Aon Report Concludes P&I Clubs See Improvements on All Fronts

A report from Aon Risk Solutions, the global risk management business of Aon, concludes that Protection and Indemnity (P&I) Clubs are experiencing a “continued improvement in claims trends, and a restored investment performance.” As a result, “ship-owners face the prospect of a benign renewal at 20th February 2011,” according to Aon.

“General Increases, the starting point for renewal negotiations, range between zero and 10 percent, which is in stark contrast to two years ago when owners faced General Increases in the 10 to 29 percent range,” said the report. “In an unprecedented move in recent times, four out of the 13 International Group (IG) Clubs called for a nil general increase, compared to a market average of 3.07 percent for the 2011 renewal.”

Steve Griffiths, director of Aon Risk Solutions’ marine team commented: “The latter part of the last decade were a very trying time for the P&I clubs, with the implications of placing an ever increasing emphasis on investment returns coming home to roost at renewal time. It does seem, though, that the 2011 renewal is the calm after the storm, with improved claims trends helping many clubs to achieve a relatively flat renewal.”

If the Clubs achieve their targets, “approximately $91 million of additional premium will enter the P&I system on 20 February, 2011. Reflecting improved market conditions, this is significantly down on the previous two renewals, where the market was inflated by an additional $485 million in 2009 and $159 million in 2010.”

Aon also noted that the “IG Excess of Loss Reinsurance contract has been renewed with an increase in the attachment point to $60million from the current level of $50 million per claim. This has the effect of stretching the pool from the individual club retention of $8million to $60 million. Consequently, the upper limit of the reinsurance contract has increased by $10 million to $2,060 million.”

The IG has also increased the tonnage it insures, and, as a result, “the reinsurance contract saw a modest reduction in premium, equivalent to about 5 percent. Consequently, individual rates have been reduced in the range of between 4.09 percent and 8.40 percent depending upon the category of vessel. In the majority of cases, clubs have automatically passed these reductions onto their members. However, in some cases clubs resisted attempting to retain the savings for their own account, a position which is clearly unacceptable given that in a rising reinsurance market, clubs are quick to pass on the additional cost.”

Griffiths added: “The 2011 renewal season also saw EU enquiry into the IG non competition arrangements gather momentum. Club managers faced a new challenge, as the commission’s fact finding teams requested information from each club relating to fleet movement within the IG system, dating back over a 10 year period. The EU and IG are due to meet in March to review the findings, and although it is likely to take some time before a final landing is reached, the ‘easy money’ is on the IG being maneuvered into lowering release calls in an attempt to assist competition.”

Source: Aon Risk Solutions

Topics Reinsurance Aon