Tagged: P&I, shipowner, underwriting

While economic times were good, Protection and Indemnity Clubs were able to use positive investment income, mostly drawn from exposure to equity markets, to reduce their calls to members whilst simultaneously growing their free reserves. The income allowed shipowners to enjoy reduced premiums even when there was an increase in claims activity, because of the substantial returns the investments produced.

Now, of course, those investment returns have all but disappeared as the financial markets continue their descent.

The Clubs have either had to sell their investments at a significant loss or write down the value of those securities, leaving them with a paper loss on the year with the same net result (although with the ongoing risk of further reductions in their equities values).

As a result, we are witnessing a return to a more technical underwriting approach as Clubs no longer have the safety net of other income streams. This has inevitably led to an increase in premiums for shipowners.

Some shipowners feel that the Clubs should have pulled out of the equity markets once the meltdown began, but at the time those Clubs with substantial equity exposures were offering the best ‘return’ to their members even whilst managing a technical underwriting deficit (but an overall positive balance sheet). This strategy provided members with competitive premiums year after year.

All Clubs will undoubtedly exercise caution in their current and future investment strategies which, whilst building a more stable platform over a long period, will continue to result in higher calls to owners if claims activity cannot be controlled or suppressed.

Shipowners should be cautious in how they expect premiums to change in the near-future; even with a dramatic return to buoyant investment markets, the Clubs are likely to exercise a more conservative approach.

Shipowners may therefore need to start looking at not only the merits of the service being provided by each Club and the spread of their membership, but their investment portfolio as well.

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