P&I club finances & 2022 renewal outlook

Zero. That was the cumulative US$ total amount that was added to International Group Clubs' free reserves in 2020/21. This outcome is significantly worse than many recent years, stretching back to the last time the P&I market had a significant and prolonged rate hardening some 20 years ago.

Insurance markets go through cycles, and it is rather unfortunate that in some cases the can had been kicked down the road for so long, resulting in what will likely be termed as "unavoidable" renewal directions by many P&I Clubs once renewal increases start being announced for 2022/23 P&I renewals.

We look forward to hopefully reading the Clubs' succinct and transparently articulated positions ahead of 2022/23 P&I renewals. Shipowners may end up being disappointed with the explanations offered, and there are likely to be more 'why' questions raised at this renewal than in many previous years.

The usual reasons of churn, investment results (which have been a saviour for Clubs this year), solvency, Brexit etc will likely all come up. Ultimately - loss creep, a number of large claims, and increased contributions to the risk-sharing pool (claims between $10m and $100m) are all going to be cited this year as reasons for rises.

We present numbers across all International Group P&I Clubs below. Following this client advisor, customised per-club analysis will be sent to our clients in the weeks to follow, as pre-prep for 2022 renewals.

2021 Club finances

2022 renewal outlook

Expectations are for rate and deductible rises, which for many clubs are likely to be applied more firmly than in previous years.

Renewal direction announcements are likely to be grouped into 3 tiers. Those clubs that have opted for 'individual assessment' in the past will also fall in one of these tiers:

• The financially strong clubs that can afford to have minimal rises;
• Mid-table clubs genuinely needing a rise after a 'hit' last year, and with mid-year results not looking promising;
• Those whose financial resilience is significantly at risk.

Shipowners looking to review their P&I Club strategy may wish to ask the following questions:

• Do the P&I Club's finances indicate that the Club continues to be financially resilient, or are there worrying trends appearing?
• Does the renewal offer make sense, how is deductible inflation managed and what might a 3-year premium direction look like? To what extent are each of these answers impacted by the Club's short-term financial results?
• Has the club changed its attitude towards managing claims?
• Do the claims executives work on the same wavelength as the assured and do they provide the right level of operational support?
• Is there continuity of underwriting and claims teams?
• Should the company think ahead towards a 2nd or 3rd Club to hedge cost impact and benchmark service.

What's next

General increases will begin to be announced shortly.

The excess of loss reinsurance contract is also up for renewal this year, and it is almost certain that reinsurance rates will increase given the reinsurance programme is coming off a long-term agreement.

Owners should also look-out for sub-limits relating to cyber risk (already sub-limited this year by most P&I clubs in respect of non-mutual parts of cover), and the introduction of a sub-limit in respect of transmissible disease risk.

Details to follow once we know more...

For any questions regarding the contents of this Marine Client Advisor or for any other marine insurance enquiries please do get in touch. 

Howden Insurance Brokers is not a technical, commercial or legal adviser. Any commentary made in this document should not be construed as such, and we do not guarantee in any way the accuracy of the resources used or referenced in this document. In case of doubt, formal advice should be obtained that is directly relevant to your circumstances.