P&I renewals less choppy but troubles ahoy for Clubs in the shape of EU

The renewals also saw EU investigations into possible anti-competitive arrangements amongst the International Group (IG) of P&I Clubs stepped up. The authorities’ inquisitions are likely to result in a lowering of release calls, the broker added.

The IG has also renewed its reinsurance contract, which resulted in individual rate reductions for vessels of between 4.09% and 8.4%. Whilst noting that many clubs passed this saving onto members Aon was critical of the few who resisted such a move.

The 20 February, 2011 renewals saw four of the 13 IG Clubs call for no general premium increase; a move unprecedented in recent times, Aon said. The average market increase was 3.07%.

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The benign environment reflects an improvement in claims trends in the market and a restored investment performance from the P&I clubs.

It reflects an improving market for shipowners needing insurance cover. Two years ago owners faced general increases in the 10–29% range.

Steve Griffiths, director of Aon Risk Solutions’ marine team, comments: “The latter part of the last decade was a very trying time for the P&I clubs, with the implications of placing an ever increasing emphasis on investment returns coming home to roost at renewal time. It does seem, though, that the 2011 renewal is the calm after the storm, with improved claims trends helping many clubs to achieve a relatively flat renewal.”

If clubs achieve their targets, approximately $91m of additional premium will enter the P&I system.

This additional premium is down on the previous two renewals, where the market was inflated by an additional $485m in 2009 and $159m in 2010.

The 2011 renewal season also saw EU enquiries into the IG non-competition arrangements gather momentum.

This follows an announcement by the EC on 26 August, 2010 that it had opened an investigation into aspects of the arrangements between P&I clubs that make up the membership of the IG.

It wishes to assess whether the quotation procedures and the rules related to release calls restrain competition between the clubs and harm shipowners. It also wishes to assess whether commercial insurers are foreclosed from the P&I market under the current system.

At renewals Club managers faced a new challenge, as the commission’s fact-finding teams requested information from each club relating to fleet movement within the IG system, dating back over a 10-year period, said Mr Griffiths.

“The EU and IG are due to meet in March to review the findings, and although it is likely to take some time before a final landing is reached, the ‘easy money’ is on the IG being manoeuvred into lowering release calls in an attempt to assist competition,” he warned.

The IG Excess of Loss Reinsurance contract has been renewed with an increase in the attachment point to $60m from the current level of $50m per claim.

This has the effect of stretching the pool from the individual club retention of $8m to $60m and consequently, Aon said.

When taking into account the increase in tonnage insured by the IG, the reinsurance contract saw a modest reduction in premium, equivalent to about 5%.

Consequently, individual rates have been reduced in the range of between 4.09% and 8.40%, depending upon the category of vessel.

In the majority of cases, clubs have automatically passed these reductions onto their members. However, in some cases clubs resisted this trend and attempted to retain the savings for their own account. This is a position that is ‘clearly unacceptable given that in a rising reinsurance market, clubs are quick to pass on the additional cost’, Aon said.