Despite protection and indemnity (P&I) Clubs announcing that they are trying to achieve on average 2% increases in premium, ship owners with good records can look forward to reductions in premiums for P&) insurance at the 2016 renewals, according to Willis Group Holdings, the global risk advisory, re/insurance broking, and human capital and benefits firm.
“The International Group (IG) market has announced an average general increase of around 2%, with two or three clubs at zero, the majority around 2.5% and one club at 5%,” noted Willis in its P&I Review 2015/16 report.
“It is almost certain however that market forces will prevail and lower actual renewal results will be widely achieved. In the continuing challenging shipping market, we expect ship owning members to be pressing for the lowest renewal proposals in the 2016 renewals,” the report says.
The report also highlighted a generally positive picture for P&I Clubs, noting that the International Group [of P&I Clubs] is in the healthiest state in its history.
“Claims remain volatile and investment markets fragile, but a relative slowdown in number of major claims has allowed the IG market to make its first overall underwriting surplus since 2010.” This, noted the report, is off the back of a 4% increase in total market premiums and a 3% reduction in net incurred claims.
Willis has historically advocated for a decrease in release calls – a one-time charge incurred by ship owners who wish to be released from a P&I Club.
Willis therefore welcomed the continued decrease in average level of release calls from 10% of total annual premium in 2012 to around 6.8% of total annual premium today. However, Willis also noted that there is still room for improvement.
“It is pleasing to note that releases have again improved during 2015. This follows the pattern over the previous 6 years and the hope is that this trend will continue,” the report stated.
“With a near doubling of the free reserves in the market since the last period of wide-spread unbudgeted calls, the market should now be in a stronger position. In such an environment, there still seems room for improvement on a 6.8% market average release call level.”
Ben Abraham, Head of Willis’s Marine division, said: “We are seeing the P&I market picking up with the first surplus since 2010/11 and nine out of 13 clubs reporting an increase in underwriting results. Nevertheless, the industry faces challenges: investment market returns have reduced compared to the previous year (down 2.9% from 3.7%), and claims remain volatile. The 2016 renewals will likely prove contentious as general increases come under pressure from ship operators looking to reduce costs in challenging freight markets whilst a number of underwriters sit on healthy underwriting surpluses.”
He added: “The reduction in average levels of release calls highlighted by the Review is also encouraging. Over the past decade Willis has advocated for a decrease, questioning whether some clubs view release calls more as a commercial penalty rather than calculating a reasonable estimate of future exposure. We are now seeing some traction in this space as average release call levels have come down to a reasonable level, though there is still some room for improvement, within certain clubs.”