Low losses and stronger balance sheets protect marine P&I Clubs

Marine protection and indemnity (P&I) insurers have strengthened their balance sheets in the past 12 months and benefited from low loss experience, leading S&P Global Ratings to take positive rating actions, including upgrading three insurers.

In a report titled 'Marine P&I Clubs' Strengthened Creditworthiness Is Unthreatened By Pricing Pressures', S&P said that the market faces pricing pressures from members in straitened circumstances. As a consequence, the ratings agency expects to see premiums fall in the coming 2017/18 financial year for mutual insurance associations providing risk pooling, information and representation for its members.

Nevertheless, S&P considers that while technical profitability may be thinner, pressure will primarily be on clubs' earnings rather than their capital bases. S&P does not expect any rating actions, positive or negative, over 2017/18.

"The improved performance of the International group of marine P&I insurers reflects lower claims," said S&P Global Ratings analyst Mark Nicholson.

"Smaller, attritional claims have declined in frequency, and there have also been fewer large claims in recent years, although these are inherently volatile in both number and size."

Despite the challenge to ongoing earnings, S&P Global Ratings does not expect the capital bases that the clubs have built up in recent years to be significantly eroded over 2017-2019. With falling premiums, capitalization could even strengthen relative to clubs' needs under the agency’s model.

"Prospects for higher ratings remain limited, however," said Nicholson.

"Many of the ratings on smaller clubs are restricted by the absolute size of their capital bases, the volatility of their results, which we expect to continue, and their relative lack of market power, as opposed to their solvency position."

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