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Home / Insurance / Gallagher urges P&I clubs to limit premium increases on renewal to around 5%

Gallagher urges P&I clubs to limit premium increases on renewal to around 5%



The effort of protection and damages clubs to implement double-digit premium increases in future renewals should be mitigated by the financial difficulties of many shipowners affected by Covid-19, according to Arthur J. Gallagher & Co.

In a review of the P & I market before the renewals in February 2021, Gallagher said that mutual clubs looking for premium increases of between 5% and 12.5% ​​cannot compensate for four years in a row without growth in the general increase during a renewal season. .

Gallagher said clubs should start with an increase at the lower end of the range in November and follow with four smaller annual increases. Gallagher admitted that premiums by some insiders are considered to be as much as 20% underpriced.

"This cannot be compensated for in one or even two years in the current environment, where shipowners are likely to struggle financially more than the clubs themselves," said Malcolm Godfrey, Gallagher's executive director of the Marine P&I department.

“Since we have discussed with the club management after their results, it is not possible for all clubs to extend the current conditions until 2022, which makes it possible for shipowners / operators to focus on their companies. Unsurprisingly, this proposal was met with a rather frosty reception, "Mr Godfrey explained.

He added that the general increase traditionally used by P&I clubs in renewals has been abandoned by four clubs. Gallagher has heard that a couple more are considering losing the general increase at the next round of renewal.

The broker said that although P&I premium increases are required over a four-year period, the abolition of the general increase "makes this process less transparent"

"The question of the general increase for the coming year is not so much about, but how much and for how long? Will such increases be matched with sweeteners such as return on capital or any return on premiums? We could imagine that these features can be reduced in value or eliminated if the financial outlook does not continue to improve, says Gallagher.

The international group of P & I clubs reported insurance losses of $ 500 million in 201

9-2020, after several consecutive years of zero general premium increases. "Combined conditions have grown upward," Godfrey said. They go between 115% and 120%, but are in some cases higher. Only Steamship mutual registered profits during 2019-2020, with a total share below 100%.

At the same time, losses for P&I are at a record high. Pool losses have exceeded $ 400 million over the past two years. The first six months of this year have already booked losses of about $ 300 million. Pool losses from the active U.S. storm season are still to be added before the end of most clubs in February 2021. Gallagher said the record losses at the half-yearly stage only follow 11 claims on August 20, 2020.

"That already makes it one of the worst years of the year. last decade and there are still six months left, including the traditionally expensive North Atlantic winter, ”said Godfrey.

"In addition to the pressure created by the last three to four years of premium shortages, the clubs are looking at an explosive start to this year's aggregation losses and reduced investment income due to Covid-19," said Gallagher.

The broker said that the overall conditions of the P&I clubs have kept up with the Covid-19 concerns. during the first six months of their financial year and run at similar levels as 2019-2020 at around 110% to 115%. Covid-19 claims in the sector have not yet emerged with any force.

The international group of P&I clubs was saved during the 2019-2020 year with an investment result of $ 768 million, booked before Covid-19. This compensated $ 497 million in insurance losses to record a total positive profit of $ 223 million.

Gallagher also said that P&I clubs largely overcame Covid-19's concerns caused by investment and recorded net returns of around 2% to 2.5% as of September 2020.

Commercial Risk Europe is a sister publication of Business Insurance. More stories from CRE here. Catalog

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