A clear warning that hull and P&I insurance costs will continue to rise was delivered by Frans Malmros, outgoing Managing Director of The Swedish Club, at the Club’s June 12 AGM in Gothenburg.
In his final address to members before handing over to his successor, Lars Rhodin, Frans Malmros set out the harsh market realities. He said hull cover remained “significantly under priced” in 2007. He added: “There can be no doubt that a profound correction in the hull market is inevitable. Current premium levels are completely out of step with risk and cannot be sustained.”
As for P&I, Frans Malmros highlighted the continued growth in shipowner liabilities. He observed: “Inevitably, P&I premiums will continue to rise, to match increased exposure.”
The need for hull premium increases reflected higher claims values but Frans Malmros said that this broad explanation was now over-simplistic. “It fails to take account of many factors producing a fundamental change in claims pattern. Some commentators are still reluctant to describe the current market as soft, yet it is soft if the significant changes in the claims pattern are included in the premiums equation.”
Turning to P&I, he noted that the key decisions producing an escalation in shipowner liabilities “are taken at the highest political level, seemingly without administrations possessing real understanding of the shipping industry and its vital role in the world economy.” He continued: “All Clubs face the problem of accelerating claims inflation. The drivers include soaring freight rates, higher commodity prices and other factors associated with a protracted shipping boom. Loss of hire claims costs have escalated, as has the cost of repairs. Prices are high in the yards, if a slot can be found. Major claims continue to grow in this inflationary environment. In a collision case, for example, the opponent’s loss of hire claims may be as much as five times as expensive as in 2003.”
Presenting an overview of 2007 from the Club’s perspective, Frans Malmros said that both P&I and H&M had developed better than budget until mid-year, in terms of both claims numbers and costs, but things changed from August onwards. This deterioration in the position was largely offset by strong investment performance. He commented: “Investment income made a substantial contribution to the overall outcome, which can be described as favourable under the circumstances.”
In respect of core P&I and H&M business, premium income rose, but this increase was, however, offset by increased claims cost. Nevertheless, the Club achieved a breakeven technical result.
The result overall was a minor deficit of USD 2.3 million. Investment income totalled USD 22.8 million, a return of 12.6% (4.1% above benchmark).
Taking all factors into account, Frans Malmros said: “Premiums must rise to fully reflect rapidly increasing exposures. With this in mind, the Club’s underwriting guidelines were revised in 2007. We have a duty to act responsibly and our hull portfolio will be trimmed, if necessary, in order to secure appropriate premiums.”
On P&I premiums, he added: “Realistic pricing is vital. Large claims occur more frequently and they hit in a random manner. It is clearly unhealthy for The Swedish Club to rely heavily on investment returns to bridge any shortfalls between income and claims costs. It follows that there is only one direction in which P&I insurance costs can move.”
As of June 1st, the Club’s Hull & Machinery portfolio totalled 1,565 vessels of 60.4 million GT. The P&I-entered fleet (including charterers’ liability) totalled 1,255 vessels of 38.1 million GT. In addition, 592 vessels (21.3 million GT) were entered for FD&D.
Contact:
Lars Rhodin, The Swedish Club, Telephone: +46 31 638 400
TRS Public Relations, Telephone: +44 1304 813 366
The Swedish Club was founded in 1872. It is a leading mutual marine insurance company, owned and controlled by its members. The Club writes Hull & Machinery, War Risks, Protection & Indemnity, Loss of Hire, Freight Demurrage & Defence and any additional insurances required by shipowners. The head office is located in Göteborg, Sweden, and branch offices are located in Piraeus, Hong Kong and Tokyo.