Aon Finds P&I Club Renewals Face ‘More Benign’ Environment

February 24, 2010

According to Aon Risk Services marine division “ship owners faced a more benign Protection and Indemnity (P&I) renewal at 20th February 2010.

“Against a back drop of an improving claims trend, and for some, favorable investment performance, better prospects for the P&I clubs meant that general increases (often the starting point for renewal negotiation) ranged between nil and 12.5 percent, with a market average of 4.54 percent. This is in stark contrast to 2009, when owners faced general increases in the 10 percent to 29 percent range.”

Steve Griffiths, director of Aon’s marine P&I team commented: “Aon predicts that if the clubs achieve their targets, approximately $159 million of additional premium will enter the P&I system at this year’s renewal. Reflecting these improved operating conditions for the clubs, this is significantly down on 2009, where the market was inflated by an additional $485 million during the renewal process.

“It is never all plain sailing, of course. Lower general increases were offset by closer scrutiny of individual club members’ loss records. The shipping market has put many ship owners under severe pressure to reduce expenses, which meant protracted negotiations in some cases. Despite the unpleasantness that can arise when there is little room for maneuver, we do not anticipate many major switches in tonnage among the clubs at this renewal.”

Aon also indicated that the “immediate future for most of the clubs appears positive. Claims in excess of individual club retention ($6 million for 2006 and $7 million for 2006), so sapping of club funds in 2006 and 2007, showed a remarkable decline in 2008. Although early indicators for 2009 suggest the potential for a return to 2007 levels, the hiatus of 2008 allowed for much needed relief. Attritional (below retention) claims held steady at worst, with some indicators of easing, as the soft shipping markets bit and fewer ships were trading.”

The investment landscape also brightened for some during 2009. “Those clubs that had traded through the equity and bond market collapse saw a remarkable bounce back in their portfolios, with forecast investment returns as high as the 7 – 10 percent range reported by the end of 2009,” Aon found. “There is good evidence to suggest that club free reserves to net calls ratios in many cases have recovered to as much as 90 percent of pre-credit-crunch levels.”

Griffiths added: “Some clubs may have gambled successfully on the relative return to health of the blue chip equity and bond markets, but on a less positive note, none are forecasting that investment income will play a significant role in the underwriting equation going forward. The clubs will certainly continue to adopt a cautious approach as they await developments in the shipping markets.”

Aon also concluded that the “Group’s excess of loss reinsurance contract renewed with a reduction in costs for tanker and passenger vessel operators for the first time in a decade. Dry cargo vessel operators were subject to a small surcharge, having contributed the lion’s share of losses on the program in recent years. Although any relief in this cost is welcome, tanker owners in particular have been fighting for some time to remedy what still looks like something of an injustice, especially when the vexed subject of US voyage additional premiums is taken in to account.

“Individual club retentions increased from $7 million to $8 million, otherwise pooling and reinsurance arrangements remain unchanged.”

Source: Aon – www.aon.com

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