There is an obvious contrast between the continued very tough market conditions faced by ship operators across most trades and protection and indemnity (P&I) clubs reporting another year of huge surpluses and strengthened free reserves.
The clubs have enjoyed a remarkably benign claims environment for a sustained period, while they have been generally successful in maintaining rating levels. Something had to give, and it is therefore not surprising that we saw the first truly “soft” P&I renewal for a couple of decades.
This situation was of course foreseen by the clubs, most of which sought to take the heat out of the renewal season by announcing discounts on or returns of previously booked premium. While it is easy to understand why it is preferred by club managers, in our experience P&I club members are largely sceptical about this tactic, often regarding it as “un-mutual”, given that poorer performing members stand to benefit more. Almost without exception these discounts were ignored in renewal negotiations and club members pushed for their preference of actual rate reductions.
Most were successful. Technical underwriting argument gave way to a recognition that P&I clubs simply had to be more generous. Rate reductions in the region of 5% were generally available – which may not sound dramatic in comparison with the hull and machinery market, but P&I is not of course an “open” market. This relative flexibility undoubtedly contributed to fewer than usual headline moves between Clubs.
Despite this year’s premium reductions we do not anticipate any tangible erosion of the very strong financial position of the mutual P&I system; meanwhile trading conditions for P&I buyers look set to be challenging in the near term at least. This is likely to mean soft conditions will prevail in the P&I market for the foreseeable future.
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For further information, please contact Mark Cracknell, Senior Partner, Marine Division on +44 20 7558 3816 or email email@example.com