Smooth Sailing in Marine Hull and P&I For Now
After trying to achieve increases for all Hull renewals at the start of 2009, the market settled down in the middle half of the year and pricing was relatively stable.
Then, at the IUMI Conference in September, underwriters were again talking up the market on the back of continued poor technical underwriting results and a recent surge in claims. This talk was despite considerable improvement in investment income due to the dramatic recovery of stock markets around the world. Looking at pure Hull underwriting results, underwriters claimed that this was the twelfth year in a row where underwriters would lose money after taking their expenses into account.
In reality, the January 2010 renewals were largely flat, with the better business achieving renewals “as before” and only the poorer-performing owners seeing increases in premium. One of the reasons underwriters cite for not being able to achieve the increases they require is the increase in capacity of the Hull market, both in London and overseas, and the inevitable pressures that this brings. An example of how capacity has grown recently is the successful placement of a new $1.45 billion cruise ship for Royal Caribbean Cruise Lines—$400 million higher than the previous top value placed in the Hull market.
The protection and indemnity (P&I) clubs have also had a good year, partly helped by reasonably benign claims experience in 2008/2009 and also by the bounce-back of the investment markets. As a result, the majority of the clubs called for general increases in the 5 percent to 7.5 percent range with Gard asking for no increase this year.
The P&I club renewal season is now over for another year and, on the whole, owners with good records ended up paying small increases in premium. In most cases, increases were less than the modest general increases the P&I clubs were seeking.
After the spate of unbudgeted supplementary calls that were levied in late 2008 and early 2009 by more than half of the international group clubs, as well as lower general increases than sought in recent years, it was expected that most owners would not be looking to move vessels between clubs. Predictions were for a benign P&I renewal season. That turned out to be not completely true, with a number of significant fleets moving tonnage at 20 February 2010. The net losers from this shift of business were U.K., West of England, and London Club, which had all charged unbudgeted calls in late 2008. However, it is reported that both Britannia and Gard, which both have exemplary supplementary calls histories, strangely also lost some tonnage. The reported net winners were Standard, Skuld, and Steamship Mutual—perhaps surprisingly given their January 2009 excess supplementary calls announcement.
Pooled claims in 2009 are running high, so time will tell if the clubs have asked for enough this year, or if larger increases are needed in February 2011. Also, while the clubs are enjoying investment income returns again, it remains to be seen if these will be sufficient to arrest the impact of the underlying increase in claims.
Additionally, there is a clear concern within many clubs that there remains the prospect of expensive charter party and new building disputes still to be advised, as could be seen from the very diverse approach taken to freight demurrage and defense (FDD) renewals at February this year (with general increases ranging from nil to 25 percent increases in premium and also increased deductibles).
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market update.
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