NU Online News Service, Jan. 2, 2:12 p.m.EST

The protection and indemnity market, a broad type of marinelegal-liability coverage, delivered a blockbuster financialperformance last year, but poor investment returns and increasedclaims will spell premium increases for 2012.

In a 50-page “2011 Protection and Indemnity market report” issued by Willis Group Holdings, theinsurance broker says the 2010-2011 period was benign for claimscompared to the previous year.

Paid claims were down more than 11 percent against 2009-2010,although the report notes claims are still high in this market.

When combined with stable income levels, P&I produced anoverall market-underwriting surplus of 3 percent, the highestunderwriting profit ever recorded by the market.

Meanwhile, a respectable 6.5 percent investment return, which,combined with the positive underwriting result, propelled freereserves to a new record level at Feb. 20, 2011. This represented a22 percent increase from the position at the end of the previousyear, says Willis.

Nevertheless, Willis reports that 2012 renewals will see anaverage rate increase of 4.25 percent versus the 3.42 percentaverage rise in 2011.

The increases have been triggered primarily by the dramatic falland subsequent fragility of world-equity markets since August 2011,and increases in claims and their volatility in the current policyyear.

“These factors have produced a climate of apprehension within anumber of clubs [mutual insurance underwriters],” says the Willisreport. “With no realistic expectation of anything better thannominal investment returns, the pressure to balance theunderwriting result is inevitably increased.”

Ship operators are facing one of the most challenging economicperiods in a generation, with many of them forced to implementausterity plans. As the Feb. 20, 2012 renewal approaches, thepressure to cut costs is likely to create tensions between buyersand underwriters, says Willis.

Commenting on the report, Ben Abraham, Head of WillisP&I and author of the P&I Market Review, says in astatement, “When faced with decisions that potentially affect thesurvival of their companies, the pressure on most ship owners willbe at least as great as that on their underwriters. Despitethe relatively modest increases proposed, the 2012 renewal has allthe early signs of being confrontational.”