Though Balance Sheets are Strong, P&I Clubs Face Risk From Major Casualties
Lloyd's Market specialty insurance brokerage Tysers reports that the rising cost of major casualties will likely prompt P&I clubs to raise their premia by up to 7.5 percent in the coming year, despite their ever-growing free reserves and the strong market environment for investment earnings.
Overall, the IG is very well capitalized, with total free reserves among the 12 clubs standing at $6.8 billion. Reinsurance and pooling add further strength to defend them against extreme claims, up to and including casualties the size of the Dali allision. But new hazards - conflict, sanctions, and the prospect of uninsured risks from the shadow fleet - create uncertainty in the market.
The top players in the International Group have strong financial performance, Tysens notes. Juggernaut Gard leads the pack overall with more than 25 percent market share and free reserves of more than $1.7 billion, and enough investment income that it can afford to return premium to members. On technical performance, Japan P&I Club hit an enviable combined ratio of 70% in the last year, its fourth year in a row of strong earnings.
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But the prospect of unpredictable claims in a challenging operating environment will likely prompt higher rates, Tysers says - even though the clubs are sitting on large stockpiles of savings.
"Many still have work to do to achieve a regular combined ratio around 100% against a background of claims
volatility and the increasing cost of serious casualties. There are strong arguments
that many Clubs are so well-reserved that premium increases are not needed.
However, we imagine they will argue they must continue to work to achieve
underwriting balance," the brokerage concluded. For the 2025 and 2026 years, target rate increases ranged from five to eight percent, and Tysers expects a repeat.
