P&I Bulletin

July 2023

Contents
3 Pool Claims
5 Investment Returns
6 Owned Tonnage
9 Overall Club Results
10 Were the latest round of
General Increases justified?
10 What do we expect for the
coming year?
With the February 2023 renewal season behind us and the latest set of P&I Club
financial results now published1, we can begin to evaluate the key components of
the 2023 renewal. This bulletin will consider:
●
Was the latest round of General Increases justified?
●
Did the Clubs need the increases they pushed so hard for at renewal?
●
What the latest financial results might mean as we look to the February
2024 renewal
In the run up to this year’s renewal, the P&I Clubs were pointing to several
drivers behind the announced General and Targeted Increases. These included
continued negative underwriting performances (>100% combined net ratios),
inflationary and Standard & Poor (S&P) pressures, and some meaningful back-
year deterioration to pool claims, namely the 2020 and 2021 policy years.

Is the unprecedented claims activity of the 2020 and 2021 policy years the new
norm? Or will claims return to a more normal level again? The performance of the
2022 policy year certainly challenges the former opinion. The Clubs also reported
substantial investment losses as a driver, which in almost all cases further eroded
free reserves and even resulted in a few of the Clubs being downgraded by S&P
during the policy year.

1
 xcept for the Japan P&I Club, from whom we do not have a statement of what their unaudited results
E
look like. Japan Club’s most recent financial update is only available in YEN and not comparable to the
previous years in USD
P&I Bulletin, July 2023

Combined Net Ratio - 2022 vs 2023

180%

160%

140%
*
120% *

100%

80%

60%

40%

20%

0%
Britannia

Gard

Japan Club

London

NorthStandard**

Shipowners

Skuld

Steamship

Swedish Club

UK Club

West of England
American Club

*Without Supplementary Calls

**North and Standard CNRs for 2022 were both 107% individually and combined
Gard adjusted their accounting year to 31 Dec, results are 10 months

With this as the backdrop to the renewal, the P&I landing on renewal terms with their members. Most
Club boards voted for another round of General Clubs were willing to offer alternative retention
Increases to be applied to their members for the structure options upon our request to help mitigate
fourth successive year. Their aim being to bring premium increases.
underwriting performance back to breakeven and
2 halt the further erosion of capital which was Heading into the February 2023 renewal, P&I Club
compounded by investment losses. So how were leaders had significant concerns that the perception
these increases applied? of a low claims environment would lead to members
expecting favourable deals when the Clubs
Overall, the Clubs were quite firm in their approach, themselves were still facing significant headwinds.
but by the final stages of negotiations most Despite this, they were largely successful in
provided some level of flexibility on their GI. The achieving results close to their General increases
Clubs that were more reasonable in the earlier with a combination of premium increases and
stages of negotiations were much quicker to find a changes to terms and retention levels.
P&I Bulletin, July 2023
Pool Claims
The number and value of pool claims in the 2022
policy year is striking. As can be seen from the
triangulation on the following page, after six
months of the 2022 policy year there had yet to be
a single claim. At 12 months the claims were at $75
million, which is less than half the cost of any other
policy year in the last ten.
The $75 million of claims is made up of seven
relatively small claims, most of which have
unfortunately fallen on the Clubs that can least
afford it. At the time of writing there are two claims
each for Japan Club, London Club and UK Club, with
the other claim being with the American Club. The
largest incident of the 2022 policy year was the total
loss of small tanker KELSEY 2 for Japan Club.
The remarkable absence of major claims in 2022
has led to many questioning whether P&I Clubs need
their proposed General Increases. Recent years
have seen Clubs using the increasing value of pool
claims as a reason to back up their need for higher
premiums. So surely, many might argue, a year of
such low exposure to pool claims should warrant no
premium increases?
In response to this, the Clubs do have a good
argument.
3
Although claims above $10 million have significantly
reduced for the 2022 policy year so far, some of the
prior policy years have deteriorated significantly.
The most obvious deterioration is in the 2020 policy
year, which has deteriorated from a value of $547
million at 30 months to $724 million at 36 months.
This makes the 2020 policy year one of the worst on
record, and means the 12 Clubs have had to find an
additional $177 million between them that had not
been budgeted for. The reason for this significant
deterioration is primarily the large increase in value
of the BEIJING and MSC DANIT claims for Swedish
Club and UK Club respectively. Both vessels were
involved in the investigation into the Orange County
oil spill in California.
As well as this, the 2019 policy year also
deteriorated to $513 million and the 2021 policy
year to $621 million.
In our bulletin of July 2022, we asked: Is the
‘new normal’ to have in excess of $500 million in
pool claims each year? In contrast, we now find
ourselves asking why the 2022 policy year has
so few claims. The answer is likely that due to a
number of factors, key among them the quality of
ships and their management, there are fewer major
claims being made. But when there is an incident,
it is costing significantly more. This is for several
reasons, including increasingly punitive regulation
and advances in technology which both enable
costly solutions to be employed to minimize the
environmental impact of incidents.
P&I Bulletin, July 2023

What does this mean for pool claims in future years?

