While shipowners have tried to contain insurance costs during a challenging economy, the rising value of attritional claims is among factors leading protection and indemnity clubs to ask for higher rates at the upcoming renewals.
Limited investment returns prompted P&I clubs to seek underwriting gains to offset large claims that have affected their reinsurance costs, experts say.
The largest such organization — the International Group of P&I Clubs, a 13-member group that accounts for about 90% of global P&I premiums — has sought rate increases at the upcoming Feb. 20 renewals.
Twelve International Group members are applying general increases of 2.5% to 12.5% when shipowners' cover renews, according to London-based marine specialist brokerage Tyser & Co. Ltd.
The remaining member of the group, Assuranceforeningen Skuld, said it does not impose general increases because “all members and clients are unique.”
But the Oslo, Norway-based P&I club said in a statement that rates would be “adjusted for changes in both individual and overall global risk factors,” and said that attritional claims, or smaller claims, have been subject to inflation and larger, retained claims that are “on the increase” must be shared among members.
In an update to its “P&I Report 2013,” Tysers said most Skuld members would see higher rates at this year's renewal.
Moderate — albeit improved on previous years' — investment returns coupled with a “more adverse claims environment” have resulted in tough conditions for P&I clubs, London-based brokerage Aon P.L.C. said in an analysis.
In a report published today, Standard & Poor's Corp. in London said the average weighted combined ratio for the P&I sector was 113% for the 2013/2014 policy year.
This underwriting loss, combined with limited investment returns, means many clubs need to “push rates a little bit,” said Simon Schnorr, executive director and head of P&I at Aon Risk Solutions in London.
At last year's renewals, Mr. Schnorr said many clubs were willing to “make concessions” on rates for their members because of tough economic and trading conditions the shipping industry faced.
This year, however, such concessions are rare, resulting in what he described as “not an easy renewal by any means.”
The renewal period has been more protracted this year, in part due to the tension between shipowners seeking concessions and P&I clubs' need to increase rates in many cases, Mr. Schnorr said. He said many clubs also were waiting to see what would happen to the International Group's reinsurance arrangements, where rates increased last year.
International Group clubs sought higher renewal prices “in response to the increasing size of average claims and low investment yields,” S&P noted in its report, “P&I Insurance Clubs' Favorable Capital Positions Should Support Ratings in Choppy Waters Through 2014.”
“Their attempts to offset falling investment returns by improving their underwriting results have been hampered by a sharp increase in reinsurance costs stemming from high-profile claims such as those for the Costa Concordia cruise ship and the Rena container vessel,” S&P said in the report. “Although these incidents occurred two years ago, the marine insurance sector is still suffering from the fallout as the costs of these claims spiral and reinsurers seek to recover their outlay.”