Willis P&I Review Finds Global Economic Crisis Hits Clubs’ Reserves

December 18, 2008

A bulletin from Willis Group Holdings London office notes that the “most significant factor in the run up to Marine Protection & Indemnity (P&I) renewals this February is the impact the global economic crisis has had on P&I Club reserves and will continue to have on future investment income results.”

The Willis “Protection & Indemnity Market Review 2008/09” observes that “no P&I Club would appear to be immune from the impact of the global economic crisis and uncertainty is everywhere. Five of the weaker Clubs have already been forced, directly or indirectly, by the meltdown in the equity markets to make unbudgeted supplementary calls totaling well in excess of $400 million.”

The report also warns that there “may be further isolated examples of Clubs reviewing whether additional supplementary calls will be required. The economic position of the world financial markets is unprecedented, the report said, but Willis anticipates that the stronger Clubs will be able to weather the storm without resorting to the ultimate recourse of unbudgeted calls. Despite the choppy economic seas, Willis does not expect similar forced and unplanned recapitalizations to spread to the entire market.”

Other key observations of the Willis P&I Market Review are as follows:
— Despite the record underwriting deficit of the market in 2007/08, the deficit was almost entirely offset by investment income. This reliance on investment income has become all too painfully clear following the global economic problems in the current year.
— When the report was written, Pool claims appeared to be strangely benign for 2008/09, with only two Pool claims in excess of $10 million having been reported thus far. This curious reduction in very large claims is unlikely to persist and emphasizes the volatility of the current market and consequently the difficulty of making predictions in the present environment.
— There is a marked variance between the financial position of Clubs and their ability to withstand the current market uncertainties. The discrepancy between the strongest and weakest is likely to become even greater.
— General increases for the February 20, 2009 renewal have been announced predominantly in the 10 percent to 20 percent range, with the market average at 16.5 percent, only marginally higher than those charged for 2008.

Executive Director Ben Abraham, who heads the Willis P&I team, commented: “The unpredictability of the world economic position, combined with the volatility of claims, will undoubtedly result in a hardening of the Clubs’ resolve at the forthcoming renewal. No matter how clear the necessity for increased premium levels, the opposing pressure of vessel operators facing a weakening freight market will most certainly lead to a renewal that is every bit as confrontational as last year.”

Willis added that it “believes that the role of a broker will be of ever increasing importance to Club members. Willis’ specialist P&I team combines unrivalled strength and knowledge with a significant and global spread of business, and is ideally positioned to assist its clients through these very challenging times.

“The annual report provides a detailed overview of the P&I marketplace and explores the main themes that have emerged over the past year. It also looks at what key drivers may affect individual operators in the coming months of financial uncertainty. Areas covered include a financial analysis of the market, with predictions for the results of the current year; a review of the market for reinsurance and pooling; a financial analysis of each Club; supplementary call history; release calls and the P&I fixed premium market.”

Source: Willis Group Holdings – www.willis.com

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