It has always been an excitement to have the Annual Market Presentation of the American P&I Club at the 509 year old Trinity House in London’s Square Mile, the administrative capital of Shipping, as well as the Piraeus Marine Club down town in Piraeus’ Akti Miaouli, the heart of global shipping. This 106 years old P&I Club has always something interesting and positive to present no matter the state of the Markets and Geopolitics.
For over 12 years – since this medium came to existence, Joe Hughes, Vince Solarino, Ilias Tsakiris and now Dorothea Ioannou, all well acclaimed officers surprise us with their eloquency and to the point deliveries in this pre-Christmas annual presentations followed by an excellent buffet lunch!
For those interested, here is the Club’s presentation in full:
The Club has been steadily taking measures to manage disruption, retreating reinsurance, social inflation, geo-political conflict, regulatory changes, investment volatility, crew competency and shortage issues, and most importantly constantly updating and adapting its risk profile assessment and an alignment in rating strategy to maintain resiliency for the future.
Since 2021, there has been a shift in vessel type concentration based on historical and market risk analysis and of course within the context of increasing tonnage. In addition to the targeted vessel type shift, in 2022 and 2023 we non-renewed a number of poorly performing accounts and applied corrective measures to other accounts. We enhanced our Due Diligence processes and integrated an enhanced individualized account approach. Our Loss Prevention Dept. constantly investigates and engages with the membership and with industry bodies to provide guidance on regulatory and training matters.
As a result, we have improved our renewing fleet underwriting loss ratio. After the 2022 renewal, it was 63% and after the 2023 renewal it is 53%. This is a strong indicator of performance going forward.
With respect to the development of claims and reinsurance expense, the net exposure overall through the recent years has remained at similar levels, affirming the position that we are securely within the realm of a new risk landscape. Furthermore, comparing 2023 to 2022 the difference reflects deterioration for the years 2017 to 2022.
2022 was marked by the worst investment performance since the crisis of 2008. (-10%) for the year – or about 13 m in unrealized losses (equal to more than half the year’s deficit) and a continuing volatile financial market in 2023 has prevented the full bounce back although the present position as of November 2023 puts us at 4.8% year to date.
2023 is naturally very early to tell but it is running on budgeted projections with anticipated positive surplus based on our revised evaluation of the risk environment and the tonnage profile. It is also benefiting from a key factor – that of an increased premium volume position as well as being impacted by all the measures we have been implementing over the past three years. The long tail of P&I requires time to manifest.
Regarding pool claims, there has been significant deterioration for past years during the 2022/2023. So while we see relief from pool claims in 2022 and so far in 2023, back year deterioration for the years 2016 to 2021 pretty much negated the pool relief of the 2022 year. During the 2022 and 2023 policy years, there has been over $12 million in further deterioration for the Club’s contribution to other Clubs’ pool claims in this respect. It is apparent that the lag we experience on retained claims is following a similar pattern on pool claims.
Moving to the Club’s fixed P&I cover EOM, reviewing the flow of performance measured by the net loss ratio from 2011 to date, despite the spikes, we see, as a result of the measures previously described, the initial results of 2022-2023 facility year are trending downward and the overall cumulative loss ratio stands at 86% providing positive contribution to the Mutual, as it is meant to do over time.
Ultimately the big picture is measured by the combined ratio vs. premium and tonnage development analysis. We have thus tracked the combined ratio since 2017 excluding the effect of un-forecasted supplementary calls as well as premium earned but unbilled (EBUB), as against the cumulative premium and tonnage growth percentage since 2017.
The results are encouraging and in particular:
- The rising combined loss ratio has been arrested and is now on a
downward turn. - Premium growth is up by 50% since 2017.
- Tonnage growth is up by over 40% since 2017.
So, while we will not sugar coat the current point we are currently at, measures taken by the Club over the last three years are now manifesting positively and have put us on the desired trajectory – on the right side of the turnaround.
The combined loss ratio is steadily dropping while premium rises ahead of tonnage. It reinforces our position that it is a constant review of the risk portfolio combined with steady adjustment for premium alignment with the modern world of claims costs that is key.
It is important to remember that the American Club is one of the younger members of the IG, with a history of following the pure mutual model and less years in the international market to accumulate a cushion large enough to absorb all shocks and deficiencies directly as well as to have had the ability to produce investment returns in the
performing years large enough to absorb losses indirectly by set off.
Despite its size and volume in premium, inhibited somewhat by this history, and despite the subsequent rate erosion period and shift in the market from 2010 to 2018, the Club absorbed the losses during this period and did not levy any unbudgeted calls and managed to keep its surplus position stable. Adaption to disruption and the changing risk
landscape must take place over time and in stages and that is exactly what we have been doing.
The Club represents a significant and important voice in the industry and in the IG. Small to medium size operators, the majority with traditional family heritage. We were built to serve this sector. We have and will continue to ensure it has a voice and that it is heard.
Our experience is also a reflection of the experience and growth of our membership, despite the hard times we have grown together and will continue to grow together.
We have made it a priority and are committed to growth balanced to risk. The metrics shown today prove we are on the right path. The current combined loss ratio for 2023 is under 100%. We are and will remain committed to continuous review of the Club’s risk profile to ensure it remains within acceptable risk appetite.
We have always been the Club that makes great effort to understand our membership and extend the maximum level of benefit of the doubt to our members when evaluating cover issues within the parameters of the Rules and we are committed to ensuring that difficult years, while may bring disruption, will never disrupt this pro-member approach.
Finally, we are absolutely committed to transparency at all levels, in all our dealings, in all our communications and our reports, we are committed to keeping our ears open to feedback, and to adapting to the needs of the membership. The metrics today show that our commitments through actions have made a difference, and that we are on the right side of the turnaround.
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The American Club was founded in New York in February 1917 and is the only P&I mutual domiciled in the United States. In addition to its US headquarters in New York, the club is able to provide local service across all time zones, communicating in more than a dozen languages, with subsidiary offices in London, Piraeus, Shanghai, Dalian, and Hong Kong, and a worldwide network of correspondents.
