London P&I Club has announced a supplementary call and measures which it said would “ensure strength and sustainability of its cover for Members”.
London is raising supplementary calls on the 2019/20, 2020/21 and 2021/22 P&I policy years.
The details, provided in a Circular and Financial Review issued to Members, are:
- 2019/20 35% of ETC premium (payable December 31st 2021)
- 2020/21 30% of ETC Premium (payable March 31st 2022)
- 2021/22 35% of ETC Premium (payable July 31st 2022)
London Club said that the moves represented an unusual step for the Club. It noted that the last time it took such action was in 2008 during the global financial crisis.
Details of the renewal arrangements for the 2022/23 policy year will be released in the near future.
Chairman of the London P&I Club Board of Directors, John M Lyras, said that “the raising of the supplementary calls follows the Club’s experience of particularly adverse trading conditions and underwriting deficits on its mutual P&I business for the last two policy years and a very high level of claims in the current year”.
He said that the main cause of the deficits were an increase in the cost of claims from the Club’s mutual members and from members of other clubs via the IG Pool, “during a period when a soft market saw rates reduce to very low levels indeed”. Lyras noted that, although rates strengthened in the current year, there was another elevated claims outturn, with a high frequency of Covid-19 claims being a particular factor. The average severity of claims on the Pool was also unusually high at the half year stage, and included one brought by the Club.
Lyras said that these challenges had to some degree been offset by positive investment performance. He noted that the Club remained in compliance with regulatory capital requirements. “However, the impact on free reserves and regulatory capital is such that the Board has decided that this action now needs to be taken. The supplementary calls raised will strengthen the capital position in line with the Board’s risk appetite’’.
Ian Gooch, CEO of the Club’s managers, said that the supplementary calls would restore and strengthen the Club’s finances, but noted that other action would clearly be required “to preserve and secure the position as we move forward”.
He said that a reduction of the discrepancy between P&I premiums and claims, focusing on a sustainable underwriting strategy backed by increased discipline around risk selection, pricing and conditions of cover was an example of where the Club would be making changes.
Other examples would involve “the targeted growth of the Club’s other existing, new and evolving lines of business and ancillary covers”.
He said that there was also scope for change and efficiencies in the way the Club works, how and where. Gooch observed that lessons had been learnt from the conditions imposed by the pandemic about how the Club could be operated, which he expected “to feed into a more flexible and agile approach across the business”.