Difficult economic conditions, poor underwriting results and spate of large claims are to blame
The upcoming protection and indemnity (P&I) renewal is poised to be the most challenging in a decade, according to Willis’s annual P&I Market Review.
Poor underwriting results and a series of large claims, including the $1.16bn Costa Concordia, meant that, on a financial year basis, 2011-12 was the worst year for the marine P&I market. Results during the period showed a 13% increase in incurred claims, a 5.9% underwriting loss and only a 2.7% investment return.
Total market free reserves increased by 4% and tonnage by 9% over the same period, meaning the market is larger, but slightly weaker than the previous reporting period.
The period also bore witness to the highest level of net paid and net incurred claims ever reported by the P&I market, up 2% and 8% respectively on the previous record level in 2009-10.
Ten out of the 13 P&I clubs reported underwriting losses in 2011-12. The largest individual P&I club combined ratio was 120%, the lowest was 85%. Neither of these extremes of underwriting deficit or surplus (respectively) should be sustainable in a mutual environment.
“With pressure on all sides, the 2013 renewal will likely present some of the hardest-fought negotiations since the turn of the century,” explained Ben Abraham, Global P&I Practice Leader in Willis Marine and author of the P&I Market Review.
“It is self evident that ship operators are facing one of the most challenging economic periods in a generation. It is similarly obvious that the P&I market is not balancing its underwriting results. Added to this, the reinsurance market has been presented with the largest and third largest claims in the history of the International Group. The final contributing factor to this ‘confluence of events’ is a fragile and lacklustre investment market that is likely to allow only meagre returns.
“In such a challenging renewal environment, the choice of specialist broker is critical to ensure that best value is achieved from this unique market.”