P&I Clubs make first combined profit since 2017

Ship insurers made a profit in 2023 for the first time in six years, having increased rates for five consecutive years ahead of this week’s renewal date. 

The Protection & Indemnity Clubs – the mutual insurers who provide cover to shipowners – sought to increase rates by up to 7.5% this year to maintain price adequacy and keeping up with claims inflation, according to ratings agency AM Best. The rate increase was due to take effect on February 20.

AM Best noted that the P&I sector is dominated by the 12-member International Club, which includes three Bermuda-registered clubs – Gard (Bermuda), Skuld (Bermuda), Steamship Mutual (Bermuda) and the United Kingdom Mutual Steam Ship Assurance Association. 

The ratings agency said seven clubs had announced they will increase rates by 7.5% and five will apply 5% increases.   In 2023, rates increased by up to 10%. 

“AM Best considers the level of general increases necessary for clubs to maintain the breakeven underwriting results seen in 2022/23 and expected for 2023/24 in the face of inflationary economic conditions and the potential for a worse pool year to emerge in the future," the agency said.  

"As most of the clubs have reached price adequacy and financial results are also improving, there should be less need for substantial rate adjustments in subsequent renewals. However some level of increase may continue to offset the impact of inflation on claims and expense." 

AM Best added that the International Club reported an underwriting surplus of $152 million compared to a deficit of $267 million in 2022 while the group’s combined ratio improved to 95% from 107%. It said five of the members recorded technical losses “although these are noderate in most cases”. 

The agency said call income rose by 11% while net claims fell by 6% although claims incurred remained above the five-year average. 

AM Best said it expected most companies to achieve breakeven combined ratios in 2024 as rate increases took effect and claims remained benign. 

The ratings agency said most clubs lost money on their investments in 2022/23, in common with much of the insurance sector, but it expected “the large majority of clubs" to report significant investment income in the 2024 financial year as markets improved. 

The report noted that the mutuals faced competition from commercial insurers offering fixed-premium cover, including British Marine owned by QBE and MS Amlin, but some managing general agencies had withdrawn from the market. 

MGA Thomas Miller Specialty changed its capacity provider from AIG to the United Kingdom club, “thereby moving a large fixed premium offering from the commercial to the mutual market”. 

The report said most P&I clubs now offer fixed premium cover to owners of smaller ships, as opposed to conventional premiums which are subject to further calls on owners. But it said the traditional P&I cover offered by the international Club remained the preference for larger ship owners.