P&I clubs maintain record-high free reserves amid technical challenges: AM Best

AM Best, a credit rating agency specialising in the insurance industry, reports that despite ongoing technical performance challenges, Protection & Indemnity (P&I) clubs continue to hold record-high free reserves.

These clubs, which provide mutual marine insurance for shipowners, face rising reinsurance costs and evolving risk factors, yet their financial resilience remains strong.

P&I clubs that are part of the International Group (IG) collectively cede approximately 22% of their written premiums to reinsurers.

Through the IG pooling arrangement, participating clubs share claims exceeding USD 10 million, offering mutual protection.

Additionally, the IG secures general excess of loss (GXL) reinsurance up to USD 3.1 billion, a strategy that allows clubs to negotiate more favourable terms as a collective than they could individually.

For the 2025/26 policy year, the IG renewed its reinsurance programme under a more stable global market environment. However, the renewal still resulted in an overall price increase of slightly more than 10%.

Notably, individual club retention remains at USD 10 million, while the attachment point for the GXL contract stays at USD 100 million. The overall upper limit of the GXL programme and the capacity for overspill protection also remain unchanged.

AM Best highlights that the higher reinsurance costs stem from an active claims year, including the significant Baltimore bridge incident. While the full extent of losses from this event is yet to be determined, an initial USD 100 million-plus settlement has already been paid to the US Department of Justice for channel clearance expenses. Any further claims exceeding this amount will be covered by the IG’s panel of reinsurers.

Reinsurance rates have risen across vessel categories, with fully cellular containerships (FCCs) seeing the highest percentage increase. AM Best notes that these cost increases are typically passed on to shipowners through additional levies on P&I premiums.

The IG’s GXL programme remains comprehensive, continuing to provide free and unlimited reinstatements for most risks. However, pandemic and cyber risks have limitations—unlimited reinstatements apply only to the first coverage layer (USD 650 million excess of USD 100 million).

Beyond this, the program consists of two separate aggregated coverage towers, capping pandemic and cyber claims at USD 2.1 billion per year. Any claims surpassing this threshold would be pooled among IG clubs.

Additionally, each individual club secures its own reinsurance protection for claims under the USD 10 million retention limit. The extent of this protection varies based on a club’s capital strength and risk tolerance, with larger clubs generally having a greater ability to absorb significant losses.

Despite increasing reinsurance expenses and evolving market conditions, AM Best finds that P&I clubs remain financially stable, supported by prudent risk management and strong capital buffers. While rising costs may place additional pressure on shipowners, the IG’s collective approach to reinsurance continues to provide a structured and effective solution for managing maritime risks.

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