There may continue to be increased volatility in results, with a smaller number of ever-larger claims. This
means we may occasionally get a brilliant year like 2022, and equally an awful year like 2020. This volatility
makes it difficult for Clubs to budget on a year-by-year basis, and in our view makes taking a longer-term view
of pool exposure important.

Annual Claims Development (USD Millions)

Months 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23

6 Months 93 72 45 36 16 102 87 294 322 0

12 Months 296 170 209 84 264 306 259 463 399 75
18 Months 353 178 259 116 273 425 411 534 516
24 Months 361 181 295 126 310 456 442 550 621

30 Months 361 192 317 130 313 491 446 547

36 Months 403 189 310 145 330 490 453 724

42 Months 414 199 310 143 334 473 488

48 Months 406 214 308 137 351 428 513

54 Months 476 211 318 140 351 454

60 Months 484 217 315 140 373 448

66 Months 482 203 321 140 427

72 Months 451 196 321 139 428

78 Months 460 191 328 146

84 Months 464 191 322 149

90 Months 477 191 323

96 Months 441 189 323

102 Months 433 191

108 Months 419 190

114 Months 426

120 Months 425

Table shows incurred claims, applying historical pooling layers (ICRs NOT deducted and excluding co-assurance/
AAD of layer 1 of the Excess of Loss)

4
P&I Bulletin, July 2023

Investment Returns
If the low pool claims environment was the major Every Club except for Skuld posted an investment
positive for the 2022 policy year, then the real loss and some of the losses were huge. Gard
negative was the investment environment. The posted the largest loss – $149 million – which is
investment returns made by Clubs in 2021 were understandable as they are the largest Club and
poor, and 2022 was even worse. therefore have the greatest funds under investment.

Historically, Clubs have relied on good investment It’s important to note that these losses are only on
returns to subsidize loss-making underwriting. In the paper and have not been realized, so they should be
past when combined ratios of 110% or more were reversed over time. However, even as paper losses
common, Clubs still often saw an increase in free they do put pressure on the finances and solvency
reserves after investments were taken into account. positions of the Clubs, resulting in the need for
The Clubs have long warned that approach is no a more disciplined approach to underwriting and
longer sustainable and the levels of investment loss for combined ratios to stay under 100%. We
for the 2022 policy year show that to be correct. therefore expect the more conservative underwriting
approach that we’ve seen recently to continue until
the investment market improves.

Investment Returns - 2022 vs 2023

$40

$20

$0

$-20

$-40

$-60

$-80

$-100
5
$-120

$-140

$-160
American Club

Britannia

Gard

Japan Club

London

North of England

Shipowners

Skuld

Standard

Steamship

Swedish Club

UK Club

West of England

NorthStandard

USD million
2022 2023
P&I Bulletin, July 2023

Owned Tonnage
While there are benefits and economies of scale to a On the negative side, the Clubs that are struggling
Club being a certain size, taking on large amounts of financially are getting smaller, as can be seen with
new business is certainly not always a positive thing. the reduction in tonnage of Japan Club and London
We have commented many times in the past on the Club. This follows the theme seen in recent years of
phenomenon of the ‘churn effect’ which involves a widening gap between well-performing Clubs and
Clubs taking new vessels at significantly cheaper those not doing so well.
premiums than their current entries, and the fact
this tends to reduce a Club’s premium by around Another notable tonnage reduction comes from
5% per year. This on its own often leads to the need NorthStandard. While there are undoubtedly some
for a General Increase every year. However, the members that left the Club as a result of renewal
growth in certain Clubs’ tonnage highlights a trend disagreements or dissatisfaction with the merger,
in shipowners’ preferences, showing us that the the majority of this reduction is simply because a
global membership like to place business with the few large owners were historically members of both
Clubs that are performing well financially. This has North and Standard, and felt they had too much
been the case for a few years now and continues tonnage in the new combined Club.
with significant growth from Gard, Britannia and
Steamship. There is also strong growth from West
of England after their cleansing of the book and
removal of a lot of tonnage at the 2021 renewal.

