Regulatory scrutiny puts pressure on marine protection and indemnity clubs: Aon

Marine protection and indemnity (P&I) clubs will be under pressure to increase their premiums next year, while financial regulators impose more requirements on those shipowners’ mutual liability insurance companies, marine risk experts from Aon Risk Solutions suggested in a recent report.

“A lack of profitable underwriting, coupled with adverse claim conditions and the stringent solvency requirements faced by P&I clubs, means that we expect pressures to raise premium rates at the 2014 P&I renewal,” Simon Schnorr, executive director and head of protection and indemnity for Aon’s Marine Practice, said in a press release last week.

Schnorr’s comment referred to the 13 mutual insurance associations that form the International Group of P&I Clubs.  All 13 combined provided P and I for about 90% of world’s ocean-going tonnage, according to the International Group of P&I club’s website.

Each club provides cover for its shipowner and charterer members against third-party liabilities relating to the use and operation of ships, including including personal injury to crew, passengers and others on board, cargo loss and damage, oil pollution, wreck removal and dock damage.

Statistics on those clubs were included in Aon’s annual P&I  review, released Oct. 4.

“With Clubs’ combined ratios ranging between 95.5% to 123% for the 2012/13 policy year, their boards, especially those of Clubs that feature at the higher end of this range, will find it rather more difficult this time round to take into account their members’ ongoing commercial woes when formulating their Club’s requirements for the 2014 P&I renewal and offer any kind of ‘concessions,'” Aon stated in the report.

“Therefore, at the 2014 P&I renewal we will most likely again see a greater variance across the International Group when it comes to the Clubs setting their 2014 General Increases. The need for Clubs to demonstrate ongoing financial stability in the face of pressure from rating agencies as well as meeting their regulatory/solvency requirements will mean we can again expect General Increases posted at the 2014 P&I renewal to range between 5% to 15%.”

Of the 13 clubs, eight are based in Britain. One — The North of England P&I Association Ltd. — is based in Newcastle Upon Tyne. Seven are based in London: The Britannia Steam Ship Insurance Association Ltd.; The London Steamship Owners’ Mutual Insurance Association Ltd.; The Shipowners’ Mutual Protection & Indemnity Association Ltd.; The Steamship Mutual Underwriting Association (Bermuda) Ltd.; The Standard Club Ltd.; the United Kingdom Mutual Steam Ship Assurance Association Ltd.; and The West of England Ship Owners Mutual Insurance Association.

The five International Group members based outside of Britain include: Göteborg-based The Swedish Club; Oslo-based Assuranceforeningen Skuld; Arendal, Norway-based Gard AS; the Tokyo-based Japan Ship Owners’ Mutual Protection & Indemnity Association; and the New York City-based American Steamship Owners Mutual Protection and Indemnity Association Inc., also known as The American Club.

“IG P&I Clubs continue to be subject to the ever more stringent capital requirements imposed on them by financial regulators as well as ever increasing scrutiny from rating agencies,” Aon stated of the 13 members.

“As a consequence, Club boards and managers these days have become far more risk averse when it comes to investing members’ funds and there will always be limits to the positive impact any upturn in the investment environment will have on the level of returns Clubs can generate for their members.”

Aon added investment returns across the 13 clubs, for 2012/13, ranged between 2.5% and 7.8%.

Of the American Club, Aon stated that its 2012 policy year “saw an increase in the number and value of pollution and collision claims than was recorded in earlier years and the pool claims recorded are significantly higher in number and value, when compared to the previous year at the same stage.”

Across all 13 clubs, Aon stated that a “key contentious issue” was the increase in its excess of loss reinsurance program.

“The reasons for the level of increase demanded by reinsurers have been well publicised and unsurprisingly, given the Rena and Costa Concordia claims, dry cargo and passenger ship owners were hit hardest,” Aon stated.

“The level of premium increases lead to much discussion on whether the four categories of vessel currently used (dirty tanker, clean tanker, dry cargo and passenger ship) should be segregated further. Many people argue bulk carriers and container ships represent a very different risk and should not be classed together.”