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Marine liability insurers press for rate increases


Most shipowners are likely to see rate increases in the low single digits when they renew their protection and indemnity coverage later this month.

While shipowners have sought to reduce their costs amid challenging commercial shipping conditions, P&I clubs have tried to bolster their results by imposing higher rates, sources said.

The International Group of P&I Clubs, an organization of the world's 13 largest mutual protection and indemnity clubs, traditionally renew coverage on Feb. 20, the date when the Baltic Sea historically could be expected to be free of ice and passable.

While there have been relatively few losses over the past year, P&I clubs — like insurers in general — are less able to rely on investment income to bolster their bottom lines than the past, experts say.

Financial pressure

P&I clubs face headwinds that include pressure from members to return capital and low interest rates, said Mark Nicholson, a director of insurance ratings at Standard & Poor's Corp. in London.

The outcome of the current renewal season will test the individual clubs' competitive position, he said.

One rating agency agreed.

“As the clubs enter the 2016 renewal period, pressure from members and brokers to justify price increases is growing,” A.M. Best Co. Inc. said in its sector review of the P&I market. “Announced general increases are down on 2015, varying from zero to 5%, with the majority of clubs at the lower end of this range.”

“But member renewals are increasingly driven by analysis of individual loss records and risk exposure, rather than general increases, and more clubs are using deductibles to control exposure and improve underwriting results,” Oldwick, New Jersey-based Best said.

And while “most clubs have enjoyed a trouble-free year with strong technical underwriting results, there has been no joy from investment income,” Aon P.L.C. said in its review of the P&I year.

Indeed, S&P's Mr. Nicholson said, P&I clubs' lower investment returns may be “here to stay.”

While P&I clubs historically have used investment income to “subsidize weak underwriting results,” this strategy “has been challenged by changing regulation and an investment environment characterized by low interest rates and volatile equity markets,” Best said. “Over the past five years, most clubs have sought to achieve break-even underwriting results by pushing through rate increases, introducing minimum deductibles and increasing deductible levels.”

But shipowners that have not suffered losses over the past year likely will press their P&I clubs not increase their rates at renewal.

Call for rate reductions

The increases being asked for by clubs represent “another potential rise in expenses at a time when cost-cutting is vital” for P&I club members, London-based brokerage Tysers & Co. Ltd. said in an analysis.

Although the average increase being sought by clubs was about 2%, shipowners with good loss records can expect reduced rates, brokerage Willis Towers Watson P.L.C. said in an analysis in December. “In the continuing challenging shipping market, we expect shipowning members to be pressing for the lowest renewal proposals in the 2016 renewals.”

Despite weak investment gains, the P&I market currently has a surplus, and nine of the 13 International Group member clubs posted improved underwriting results in 2015, said Ben Abraham, who leads Willis' P&I division in London.

This likely means that ship operators will call for rate reductions, he said.

“Claims remain volatile and investment markets fragile, but a relative slowdown in the number of major claims has allowed the International Group market to make its first overall surplus since 2010,” Willis said in its report about 2015.