Tough P&I Outlook

Declining investment income is expected to trigger an average premium rise of 7.5% for shipowners, according to a new report on protection and indemnity clubs. 

According to insiders the 2013 P&I renewal had been “one of the most difficult ever” with the clubs’ perceived need for premium rises conflicting with shipowners’ desperate need to cut costs.

It has been noted that in 2012 general increases varied between 5% and 16.5%, with 7.5% being the most common. This time round increases in the range of 2.5% to 12.5% with an average of 7.5% are expected, and there will inevitably be another substantial increase in reinsurance costs as the ‘Costa Concordia’ reserve has risen from $684m (£425.4m) last year to $1.2bn (£750m).

It has been claimed that P&I clubs would argue that increases similar to last year were needed on the basis that investment returns will be lower and combined ratios were generally more than 100%, because of the continued effect of ‘churn’ and the increasing cost of large casualties.

Perhaps unsurprisingly the bigger P&I clubs would be generally best equipped to meet the challenges expected in the years ahead, those being: increased administration expenses, including the cost of regulatory compliance and IT costs; the perceived importance of an A rating; pressure on clubs to hold massive free reserves; and increasing claim values, particularly for serious casualties.