Willis Report Highlights P&I Market’s Record Financial Results in 2011

December 22, 2011

The Protection & Indemnity (P&I) market “delivered a blockbuster financial performance last year,” according to a report from Willis. However, the report also found that P&I Clubs are “faced with fragile investment income and increased claims in 2011,” which has led them to propose “rate and deductible increases for the 2012 renewal.”

The 2011 Protection and Indemnity market report from Willis is an annual review, which comments on the unpredictable nature of the P&I market, offering both an encouraging and cautionary view of the sector in the run-up to 2012.

2011 was a “benign claims year,” as “paid claims were down by over 11 percent against 2009/10,” said Willis. This result, “combined with stable income levels, produced an overall market underwriting surplus of three percent. While appearing relatively modest, this is significant as it represents the highest underwriting profit ever recorded by the market.”

“Meanwhile, a respectable 6.5 percent investment return, which, combined with the positive underwriting result, propelled free reserves to a new record level at 20 February 2011, representing a 22 percent increase from the position at the end of the previous year, Willis concluded.”

Nevertheless, Willis also reports that “next year’s renewal will see a higher average rate general increase of 4.25 percent versus the 3.42 percent average rise in 2011. The increases have been triggered primarily by the dramatic fall and subsequent fragility of world equity markets since August 2011, and increases in claims and their volatility in the current policy year.

“These factors have produced a climate of apprehension within a number of clubs,” said the Willis report. “With no realistic expectation of anything better than nominal investment returns, the pressure to balance the underwriting result is inevitably increased.”

In addition the report warns that ship operators “are facing one of the most challenging economic periods in a generation, with many of them being forced to implement austerity plans. As the 20 February 2012 renewal approaches, the pressure to cut costs is likely to create tensions between buyers and underwriters.”

Ben Abraham, Head of Willis P&I and author of the P&I Market Review, commented: “When faced with decisions that potentially affect the survival of their companies, the pressure on most ship owners will be at least as great as that on their underwriters. Despite the relatively modest increases proposed, the 2012 renewal has all the early signs of being confrontational.

“It continues to be a notable feature of the general increases that they do not necessarily reflect the underwriting performance of each individual club. While the range of figures announced is modest, with two percent variance across clubs able to write ‘large ships’, there is a 36 percent variance between the best and worst underwriting results. The most obvious implication of the variance is that, rather than making the assessment purely on technical underwriting requirements, competitive market pressure is a major influencing factor.”

Other market highlights in the Willis P&I report for the 2010/11 financial year include the following:
• Owned tonnage increased by 5.7 percent
• Premiums increased by 2.6 percent
• Gross and net paid claims reduced by 11 percent and 11.4 percent, respectively
• Estimates for outstanding claims increased by USD $30 million
• Total incurred claims reduced by 4.6 percent
• Market underwriting surplus was USD $97 million
• Investment income was USD $537 million
• Overall surplus was USD $634 million
• Assets increased by 15.3 percent, free reserves increased by 22.7 percent.

Willis’s annual P&I Market Review analyses the financial results of the market in general and each individual club. The difference between individual clubs’ performance is significant and this report only touches on the comparisons. Willis P&I clients have access to more expansive information upon request.

Source: Willis Group Holdings

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