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Lloyds List article: Day of reckoning for clubs and owners

News & Insights 14 February 2013

WHILE shipowners’ eyes may be smarting as they confront their premium increases, certain clubs are not surprised by the rises and perceive them as part of a wider picture.

Web Alert: Lloyds List article: Day of reckoning for clubs and owners

Thursday 14 February 2013,  by Liz McMahon

WHILE shipowners’ eyes may be smarting as they confront their premium increases, certain clubs are not surprised by the rises and perceive them as part of a wider picture.

Given the state of the market, Gard senior vice-presidents and co-heads of underwriting Bjornar Andresen and Rolf Thore Roppestad say it is not surprising there have been rises.

In terms of the International Group reinsurance rates, they say in the current environment in the shipping market, this has not been received well but shipowners understand the concept.

“It is accepted by those that understand the system, but it doesn’t make it an easy process. It will be a very slow renewal this year. We can’t see the full picture yet,” they say.

The Standard Club chief executive Alistair Groom agrees reinsurance will have a significant influence on renewals.

“Any claim in the group reinsurance programme will be reflected in members’ rates, as this is an automatic process. However, the ultimate increase was more than expected and shipowners are suffering. Increases are never welcome but they are particularly unwelcome this year,” he says.

“Large increases have been attributed to passengerships and members and this impacts all passengerships, not just cruiseships. We don’t like to give our members shocks and we are not happy that we have had to give such a large rise in reinsurance costs.”

The unforgiving renewal and general malaise in the shipping industry means shipowners are becoming increasingly more interested in the financial strength of clubs.

Mr Andresen and Mr Thore Roppestad say: “We have seen a drift of members to clubs with strong financial situations and we expect that to continue. The only way shipowners can make money in the short term is to move to financially stable clubs.”

They say from a P&I product perspective, clubs have to focus on a short-term and long-term perspective.

“Price today is one thing, but if they can’t make the portfolio balance then they will have to opt for a significant general increase and supplementary calls are likely to follow. Service is fairly good from all clubs, although obviously some are better than others,” Gard observes.

Mr Groom concurs that the renewal could lead to a gradual drift of business and the focus will be on how clubs are funded.

He adds: “Shipowners are remarkably loyal on the whole and don’t take moving lightly. Any moves will be driven more by financial stability than in the past, but how members have been treated by their clubs will also play a part.

“In the short term, shipowners will be focused on what kind of increases clubs are trying to impose at renewal. However, in the long term, clubs that are stronger financially tend to attract the tonnage.”

Clubs’ relationships with their reinsurers have also been stretched over recent times. Clubs like North are quick to argue that the relationship with the International Group’s reinsurers is a long-term partnership, it is understood that claims are inevitable from time to time, and the relationship deals with this effectively.

West of England’s Peter Spendlove says the relationship with reinsurers has generally been satisfactory and stable for many years.

“Clearly the claims experience in 2011 has resulted in a significant premium adjustment for next year that will never be welcome, but the occurrence of reinsured losses can hardly be described as unexpected. However, premiums that rise as a result of high claims can reduce if claims reduce,” he explains.

“In 1995, premium payable by group clubs to reinsurers reached a higher level than for any previous policy year, reflecting an adverse claims performance in the preceding years. But by 2000, premiums paid to reinsurers reached their lowest levels for 20 years, reflecting a much better claims performance.

“These sorts of cyclical changes are normal in any long-term reinsurance relationship and can be expected to continue in the future.”

The Japan Club’s response is less certain: “We understand reinsurers seeking increases in premiums consequent to recent large claims. However, we hope reinsurers will continue to take a long-term view of the relationship between themselves and P&I Clubs, and not seek payback of recent losses over a shorter period than we would wish.”

Meanwhile, brokers like RFIB’s Nigel Russell argue this perception of a long-term relationship weathering all battles is somewhat outdated.

“Some years ago, much was spoken about the long-term relationship between the clubs and their reinsurers. Now it seems that reinsurers’ perspective is much shorter,” he says.

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This article appeared in Lloyd's List on 15 February 2013. For more information visit



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