05-01-2017 P&I Clubs feel the churn as many look to give something back, By Jon Guy, Insurance Correpondent, IHS Maritime
Protection and indemnity (P&I) clubs have been feeling the pressure, with many in 2016 looking to give members an end-of-year boost.
A scarcity of major losses has led to clubs increasing their reserves in recent years, while demands to give some of that excess cash back have been growing. In recent months several clubs have announced that they will not seek a general increase for the year and will also hand back a percentage premiums from prior years.
Unless major losses break out in 2017, the calls for a similar approach for the 2018–19 renewals will continue. Joe Hughes, chairman and CEO of the American Club’s managers, Shipowners Claims Bureau, said another dynamic was the willingness of owners to look elsewhere for placing tonnage in hope of reducing costs.
“I feel that over the last 12 months, for ourselves and other clubs the churn effect has continued to influence both the level of turnover and the risk profile of vessels entered in the club, the more so as the freight market slump has endured,” he told IHS Fairplay. “For us, annualised premium income for 2016 has increased over the period since 20 February,” Hughes pointed out. “At the same time, the club has experienced a comparatively larger rise in total tonnage and the average size of entered vessels, together with a reduction in their average age.”
American Club, like many others, had announced there would be no general increase across all classes of business for the 20 February 2017 renewal, but Hughes said the club expected “a period of vigorous negotiation from the related perspectives of both member and club”.
Jeremy Gross, Standard Club’s CEO, told IHS Fairplay, “2016 has been a gruelling year for most sections of the shipping market. Sadly, we have seen some major players fail this year, while there appears to be a drive for consolidation. I suspect that this ongoing existential pressure will continue to force many shipowners to re-evaluate historic strong relationships to ensure they continue to best serve their needs. We in the club market need to be responsive to this. We need to examine our costs, our structures, and our service to make sure they are lean and fit for purpose. Fortunately, it has been a relatively benign year for claims, but if we see an upswing we will need to be able to keep our underwriting results in tight equilibrium as investment markets continue to be unpredictable,” Gross pointed out.
North P&I Club joint managing director Paul Jennings said the club had a good year, adding that it “has been positive in terms of claims experience, investment performance, and membership development.” Co-MD Alan Wilson said the club was working with its clients to smooth the burden of the current financial downturn. “The benign claims performance is a positive development, given the operational and financial challenges facing the shipping industry in 2016-17,” he added. “Members have increasingly collaborated with the club in 2016-17 to share trends, emerging risks, and best practice within the industry. By taking this information together with extensive internal analysis and benchmarking across the insured fleet, North was able to work with members and other partners in the industry to help reduce claims exposures.” Wilson cautioned that challenges remained for 2017. “North believes the outlook for investment and bond markets remains highly uncertain, with high-profile political factors likely to have an impact. Regulatory issues likely to have a bearing on activities during 2017-18 include the amendments to the Maritime Labour Convention (MLC), which enter force on 18 January 2017,” Wilson explained.
Peregrine Storrs-Fox, risk management director at the TT Club, said the absence of market-changing losses was a positive but was also difficult for the clubs. “There is a problem at present for any insurers to get the premiums they want,” he added. “Our clients are struggling, we have seen some high-profile insolvencies. The market is not seeing the losses that allow it to prove its worth, and the insurers are expected to support their clients. For 2017, pricing will remain the name of the game,” he predicted. “There are some green shoots but we have seen them in the recent past and they seem to get cut as quickly as they grow.”