Willis: P&I Market Posts Record Financial Results in 2011
Volatile Economic Conditions Call for Rate Hikes in 2012
London, UK, December 22, 2011 – It was the best of times, it was the worst of
times. Such is the case for the Protection & Indemnity (P&I) market, which delivered a blockbuster
financial performance last year, but when faced with fragile investment income and increased claims in 2011,
is proposing rate and deductible increases for the 2012 renewal, according to the
2011 Protection and Indenmnity Market Report
from Willis Group Holdings (NYSE:WSH), the global insurance broker. The annual review, published
today, comments on the unpredictable nature of the P&I market, offering both an encouraging and cautionary
view of the sector in the run-up to 2012.
A benign claims year in 2010/11 (paid claims were down by over 11 percent against 2009/10, said
Willis) combined with stable income levels, produced an overall market underwriting surplus of three percent. While
appearing relatively modest, this is significant as it represents the highest underwriting profit ever recorded by
the market. Meanwhile, a respectable 6.5 percent investment return, which, combined with the positive underwriting result,
propelled free reserves to a new record level at 20 February 2011, representing a 22 percent
increase from the position at the end of the previous year, found Willis.
Nevertheless, Willis reports that next year’s renewal will see a higher average rate general increase of 4.25
percent versus the 3.42 percent average rise in 2011. The increases have been triggered primarily by
the dramatic fall and subsequent fragility of world equity markets since August 2011, and increases in
claims and their volatility in the current policy year.
These factors have produced a climate of apprehension within a number of clubs, said the Willis report.
With no realistic expectation of anything better than nominal investment returns, the pressure to balance the
underwriting result is inevitably increased.
Ship operators, by contrast, are facing one of the most challenging economic periods in a generation, with
many of them being forced to implement austerity plans. As the 20 February 2012 renewal approaches,
the pressure to cut costs is likely to create tensions between buyers and underwriters, according to
Commenting on the report, Ben Abraham, Head of Willis P&I and author of the P&I Market Review,
said: “When faced with decisions that potentially affect the survival of their companies, the pressure on
most ship owners will be at least as great as that on their underwriters. Despite the
relatively modest increases proposed, the 2012 renewal has all the early signs of being confrontational.
“It continues to be a notable feature of the general increases that they do not necessarily reflect
the underwriting performance of each individual club. While the range of figures announced is modest, with
two percent variance across clubs able to write ‘large ships’, there is a 36 percent variance
between the best and worst underwriting results. The most obvious implication of the variance is that,
rather than making the assessment purely on technical underwriting requirements, competitive market pressure is a major
Some key market highlights in the Willis P&I report for the 2010/11 financial year include:
- Owned tonnage increased by 5.7 percent
- Premiums increased by 2.6 percent
- Gross and net paid
claims reduced by 11 percent and 11.4 percent, respectively
- Estimates for outstanding claims increased by USD
- Total incurred claims reduced by 4.6 percent
- Market underwriting surplus was USD $97 million
- Investment income was USD $537 million
- Overall surplus was USD $634 million
Assets increased by 15.3 percent, free reserves increased by 22.7 percent. Willis’s annual P&I Market Review analyses
the financial results of the market in general and each individual club. The difference between individual
clubs’ performance is significant and this report only touches on the comparisons. Willis P&I clients have
access to more expansive information upon request.
Click here for the full Willis P&I Market Review.
Willis Group Holdings plc is a leading global insurance broker. Through its subsidiaries, Willis develops and delivers
professional insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public
entities and institutions around the world. Willis has more than 400 offices in nearly 120 countries,
with a global team of approximately 17,000 employees serving clients in virtually every part of the
world. Additional information on Willis may be found at www.willis.com.