Key Takeaways
- We expect the International Group of Protection and Indemnity Clubs (IG) will increase rates by an average of close to 5% in 2025, similar to the increase during the renewals in 2024.
- After two years of low claims activity, pool claims have re-emerged this year, resulting in an expected average combined ratio of 100%-105% for the protection and indemnity (P&I) sector.
- Geopolitical tensions and the dark fleet--ships that operate without sufficient insurance coverage--continue to put pressure on the maritime industry.
- Our ratings on P&I clubs have been more stable in the past 12 months than they were in previous years.
S&P Global Ratings expects most P&I clubs will achieve near-breakeven results in financial year 2025 (ends Feb. 20, 2025). The 12 P&I clubs in the IG, which underwrites about 90% of the oceangoing fleet's liability insurance globally, benefited from a low level of pool claims over the two past financial years. IG members share claims of $10 million-$100 million under an excess-of-loss pooling arrangement. The historically low number of pool claims has improved operating performance in the P&I sector in financial years 2023 and 2024. In financial year 2025, however, the number of severe pool claims increased and will likely take a toll on clubs' operating performance.
We expect an average combined ratio of 100%-105% for financial year 2025. The average combined ratio was 95% in financial years 2024 and 2023 (a lower combined ratio indicates higher profitability, while ratios above 100% reflect an underwriting loss). Yet interim results from clubs that publish half-yearly reports suggest that the average combined ratio might deteriorate in financial year 2025.
In our view, the P&I sector remains well capitalized. Many clubs hold surplus capital at the 99.99% confidence level, according to our revised risk-based capital model. Overall, capital levels have gradually recovered, supported by a strong underwriting performance over the past two years and robust investment returns. That said, clubs' significant capital levels could raise questions in the 2025 renewal period, considering subdued freight rates in the shipping sector. Many clubs' potential modest rate increases could complicate negotiations when policies are due for renewal.
After strong underwriting results over the past two years, P&I mutuals hoped for a better performance in financial year 2025. However, results from the few mutuals that have reported their half-year figures--including Assuranceforeningen Skuld (Gjensidig), Shipowners' Mutual Protection & Indemnity Association (Luxembourg), and Sveriges Angfartygs Assurans Forening (The Swedish Club)--do not give many reasons for optimism. These three clubs have an average combined ratio of 101%, which is significantly higher than in 2023 (see chart 1). The increase mainly results from the resurgence in pool claims. For instance, Skuld reported $25.2 million in claims, more than double the $11.7 million it recorded for the same period last year. This uptick in claims is putting pressure on the sector's performance and clouds the outlook for 2025.
Chart 1
Chances Are That 2025 Will Be Expensive
Claims are proving to be costly, even though claim frequency remains below the average of the past two financial years. In March 2024, a container ship struck the Francis Scott Key Bridge in Baltimore, causing the bridge to collapse and the port to be suspended for several months. The severity of this incident, which was insured by Britannia Steam Ship Insurance Association Ltd. (The), is similar to the Costa Concordia disaster in 2012 and resulted in one of the marine industry's costliest claims. Other potentially costly claims include the collision incidents of the YM Witness in Turkiye and the Vox Maxima in Singapore this year, both of which were insured by NorthStandard Ltd. These events will likely have a significant effect on the IG's reinsurance costs in 2025, even though any cost increases of that nature are typically passed on to members.
Clubs Will Aim For Further Rate Increases
Yet we expect the average premium increase for policy renewals will be just below 5%, lower than over the past three years. We expect individual increases of 3.0%-7.5%. This year's renewal discussions will likely be challenging for both insurers and members, even though the expected average general increase in financial year 2025 will likely be lower than in previous years (see chart 2). The prospect of another rate increase could prompt pushback from shipowners, considering that most P&I clubs reported underwriting profits over the past two years and that they pass on excess-of-loss reinsurance costs to members.
Chart 2
The Dark Fleet And Geopolitical Tensions Remain Worrisome
The prominence of the dark fleet--vessels that sail outside the usual regulatory radar--has increased. Despite the challenging sanctions environment, roughly 90% of the global fleet remains insured within the IG. Yet an increasing number of mostly aging ships sail without IG coverage and pose challenges to P&I clubs. As this off-the-grid fleet expands, the risk of fragmentation in the P&I market increases, which could result in business losses for the clubs. Moreover, it remains uncertain who is responsible for covering the costs of collisions between dark fleet vessels and those insured by the IG.
Rising geopolitical tensions over the past 18 months have put P&I clubs' frameworks to the test. In January 2024, Houthi attacks on marine vessels prompted reinsurers to cancel coverage for P&I claims related to war risk in the Red Sea. In response, P&I clubs adjusted their policies and advised members to take alternative routes. Since the incident was managed efficiently and most vessels have opted to reroute via the Cape of Good Hope, we do not expect significant financial losses from the disruptions.
Criteria Revision Hardly Affected Our Assessments
P&I clubs benefited from the increased diversification in our revised model but some were impaired by the recalibration of our capital charges to higher confidence levels. Between November 2023 and June 2024, we implemented our revised insurance risk-based capital model criteria across our rated P&I clubs. Overall, the revised criteria had immaterial effects on our capital position assessments of the clubs, though the effects varied.
The number of rating actions on P&I clubs decreased in the 12 months through October 2024. Most clubs showed improved capital adequacy, supported by better technical performance and strong investment results. Of our current long-term ratings on the 12 P&I clubs, nine have a stable outlook, two have a negative outlook, and one has a positive outlook.
We took one rating action and revised one outlook between October 2023 and October 2024.
- In January 2024, we lowered our rating on American Steamship Owners Mutual P&I Assn. Inc. to 'BB+' from 'BBB-' and assigned a stable outlook. This was due to the continued weaknesses of the club's capital position.
- In July 2024, we revised our outlook on Japan Ship Owners' Mutual Protection & Indemnity Assn. (The) to positive from stable because of an increase in profitability that resulted in a stronger capital position.
Related Criteria And Research
This report does not constitute a rating action.
| Primary Credit Analyst: | Sachin Bhojani, London; sachin.bhojani@spglobal.com |
| Secondary Contact: | Mark D Nicholson, London + 44 20 7176 7991; mark.nicholson@spglobal.com |
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