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Increasing claims costs, uninspiring investment returns, higher levels of
required capitalisation, and the churn effect associated with fleet renewal
programmes have made the past twelve months a difficult period for the P&I
clubs, according to HSBC Insurance Brokers.
The Lloyd's broker and P&I specialist, in its Protection & Indemnity Review
2006, says that, faced with these issues, the clubs "have the problem of
persuading the membership to pay higher levels of premium while maintaining
good business relationships".
Nick Riddle, executive director of HSBC Marine Division, says: "The churn
effect occurs when a modern ship that is charged a relatively low premium
replaces an elderly ship paying a much higher level of premium. While clubs
are keen to attract modern tonnage, competitive pressures mean that the
premium generated will be disproportionately low in comparison with the
older ships being withdrawn from membership. This effect is compounded for
clubs that strive to insure ever younger fleets."
HSBC also reports that the issue of substandard tonnage continues to
exercise the minds of the clubs.
It says, "The expectation is that substandard tonnage will inevitably
contribute more than its fair share of claims, and clubs are increasingly
questioning whether it is worth maintaining even long-term relationships
with certain members where the risk profile appears abnormally high.
Few, if any, clubs are currently seeking growth, preferring to focus on
stability, which means that shipowners forced to seek a new P&I home will
find their options restricted."
Noting that, at last year's renewal, the individual club retention under the
International Group pooling agreement was set at US$6m, HSBC explains that
this figure was a compromise and is unlikely to be the final word on the
subject for the foreseeable future.
It reveals that some clubs in the group have argued for a retention as high
as US$10m, on the basis that it would increase the focus on disciplined
underwriting and ultimately contribute to the elimination of substandard
shipping.
And it concludes, "The International Group discussed the possibility of
imposing a higher retention (perhaps double the normal level) for tonnage
regarded as 'substandard'. While this is likely to remain on the agenda, it
was felt that it would have been impossible to fairly define and identify
substandard tonnage in time for the 2006 renewal." |
