Fewer clubs? “Eight would be great” – Cracknell

Mark Cracknell, Head of P&I at Marsh JLT, said that in the broker’s P&I Review for 2018 Marsh had focused on the financial and competitive efficiencies that would come from having fewer clubs.

“We made the case that there should be no more than eight P&I clubs. We argued that, through the better use of the substantial amounts of capital already contributed by ship owners to their P&I clubs, efficiencies could be achieved.”, said Cracknell in the 2019 Review.

He said that, in the simplest terms, the report discussed the potential to increase the per-club retention in a way that would allow the abolishment of the International Group Agreement (IGA), bringing benefits all round. “Alternatively, if the remaining clubs chose to operate the mutual P&I system exactly according to the current structure, an estimated $1bn-plus of surplus capital could be returned to members; a happy choice for club members to make”.

Cracknell said that “either way, we expect the additional benefit of quicker, more effective decision making”. He said that eight clubs, if not actually completely homogenous, would have more common ground on most issues than is currently the case. The opportunity for individual directors to dominate small clubs would be reduced. “Some would say one size does not fit all. I say, why not, if a smaller number of larger clubs level up to the highest current standard?”

Cracknell added that, assuming that the remaining eight clubs were the most successful of the current crop of thirteen, “market intelligence indicates the necessary majority would be able to move forward quickly and decisively on issues such as the limit of cover available for passenger claims”.

Cracknell claimed that a smaller group of better capitalized clubs would end the discussion around a requirement to increase P&I rates. “Even with the current clubs, the idea that this is necessary seems incorrect (except perhaps in a couple of cases at the lower end of the tonnage scale)” he said, before the current round of increases.

Cracknell said that “the supposed justification appears limited to relative comparisons of capital strength, mostly made by the clubs themselves about each other”. Cracknell concluded that “despite the reported and much bemoaned overall reduction in free reserves and recorded combined ratios mostly worsening during the 2019 P&I financial reporting season, capital adequacy (as shown in Solvency II filings) once again improved for the clubs as a whole. Time for a change. Will anyone rise to the challenge?”

https://www.marsh.com/uk/insights/research/protection-and-indemnity-review-2019.html