Is there not a case for reducing P&I rates overall? (part 4)

In its 2017 report on the P&I Clubs, broker Jardine Lloyd Thompson asked all of the clubs a list of questions. Here are the responses of Swedish Club, UK P&I Club and West of England Club to one of those questions. Over coming days IMN will be printing the responses of P&I Clubs to other questions.

Q: Many of our clients would rather see P&I rates reduced upfront rather than excess capital returned or call instalments discounted or waived later in the day. We understand that clubs aim to offer long-term stability but, with club surpluses at today’s record levels, is there not a case for saying that P&I rates overall could be reduced by a margin that would be beneficial to club members without risking the stability of club finances?

Swedish Club

Swedish Club said that P&I clubs endeavoured to price exposure with adequacy. It noted that although today, we had experienced lower than expected outcomes of large claims, the Club felt that it was more correct to return surpluses when they arose rather than under-price the risk “at the front door”.

UK P&I Club

UK P&I Club said that it had to be borne in mind that the current premium rates would be adding little or nothing to the capital base of the clubs. The increase in capital would have been generated by claims releases from earlier policy years (and therefore different premium rates to the current year) and investment returns. Total mutual premium collected by the clubs had remained broadly unchanged over the past eight years, during which time the total group tonnage has increased by nearly 50%.

West of England

West of England said that it was well aware of the difficult trading position faced by many of its members and recognized that any financial relief, whether by a reduction in premium or by some other means, would be welcome.

It said that its board would undertake a careful review later in the year, looking in particular at the likelihood of recent positive claims trends being sustained against a background of what appears to be a declining premium base across the whole industry.

However, the Club emphasized that its approach had always been to reassess each member’s rates at renewal so that they best reflected his own claims performance and risk profile at the start of each year. “A general return of premium tends, in our view, to be indiscriminate because, by definition, it applies to all regardless of good or bad performance”, the Club concluded.