split over 2020 P&I renewal rate increases

Want to read this article?

Read Next

Insurtech partners with USAID on climate adaptation programme

ICEYE in data collaboration with Juniper Re on flood and wildfire

Senior appointments in Lockton’s crisis management team

European rates up overall but financial and cyber lines falling: Marsh

European Parliament approves regulation to tackle forced labour

Insurtech partners with USAID on climate adaptation programme

ICEYE in data collaboration with Juniper Re on flood and wildfire

Senior appointments in Lockton’s crisis management team

European rates up overall but financial and cyber lines falling: Marsh

European Parliament approves regulation to tackle forced labour

Want to read this article?

Read Next

Insurtech partners with USAID on climate adaptation programme

ICEYE in data collaboration with Juniper Re on flood and wildfire

Senior appointments in Lockton’s crisis management team

European rates up overall but financial and cyber lines falling: Marsh

European Parliament approves regulation to tackle forced labour

Related Articles