Marine Insurers Continue To Seek Increases For P&I Cover

Ship owners will experience another round of premium increases as underwriters have been seeking increases ranging from 10-29 percent for the 2009-2010 protection and indemnity insurance renewals, according to an executive with Aon.

P&I is broad coverage for maritime risks.

Steve Griffiths, a director with the Chicago based insurance brokerage firm, out of London, said this is the ninth year in succession where the clubs [underwriting pools for these risks] have attempted to improve their underwriting results through the imposition of a general increase, resulting in at least a threefold premium hike in owners' premiums since 2001.

However, he said, after almost a decade of increases, the clubs are still failing to achieve the rates they need to balance claims and overhead against premiums.

In the midst of financial turmoil, regulators and rating agencies continue to focus on solvency margins, he continued. The consequences of the global financial crisis in the second half of 2008 will not be known until the 2008-2009 year accounts are released in late spring, but it is estimated that reserves will have fallen by an average of 30 percent, he related.

By February 20, 2009, six of the 13 International Group Clubs (the collective underwriting pool for the risks) will have sought to refinance through a series of excess supplementary calls designed to raise a staggering $535 million, he said.

As in previous years, underwriter discipline during renewal negotiations has been largely maintained, with the same lack of flexibility shown 12 months ago.

All is not doom and gloom, he said. Last year's renewal period appears to have been a good year for the pool (the collective club mechanism that mutually shares all individual claims excess of $7 million each). Although the effects of the North Atlantic winter are yet to be fully absorbed, only eight pool claims to date have materialized compared to 33 in 2006 and 21 in 2007.

Smaller claims (below individual club retentions of $7 million) appear to be keeping pace with earlier years, although as global economies anticipate recession, the picture should improve with less ship activity, Mr. Griffiths noted.

The question, he said, is how much of a time lag will there be before clubs enjoy any real benefit from reduced claims activity.

Actuaries, Mr. Griffiths explained, are likely to want to see clear improvements over an 18-24 month period before permitting clubs to reduce their provisions for unforeseen or "Incurred But Not Reported" claims, thus continuing the drive to raise premiums.