Five things you need to know about the 2015 P&I renewal round - 16/03/2015

Shipowners have played an increasingly tougher game with the P&I clubs in each renewal round. yurchello/

Soft market, with increased club switching, is seen as likely

1. Financially hard-pressed owners have been playing hardball

When the good times are rolling, forking out for P&I cover is just another incidental overhead. When the Baltic Dry Index is at an all-time low, every dollar counts.

Inevitably, shipowners have taken an increasingly tougher line in each renewal round since the onset of the shipping downturn, and this year is no exception.

In some cases, haggling on the part of owners has been witnessed over sums equivalent to the cost of a good restaurant lunch, according to some sources.

That has particularly been the case in emerging markets, said  DGS Marine managing director David Skinner.

“If they can get $50 off their premium, they will do. They will argue until they are blue in the face to get that $50 discount.

“If they have not had any claims on their record, obviously they are fighting hard for a reduction.”

Broker Nicholas Taylor of Marsh commented that many owners have negotiated astutely and in some circumstances have even secured a reduction.

“Some of them have tried quite hard to get down into red figures, and some of them have succeeded,” he said.

One obvious tactic here is to threaten to withdraw tonnage from one club and enter it with another. But this can only be done if the threat has credibility, Mr Taylor added.

“It’s quite a high stakes poker game,” he warned.


2. A number of fleets are set to change hands

So how many owners will make good on such ultimata? Typically, only 1%-2% of the roughly 90% of the world fleet by tonnage entered with the 13 members of the International Group of P&I Clubs changes hands each year.

While it can be said without fear of contradiction that the overwhelming majority of fleets will once more stay put, the question is whether club switching will be more prevalent this year than in recent years.

We will know for sure today, but the gut feeling of some market participants is that there will be a perceptible rise.

At least two major fleets owned by Aon clients will swap clubs in this year’s P&I renewal season, said David Mahoney, client director at the prominent insurance broker.

Stephen Hawke, managing director of the UK branch of PL Ferrari & Co, a leading P&I broker, is expecting quite a busy year.

“Each year the clients’ situation gets worse in terms of the money they are not making, and at a point in time, the relationship that builds up between owners and their P&I clubs starts to be called into question.

“That is creating a lot of friction and is also making the renewal quite late, in terms of people coming to decisions. And I think we will see a few headline accounts moving from their existing clubs to other ones, either in whole or in part.”

Skuld has promised to unveil major gains at the expense of its rivals, with outgoing chief executive Douglas Jacobsohn also predicting more club switches in 2015.

Known to be on the move are Hanjin and Ocean Tankers, which are both exiting the North of England. There are unverified rumours surrounding another important fleet.

There have been some suggestions that Steamship Mutual has seen some worthwhile wins in Far East, particularly in South Korea and China.


3. Most — but not all — clubs have taken a soft stance

So soft are conditions right now that clubs are ready to cut deals and there have been claims that those that announced general increases last year are finding it difficult in making the increases stick when push comes to shove.

“What I hear is that most who have declared general increases are soft and giving it away, anyhow. They have no argument to help them out in this case,” said Skuld’s Mr Jacobsohn.

He may have a self interest in saying so, given that Skuld is one of the more aggressive and commercially-minded clubs, and has deliberately chased market share by not imposing general increases in recent years. But his remarks are supported by word from brokers.

According to Aon’s Mr Mahoney, owners with good loss records — backed by their brokers, of course — have been able to secure favourable rates.

“In terms of getting more revenue in, the clubs probably haven’t achieved what they really wanted. But you have to temper that with the fact that their free reserves have never been higher. They are in good shape,” he maintained.

Mr Taylor of Marsh found the market softer in terms of pricing this year than it has been in the recent past, particularly for charterers’ business, which is more open to competition because release clauses do not apply.

Players such as Lloyd’s, Raetsmarine and the Charterers’ Club are said to have priced cheaply, and sometimes very cheaply.

But not every club has folded at the first raise. One broker, who wished to remain anonymous, said: “The club that’s been tougher than anybody else is Standard, and they probably needed to be, to improve their combined ratios.”


4. Fixed premium has held its own

There is a perception that fixed premium facilities cater for the less desirable end of the market, but DGS' Mr Skinner is at pains to deny such suggestions.

Many owners would happily switch to them if the playing field were level and restrictions imposed by IG clubs did not apply, he contended.

He cites the case of owner of five bulkers paying an International Group club $100,000 per vessel. Mr Skinner says DGS would provide the cover for $80,000, but 40% release calls mean that the proposal doesn’t stack up.

There is word of some significant wins for British Marine, so it seems that fixed premium will at least hang on to its existing market share, and maybe even augment it slightly.

But Mr Mahoney — who has extensive experience of fixed premium marine insurance in his career — does not believe that such providers will make major inroads on P&I clubs this year.

“The problem with that sector is that there is no mechanism to hold in the business, no release clause, so business flows from fixed provider to fixed provider. So there’s a lot of pressure just to hold on to what they’ve got.

“The only stuff that tends to fall out of the clubs has to be business that fits into the modus operandi of the fixed providers, with vessels under 20,000 gt and that sort of thing.”


5. Competition for newbuildings remains acute

While release calls constitute a financial disincentive to move existing tonnage from one P&I club to another, newbuildings are up for grabs, and keenly fought over as a potential bridgehead to winning further business.

“The way that competition works in the P&I market is that newbuildings see intense competition, to a degree you wouldn’t see in the commercial world," said Bjornar Andresen, chief underwriting officer at Gard.

“This game is run differently by each club. If you are too keen on bringing in new tonnage, you will end up having a churn effect, where you bleed your whole portfolio to a degree where you have to take in high general increases.”

Friday 20 February 2015, David Osler,