Are P&I Clubs unduly in thrall to rating agencies, JLT asks Clubs (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 in the responses of P&I Clubs to other questions.

Q: Are the P&I clubs unduly in thrall to the ratings agencies? Holding a capital base equivalent to the AAA level of target capital as measured by one well-known ratings agency may be necessary for relatively small (in the context of the general insurance markets), “mono line” insurers to achieve A ratings, but some may feel this is too high a price to pay, especially as membership of the IG has been the traditional measure of acceptability so far as port authorities, banks and charterers, etc. are concerned.

Swedish Club

Swedish Club said that rating organizations and capital assessments under Solvency II were a reality “for all who wish to be in this business”. The Club noted that these values were considered by those making a choice of club. The capital level required for the individual club was something for that club’s board to take a position on. “We should remember that marine insurance is inherently volatile”, the Club said.

UK P&I Club

UK Club said that the clubs were in thrall to their members, amongst whom there was an increasing trend, especially for those of a corporate nature and those where insurance proposals were sought by public tender, to require that their chosen club meet minimum S&P requirements or equivalent.

UK Club said that it followed that at least a proportion of the clubs had no option but to meet rating agency targets if the International Group was to continue to offer a home to those members who used S&P ratings in their insurance selection criteria.

West of England Club

West of England replied with a firm “No”, before adding the caveat that the rating agencies were “a fact of life”. The Club noted that Shipowners were sophisticated buyers of insurance and a rating might provide a potential new member with independent assurance about a club’s capital position. It said that, with the increasing “corporatization” of shipping, it had also seen some members’ internal risk guidelines requiring that they only deal with “A”-rated financial entities, which gave a club’s rating an even greater prominence in any buying decision. At the same time, virtually all broker reviews publicized full details of each club’s individual ratings and their relative “rating performance”. “Whilst being entered in a club which is a member of the IG may give sufficient comfort to some third parties, in practice it is no longer the only measure of financial strength for members and their brokers”, West of England concluded..