Reserves at P&I Clubs are currently “more than adequate” according to Mark Cracknell, senior partner, marine & cargo division, JLT Specialty. Participating in a panel at the inaugural Marine Insurance London on the Landscape of the modern P&I Club”, Cracknell said that, while it was great to have well-capitalized insurers, perhaps adding $550m to reserve funds was a step too far. He said that brokers had hoped that the Clubs would start addressing this issue, paying more attention to front-end rates.
The other three members of the panel, which was moderated by Jason Waguespack of Galloway, Johnson, Tompkins, Burr & Smith, were Dorothea Ioannou, chief commercial officer of American Club; Simon Swallow, CEO at Shipowners’ Club, and Greg Thomas, chief business development officer of Skuld.
Ioannou responded that American Club had looked at declared rates and found that they had dropped between 12% and 28% at the high end, with reserves increasing mainly on the back of improved investment returns. She said that many of the clubs had been running at an underwriting loss and that, technically, current rates were unsustainable.
Swallow agreed that the increases in reserves were a result of “exceptionally good investment returns” which, he noted, were not really something over which the club had much control. He said that within the clubs there was a traditional concept of writing to an underwriting deficit and making it up with investment returns. He said that some of the clubs were giving back money in an attempt to retain business, but the cost of claims was increasing dramatically. However, he accepted Cracknell’s point that, on paper, the level of reserves looked high.
Thomas of Skuld said that its members wanted to see Skuld in a well-capitalized environment, and that the club was given a level of tolerance, by the members, that it was required to follow.