LONDON, 23 February 2010 – Ship owners faced a more benign Protection and Indemnity (P&I) renewal at 20th February 2010, according to the marine division of the leading global risk and insurance firm, Aon Risk Services.
Against a back drop of an improving claims trend, and for some, favourable 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%, with a market average of 4.54%. This is in stark contrast to 2009, when owners faced general increases in the 10% to 29% range.
Steve Griffiths, director of Aon’s marine P&I team comments: “Aon predicts that if the clubs achieve their targets, approximately USD159 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 USD485 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 manoeuvre, we do not anticipate many major switches in tonnage among the clubs at this renewal.”
Fair weather on the horizon
The immediate future for most of the clubs appears positive. Claims in excess of individual club retention (USD6 million for 2006 and USD7million 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 brightened for some during 2009 and 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% range reported by the end of 2009. There is good evidence to suggest that club free reserves to net calls ratios in many cases have recovered to as much as 90% of pre-credit-crunch levels.
Steve Griffiths adds: “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.”
The International Group reinsurance arrangements
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 programme 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 USD7 million to USD8 million, otherwise pooling and reinsurance arrangements remain unchanged.
Aon Corporation (NYSE: AON) is the leading global provider of risk management services, insurance and reinsurance brokerage, and human capital consulting. Through its more than 36,000 colleagues worldwide, Aon delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Aon's industry-leading global resources and technical expertise are delivered locally through more than 500 offices in more than 120 countries. Named the world's best broker by Euromoney magazine's 2008 and 2009 Insurance Survey, Aon also ranked highest on Business Insurance's listing of the world's largest insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues in 2008 and 2009. A.M. Best deemed Aon the number one insurance broker based on brokerage revenues in 2007, 2008, and 2009, and Aon was voted best insurance intermediary, best reinsurance intermediary and best employee benefits consulting firm in 2007, 2008 and 2009 by the readers of Business Insurance. For more information on Aon, log onto http://www.aon.com.
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