Ship owners have been warned of “inherent under-pricing” in their insurance market, writes James Brewer. For the time being, however, most of the P&I clubs are setting a 5% general increase in premium for the policy year beginning February 20 2012 (although seven of them are increasing deductibles). The increases sought are among the most modest of recent years.
The perceived under-pricing was cited by Joe Hughes, chairman of the managers of the American Club, during an up-date presentation in London to ship owners and brokers. He said that it is partly a result of the many new ships being delivered.
The influx of tonnage to be insurance-rated for the first time gives rise to what is known as the “churn effect.” The newer ships tend across the market to have lower premium rates per ton than retiring vessels, and there is keen competition between P&I providers to get this high quality tonnage onto their books. Mr. Hughes said we have not seen the worst effects of the churn, but it was certainly playing a part.
Of the market as a whole, broking group RFIB commented recently: “There is an economic environment which is, at best, unhelpful and, at worst, which has resulted in some publicly quoted ship owners seeking Chapter 11 protection. Hence, the clubs which globally produced good results in 2010/11, would not wish to ask for large increases from their members. Conversely, the clubs are in general seeing a greater frequency in claims and the settlement amounts are increasing.”
A rival broker, Tysers, took a critical stance of the mutuals: “If ever there was a time for the clubs to help their members, it is now, and surely the clubs should have been prepared to support the members with a neutral renewal, even if this might result in a small reduction in their record free reserves?”
There may shortly be some good news for all owners of ocean-going tonnage if rumours are correct that there will be little change, and maybe even a small reduction for some ship types, in premiums agreed during the renewal negotiations for the excess loss reinsurance contract of the International Group of P&I Clubs.
The American Club has enjoyed its own good news a short time ago, with Standard & Poor’s raising the club’s counterparty credit and financial strength rating to BB+, with a stable outlook, from BB. S&P referred to the club’s improved risk-based capital adequacy, improved underwriting results and its prospects for growth.
The club’s statutory surplus has grown to a figure Mr. Hughes estimated would be close to US$76m, at the close of 2011. Its membership is 49% European businesses, many of them Greek owners; 34% Asian (where “we have a growing footprint, ” said Mr. Hughes), and 14% North American. Premium income has been rising in recent months, as entries have increased. The club’s P&I tonnage is approaching 17m grt, and for freight, demurrage and defence it is 11m grt.
Mr. Hughes at the London event issued a robust retort to critics who call the International Group “a cartel.” He said: “It is not a cartel. It is a consumer collective.” To brand the group as monopolistic was “as absurd as saying a whale is a fish.”
He added that the Group system was “unique, and tried and tested and as an underlying finance and insurance vehicle it is second to none, ” and the secretariat represented an enormous brains trust.
Mr Hughes said that the new fixed premium facility Eagle Ocean Marine, underwritten by the American Club, reinsured by syndicates at Lloyd’s and Hannover Re, and operated by Eagle Ocean Agencies, was gaining a firm footprint in the market, especially in Asia. It provides broad P&I and defence cover for ships of up to 12, 500 grt. The American Club had ruled out for the time being any foray into the hull and machinery market, where it sees conditions as very difficult.