Owned Gross Tonnage - 2022 vs 2023

300

250

200

150

100

50

6 0
American Club

Britannia

Gard

Japan Club

London

North of England

Shipowners

Skuld

Standard

Steamship

Swedish Club

UK Club

West of England

NorthStandard

Million
2022 2023
P&I Bulletin, July 2023

Overall Club Results

Overall, the Clubs’ combined ratios show significant Skuld’s positive investment return is helped by the
improvement on where they were 12 months ago. sale of their interest in Asta, so their result cannot
The majority of the Clubs are now below the break- really be compared to the other Clubs.
even level of 100% and only London Club is above
110%. On the other hand, for all Clubs except Skuld The reduction in free reserves could again see some
investment losses were significant, meaning that Clubs come under pressure from regulators and
free reserves have reduced and most Clubs were in S&P. This will particularly affect those Clubs with
a poorer financial position at 20 February 2023 than combined ratios exceeding 100%, who will need to
they were 12 months before. As discussed above demonstrate that underwriting results are improving
these are paper losses, and we understand that the in the 2023 policy year.
position of many Clubs is already a lot better now
than it was at 20 February.

Free Reserves - 2022 vs 2023

$1400

$1200

$1000

$800

$600

$400

$200

$0
American Club

Britannia

Gard

Japan Club

London

North of England

Shipowners

Skuld

Standard

Steamship

Swedish Club

UK Club

West of England

NorthStandard

7 USD million
2022 2023
*Britannia includes Boudica Assets
American Club and London Club included Unbudgeted Supplementary Calls

It’s very clear from the underwriting results that good performance. The same can be said for those
the Clubs that are diversified into other lines of Clubs with large portfolios of Charterers business
business have performed better than those that for Traders. There can be a misconception that
rely primarily on mutual P&I. Hull and Machinery diversification always means non-P&I related
has performed well in recent years, but it is not products, but there are certainly benefits in Clubs
just hull business supporting the Clubs. Those that offering fixed premium commercial products within
have significant offshore portfolios covering P&I for the P&I sphere of expertise they have already.
MOUs reap the benefits of this sector’s traditionally
P&I Bulletin, July 2023

Combined Net Ratio Investment Returns (USD Million)

Club 2022 2023 Club 2022 2023

Gard 97% 83% Skuld 2 3

NorthStandard 107% 95% American Club 8 (15)

Steamship 113% 95% London (4) (18)

Skuld 108% 96% Steamship (5) (28)

West of England 112% 97% West of England (7) (28)

Shipowners 99% 97% Swedish Club 10 (39)

Swedish Club 129% 102% UK Club 15 (43)

UK Club 115% 104% Britannia 16 (63)

American Club 112% 104% Shipowners 15 (65)

Britannia 123% 107% NorthStandard (33) (81)

London 92% 128% Gard (5) (149)

Japan Club 31 TBA

Japan Club 147% TBA

Owned Gross Tonnage (Million) Free Reserves (USD Million)

