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Press Article: Standard Club Keeps faith in mergers
News & Insights 25 July 2016
The Standard Club was featured in TradeWinds on 8 July 2016 discussing the potential benefits of consolidation in the P&I market.
The Standard Club is keeping faith with a belief in the benefits of consolidation in the protection-and-indemnity (P&I) market despite the failure of the proposed merger of the Britannia and UK clubs.
The argument that mergers could bring efficiencies of scale and cut costs has not gone away, according to Standard Club chief executive Jeremy Grose.
Grose says he was not surprised that the Britannia-UK deal was abandoned, as club mergers are very difficult to achieve.
But the Standard Club remains interested in moving forward through consolidation and diversification.
Grose says the P&I clubs have long histories and, in contrast to the commercial insurance market, there are also few people who have any experience of mergers so there is no template with which to work.
"It's not really surprising that club mergers are very difficult to implement," he said. "But that doesn't mean to say they can't or won't be achieved."
Grose and the Standard Club have been examining a prediction by insurance broker Marsh that mergers could cut P&I premiums by 10%, although their own calculations are that the savings would be less.
"I think 10% is ambitious," Grose said. "Our expectations are not as high as that. It would be somewhere in the region of 5% but, in this market, where everybody's trying to find efficiencies and cost reductions in their businesses, even relatively small percentage points of improvement are valuable.
"I believe consolidation would produce some really good benefits for members from a capital perspective, in terms of reinsurance, economies of scale, diversification and a broader spread of members, more access to different markets, a bigger pool of resources and skills."
Grose notes that consolidation does not necessarily have to involve a straightforward merger.
"There's an assumption that you just merge two clubs into one and then operate them together," he said. "But you could achieve lots of the benefits in terms of administration, reinsurance purchasing and so on, without necessarily merging two entities at once.
'More comfortable for all'
"You could go through a period of alignment that might take a little bit longer to deliver the benefits but could also make it more comfortable for all the parties."
Grose also subscribes to the view that discussions of a merger between the Britannia and UK clubs might trigger other possibilities and it is not inconceivable that either of these mutuals might hook up with another party.
"I think the awareness of the benefits of merger is much greater now and that continues to be the case, irrespective of the fact that it was not achieved in that case," he said. "People will be aware that they'll need to prepare the ground very well and consider very carefully how to achieve any potential merger.
"I suspect the next attempt - if there is one - is more likely to succeed because people will have learnt from the mistakes of the past."
Grose says the Standard Club is currently not in any merger discussion but continues to talk to the Korea P&I Club on the potential for co-operation - although nothing has so far come out of this.
The Standard Club was involved in an earlier attempt in the late 1990s to merge with the Britannia but that also failed.
It has long been an advocate of modernisation, consolidation and diversification in the P&I market, with TradeWinds previously reporting about Grose and his predecessor, Alistair Groom - now chairman of the Standard Club Europe - seeing a reduction from 13 to maybe eight International Group clubs as offering efficiencies of scale, while leaving shipowners with sufficient choice and not undermining competition.