P&I clubs expected to raise rates by 5% amid rising claims in 2025: S&P

S&P Global Ratings, a provider of credit ratings, research, and analytics, forecasts that most Protection and Indemnity (P&I) clubs will achieve near-breakeven results for the financial year ending February 20, 2025.

The 12 P&I clubs in the International Group (IG), which collectively underwrite approximately 90% of the global oceangoing fleet’s liability insurance, have benefited from a low volume of pool claims over the past two financial years.

Under an excess-of-loss pooling arrangement, IG members share claims between $10 million and $100 million.

Historically low pool claims have enhanced the operating performance of the P&I sector during financial years 2023 and 2024.

However, in financial year 2025, the number of severe pool claims is expected to rise, potentially impacting the clubs’ performance.

S&P Global anticipates that the IG will increase rates by an average of close to 5% in 2025, similar to the increase observed during the renewals in 2024.

The average combined ratio for financial year 2025 is expected to range between 100% and 105%, a rise from the 95% combined ratio seen in 2023 and 2024. A ratio above 100% indicates an underwriting loss. Preliminary results from clubs that have released half-yearly reports indicate that the combined ratio may worsen in 2025.

“The protection and indemnity sector remains well capitalised,” S&P Global Ratings credit analyst Sachin Bhojani commented. “Overall, capital levels have gradually recovered, supported by a strong underwriting performance over the past two years and robust investment returns.”

However, the high capital levels may lead to challenges during the 2025 renewal period, especially with subdued freight rates affecting negotiations. Clubs’ significant capital levels, coupled with these subdued rates, could complicate negotiations when policies are due for renewal, as they make it harder to justify even modest rate increases.

Some clubs, including Assuranceforeningen Skuld and the Swedish Club, have reported an average combined ratio of 101%, primarily due to a resurgence in pool claims.

For example, Skuld’s claims reached $25.2 million, more than double the previous year’s $11.7 million, indicating increasing pressure on the sector.

Claims are proving costly, even though their frequency remains below average. Notably, the severe incident involving a container ship striking the Francis Scott Key Bridge in Baltimore has resulted in one of the industry’s costliest claims, comparable to the Costa Concordia disaster.

Other significant claims include collisions involving the YM Witness and Vox Maxima, which will likely impact the IG’s reinsurance costs in 2025.

As for premium rates, S&P Global expects the average increase for policy renewals to be just under 5%, lower than in previous years, with individual increases between 3.0% and 7.5%.

The upcoming renewal discussions may pose challenges for both insurers and members, as shipowners may resist further rate hikes despite recent underwriting profits reported by P&I clubs.

Additionally, the rise of the “dark fleet,” comprising vessels operating outside traditional regulatory frameworks, raises concerns for P&I clubs. While about 90% of the global fleet remains insured within the IG, an increasing number of ageing ships are sailing without coverage, posing risks for the market.

Geopolitical tensions have also tested P&I clubs, particularly following Houthi attacks on marine vessels in January 2024.

These events prompted reinsurers to withdraw war risk coverage in the Red Sea, leading P&I clubs to advise members to take alternative routes. Fortunately, efficient management of the situation has minimised potential financial losses from these disruptions.

Overall, while challenges are on the horizon for P&I clubs in 2025, their solid capital base and past performance provide a foundation for navigating these uncertainties.

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