Club 2022 2023 Club 2022 2023

Gard 271 277 Gard 1,278 1,260

NorthStandard 292 255 NorthStandard 744 685

UK Club 150 153 Britannia 588 510

Britannia 135 142 Steamship 474 454

Steamship 110 117 Skuld 430 445

West of England 107 113 UK Club 488 430

Skuld 99 95 Shipowners 396 337

Swedish Club 92 93 West of England 251 231

8 Japan Club 93 90 Swedish Club 197 150

London 44 41 London 164 113

Shipowners 29 30 American Club 64 44

American Club 20 25 Japan Club 244

P&I Bulletin, July 2023
The smaller Clubs continue to have lower free
reserves, making them more vulnerable to the poor
investment market. This potentially also contributes
to the widening gap between them and the larger,
better-performing Clubs.
In the past few years supplementary calls have
made a comeback, with three Clubs announcing
supplementary calls in the lead up to the 2023
renewal. Members increasingly value stability of
cost, meaning supplementary calls are viewed by a
majority of Club members to be unacceptable.
Aside from being unpalatable to members,
supplementary calls do not provide a long-term
fix. Loss ratios will improve for the policy years
for which a supplementary call is made, but they
do not address the underlying reason why the
supplementary call was needed, which is that
the original premium charged for that year was
insufficient to cover the claims and costs.
Announcing both supplementary calls and a
significant General Increase is not well received
9
by members, which explains why both London and
American Club (who made supplementary calls)
announced 0% General Increases. However, even
with no General Increases, the reality is that these
Clubs were still pushing for premium increases -
with American Club imposing a minimum premium
increase of 10%. This led to some high-profile
departures, which feeds into the general trend
for members to move tonnage over time to the
financially stronger Clubs.
While the Clubs have made meaningful progress
in improving their underwriting results, there is
still significant competition for new business and
additions to fleet. Most Clubs are still prepared to
quote extremely cheaply for new tonnage which
undermines their overall underwriting performance
and drives a need for increases at renewal. Fixed
premium P&I and Charterers Liability also remain
competitive, and while all Clubs have seen increased
reinsurance costs on these products, they have
struggled to achieve the same increases from their
clients. For business that is attractive and performs
well, reductions are typically still achievable.
P&I Bulletin, July 2023

Were the latest round of General Increases

justified?
The answer to this question has to be both yes and no. There is little doubt that P&I premiums
have been through a number of soft years, which in 2020 and 2021 resulted in Clubs posting
an average combined net ratio of 116% and 121% respectively. Over the past four years
the Clubs have sought to restore a balanced and breakeven underwriting position. This was
undoubtedly an important measure for the Clubs this year too, and something the rating
agencies such as S&P will expect to see. After all, even the largest clubs can only sustain
losses for so long and remain in a strong financial position. Unfortunately, we have seen the
alternative with some of the smaller, weaker clubs levying unbudgeted calls consistently in
recent years, and others at the very least facing the spotlight of S&P.

However, it is testament to the financial robustness of the majority of the Clubs that we have
seen five years of underwriting losses and some rather significant investment losses with
most clubs still remaining in a very strong position financially. On top of this, most of the
Clubs have still retained an AAA capital adequacy rating.

It is also worth reiterating that generally the investment losses seen by the Clubs were paper
losses that may recover, and while increases were probably still needed by the Clubs, more
flexibility should be shown to those who are net contributors to the membership. In addition
to a very benign year for the pool, many of the Clubs experienced much lower than budgeted
claims within their retention, which could have supported greater flexibility in some cases.

What do we expect for the coming year?

Looking forward, we believe that the Clubs have now largely addressed underwriting
performance issues. Many achieved a 5-10% increase at renewal, which serves as a further
boost to the latest set of combined net ratios, improving investment performances, and so far
another relatively benign start to the year insofar as performance to the pool. As a result, the
Clubs seem to have returned to a profitable position from an underwriting standpoint.

We do however anticipate that some of the Clubs who saw capital levels fall the most in recent
years may look to replenish their free reserves, but in most cases the Clubs aren’t likely to
10 need to levy further high General and Targeted increases to achieve this. It is also possible
that for some of the stronger Clubs, or those that have preserved capital better, we may
see a return to capital returns/distributions or increased owners’ discounts being applied to
incentivize growth of the membership and to reward the loyalty of the current members.

The merits of the NorthStandard merger have been discussed at length in previous
publications. But given the merger was effective on 20 February 2023, we hope the year
ahead will see the combined Club deliver greater efficiencies, stability and value to its
members through its ability to sustain greater levels of volatility. Gard, the largest Club, has
a long history of returning capital in the form of reduced deferred calls (or more recently an
owners’ general discount and we hope that this is something that NorthStandard may be in
a position to offer to their members in the future.
Contact Us
Angus Bell Jacqui Coplen
Client Manager Client Manager
+44 (0)124 570 2376 +44 (0)1245 709 136
angus.bell@aon.co.uk jacqui.coplen@aon.co.uk

Sarah Lamb Julie Vine

Associate Director Client Manager
+44 (0)20 7086 3155 +44 (0)1245 706 093
sarah.lamb1@aon.co.uk julie.vine@aon.co.uk

Chris Chadwick Chris Gimson

Executive Director Executive Director
+44 (0)20 7086 4185 +44 (0)20 7086 3155
christopher.chadwick@aon.co.uk christopher.gimson@aon.co.uk

David Mahoney Andrew Meech

Executive Director Director
+44 (0)1245 709 249 +44 (0)20 7086 0075
david.mahoney@aon.co.uk meech.andrew@aon.co.uk

Eleanor Urry
Associate Director
+44 (0)207 7086 1846
eleanor.urry@aon.co.uk

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