S&P Global Platts said late last month that it thought that most P&I clubs would record breakeven results or better in the policy year ending February 20th 2024.
S&P noted that all 12 of the P&I clubs in the International Group had benefited from a low level of pool claims over the past 18 months. The clubs were also poised to reap the benefits of a higher interest rate environment, as well as a pull-to-par effect on their fixed income portfolios as marked-to-market losses from 2022 start to unwind as bonds mature.
The P&I sector’s operating performance had improved, consistent with S&P Global Ratings’ projections from 12 months ago, mainly because of lower pool claims. In financial 2023, the average combined ratio was 97%. The incidence of attritional claims was also down, post-pandemic. Results from the clubs that publish half-year results had suggested that financial 2024 might trend similarly to 2023.
For the full 2024 financial year S&P expected the majority of clubs to record breakeven results or better, which in turn would somewhat relieve those clubs whose capital adequacy had deteriorated in recent years.
The clubs next year will also benefit from the higher yields they are now receiving on their bond portfolios. Increases in interest rates across the globe in 2022-2023 have enabled clubs to reinvest in bonds offering higher returns. The investment portfolios of a majority of clubs will likely help enhance their technical results over the next three years, thereby offering some relief to the underwriting aspect of their operations, said S&P Global.
The policy year ending February 2023 marked a departure from the trend of significantly high pool claims seen in the previous four years. The absence of pool claims in the first half of the policy year was very unusual for the sector.
Nevertheless, pool claims gradually began to materialize toward the 18-month mark, aligning more closely with the patterns observed during the 2016-2017 policy year.
Pool claims for the first half of the policy year ending February 2024 already appeared to have returned to historical norms seen before the heavy-claim years of 2020 and 2021. This had shown them that there was, after all, no “new normal” of higher pool claims, as had been feared. S&P Global also noted that pool experience was inherently volatile and, as the policy years ending February 2019 and 2020 showed, “a quiet first half does not necessarily lead to a quiet year overall”.
S&P Global said that “in our view, the average general increase is likely to be more modest than in recent years, at just over 5%. While this is materially lower than the previous year’s 7.5%, clubs will also continue to seek increases to their deductibles for shipowners that have large fleets.”
Five Clubs have thus far announced general increases (or aspired Estimated Total Calls) within the range predicted by S&P Global. Some have kept their deductibles unchanged, while others have increased them roughly in line with costs.
Rating actions taken by S&P Global in the past 12 months
The year to October 2023 was active in terms of rating actions on P&I clubs. S&P Global observed a decline in several club’s capital adequacy due to years of strain on their results and the impact of investment losses, leading the agency to take some negative rating actions.
However, in response to rate increases during the 2023 renewals, improved technical performance for the current year, and a more stringent approach to terms and conditions, S&P has subsequently revised its outlook on several clubs to stable, from negative, over the past year.
Presently, S&P’s long-term ratings on nine clubs have a stable outlook, while three still have a negative outlook.
The agency took six rating actions between October 2022 and October 2023:
- In October 2022, S&P lowered its rating on West of England from ‘A-‘ to ‘BBB+’ and assigned a stable outlook. This action reflected constraints related to the company’s capital position and its expectations for its recovery prospects in the next two years.
- In October 2022, the agency downgraded Swedish Club from ‘A-‘ to ‘BBB+’ and assigned a stable outlook, reflecting the erosion of its capital adequacy. This primarily stemmed from underwriting and investment losses sustained in 2021 and 2022.
- In November 2022, S&P revised its outlook on our long-term rating on London Club to negative from stable and affirmed the ‘BBB’ ratings. The negative outlook reflected uncertainty related to the evolution of the club’s capital adequacy.
- In February 2023, Standard Club and North Club merged to form NorthStandard. S&P affirmed the ‘A’ rating and assigned a stable outlook, reflecting the merged entity’s improving operating performance and sound capitalization.
- In June 2023, the agency revised its outlook on its long-term rating on Skuld to stable from negative and affirmed its ‘A’ rating. The stable outlook reflected S&P’s expectation that the club would maintain a solid capital position and was likely to achieve results close to breakeven in the coming years.
- In August 2023 S&P revised its outlook on our long-term rating on Steamship to stable from negative and affirmed its ‘A’ rating. The company’s performance improved, driven by enhanced underwriting results and better investment margins.