Lloyd's List is part of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC’s registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

This copy is for your personal, non-commercial use. For high-quality copies or electronic reprints for distribution to colleagues or customers, please call UK support at +44 (0)20 3377 3996 / APAC support at +65 6508 2430

Printed By

UsernamePublicRestriction
UsernamePublicRestriction

Renewal round ‘not genuine hard market,’ says broker

‘A hard market is usually defined as one where reduced capacity pushes prices up and that’s not the case with P&I at the minute,’ says Marsh JLT Specialty managing director Mark Cracknell

Two top marine insurance brokers offer differing assessments on whether owners are caving in to club rate hikes, as P&I year enters final week

THE current renewal round cannot be characterised as a genuine hard market despite apparently determined efforts by most clubs to secure premium increases in the order of 5%-10%, according to the managing director of the marine and cargo division at a top broker.

The comments from Mark Cracknell, of Marsh JLT Specialty, cut across received wisdom on the subject, with most rival brokers and club chief executives seemingly happy to use the term.

Mr Cracknell agreed that International Group affiliates were trying to push rates up in a more concerted way than seen in recent years.

However, in the run up to the February 20 annual deadline, they are meeting with varying degrees of success and not all are getting what they ask for, he said.

But Stephen Hawke, managing director of P&I broker PL Ferrari & Co, offered a different perspective.

For the first time in years, general increases have meant general increases rather than an arbitrary starting point for negotiation, he said.

Pressure for rate rises has been generated by the coronavirus backdrop, volatile investment returns and increasing strains on the IG pool, which hit an all-time high at the halfway mark and is almost certain to bust the half billion dollar barrier once all the claims are in.

As a result of such factors, the spectrum of 2020-21 P&I premium rises runs from 5% at Shipowners, Steamship and the American Club to 7.5% at West and 10% at Standard, London, the UK Club, Japan Club, Swedish Club and North.

Two clubs have said they will seek additional premiums via ship-by-ship pricing, with Gard aiming between 2.5%-5%. Britannia is seeking high single digits in terms of percentage points.

Pressure has also been coming from ratings agencies, not least Standard & Poor’s, which has over the past year put four A-rated clubs on negative outlook, and from capital requirements imposed by regulatory agencies.

On top of the GIs, clubs are also imposing penalty increases on owners with safety records deemed poor, with some facing bills up to 20% higher than last year for a type of cover that is a prerequisite for most port calls.

But just because a club has announced its intention to impose such and a such a GI, that does not make the matter a done deal, Mr Cracknell maintained. There is still negotiation to be conducted, and that is a broker’s job.

“We’ve had various underwriters characterise this as a hard market. We’ve pointed out that this P&I market doesn’t have any of the characteristics of a hard market,” he said in an interview.  “A hard market is usually defined as one where reduced capacity pushes prices up and that’s not the case with P&I at the minute.

“Capacity is elastic to the extent that it is required, and people are still competing very aggressively for new business.”

Even the strains on the pool do not justify big increases, as additional payments should be met from investment returns, which are likely to remain strong, barring any unforeseen market events.

Marsh itself has a large mixed book of business including owners with both good and bad records, making impossible to specify the average rate actually achieved.

Mr Cracknell is no stranger to industry controversy, and is noted in particular for his advocacy of consolidation in the P&I sector.

In a report published by Marsh in 2019, he argued that the 13 clubs that make up the International Group should reorganise themselves to no more than eight, enabling more efficient use of capital and thus lower pricing.

PL Ferrari & Co’s Mr Hawke took another view, contending that clubs are now better positioned to specify how much more money they want. In particular, underwriters no longer have as much flexibility to cut deals.

With everybody looking for more money, it is pretty much pointless to think about changing clubs on cost grounds alone, he said.

“One of the functions of a hard market is that clubs take the view that if an owner isn’t prepared the requisite renewal increase or penalty increase, they can leave. It’s better for the club to have a poor performing member somewhere else than take on those liabilities for the future at the wrong price.”

Brokers tend not to recommend changing clubs, except in extremis, and normally owners only change for service-related reasons, such as poor claims handling.

“Because renewal is the only time you can do that, it tends to focus things on renewal and therefore the pricing mechanism. But largely owners don’t change clubs because of the pricing, although they might be very unhappy about it. There’s probably wider unhappiness that underpins it.”

The current price hikes have been extensively trailed, and so should not come as a shock to owners who have been following the market and have been properly advised, he said.

Numerous P&I club chief executives have justified higher rates recent interviews, with American Club’s Joe Hughes describing higher pricing as an ‘inescapable imperative’ and Stale Hansen of Skuld predicting a new cycle of rate hardening.


Related Content

Topics

UsernamePublicRestriction

Register

OM008605

Ask The Analyst

Please Note: You can also Click below Link for Ask the Analyst
Ask The Analyst

Your question has been successfully sent to the email address below and we will get back as soon as possible. my@email.address.

All fields are required.

Please make sure all fields are completed.

Please make sure you have filled out all fields

Please make sure you have filled out all fields

Please enter a valid e-mail address

Please enter a valid Phone Number

Ask your question to our analysts

Cancel