Record pool deficit could hit P&I underwriting performance, Lockton broker warns

THE expected record deficit on the International Group pool scheme will inevitably have an impact on P&I club underwriting performance, warned Pippa Atkins, assistant manager of leading broker Lockton PL Ferrari.

Atkins believes the yardstick could cross the break-even mark at some of the IG’s dozen affiliates as when financial reports are published in the coming months.

Club woes may also be compounded by growing uncertainty in financial markets, which have been in turmoil since US President Donald Trump’s “liberation day” tariff announcement earlier this month.

The 12 IG marine mutuals collectively command billions of dollars of free reserves on behalf of their shipowner members. The money is invested, with the returns providing a degree of protection against any underwriting deficit.

Atkins graduated from Edinburgh University with a first in the history of art in 2014. While there, she did six weeks’ work experience with Gallagher- owned Blackwall Green, a broker specialising in art galleries, museums and private collections.

That proved an introduction to the insurance world and persuaded her to sign up for the Gallagher graduate trainee programme.

Gallagher placed her in the retail division, charging her with finding insurance for shops and businesses, covering risks such as theft, damage, liability and business interruption.

After three years, Atkins was looking for something more specialist and started circulating her CV.

One of the desks it landed on was industry veteran Stephen Hawke at the P&I specialist PL Ferrari.

“I had a couple of chats with him and he said it would be a steep learning curve, and he wasn’t wrong,” Atkins reflected.

She started with PLF in October 2017, which had been acquired by Lockton the previous year, and has worked there ever since.

Atkins works solely on protection and indemnity, which is offered mainly by P&I clubs and fixed-premium providers, and closely related lines such as charterers’ liability.

Around 80% of the work the London office handles is on behalf of North American clients, with the rest of the world handled mainly by other global offices.

The Ferrari deal was Lockton’s first major foray into marine. It has since grown its presence, buying a 50% holding in Turkish marine broker Omni Signota in 2018 and taking that to full control in 2022.

In 2021, it acquired Bergen-based Edge Group, the largest independent marine broker in the Scandinavian market. Lockton has made it known that it is eyeing up expansion in marine classes, despite it being an already crowded field.

Huge deficit

Big topics in P&I right now include the huge deficit International Group affiliates made on the pool scheme last year.

The audited numbers are not in yet, but projections range from $600m to perhaps as high as $750m. Even at the lower end of that range, all previous records will be shattered.

The clubs also took a caning in the two pandemic years of 2020 and 2021. By contrast, 2022 and 2023 were relatively modest.

“The perception is that this marks a return to normal levels of pool claims. That will definitely have an impact on the clubs’ combined ratios for the next year.

“They were just coming within the 100% range, when the environment was quite benign. A dramatic uplift in pool claims will have an impact on their combined ratios,” said Atkins.

For insurers, a combined ratio is a measure of payouts and operating expenses set against premium income. Anything over 100% represents a loss. The figure is a useful yardstick of underwriting performance.

Unlike commercial insurers, who are happiest with CoRs in the 80% or even 70% bracket, IG clubs are mutuals and aim for just the right side of break-even.

Investment concerns are another potential worry. Markets took a hit after Trump’s initial tariff announcement but have since rowed back after many of the measures were subsequently put on hold.

As Atkins pointed out, ratings agencies such as Standard & Poor’s, which has downgraded three clubs in the past few years, put great emphasis on balance sheet strength.

“If you speak to the clubs, most of them say investment returns shouldn’t be subsidising underwriting deficits. But that said, it’s a kind of a cushion.”

“If the investment market this year doesn’t perform [as well as last year] that definitely takes away that cushion and puts pressure on them to get the technical underwriting correct.”

For historical reasons, most clubs begin their accounting year on the renewal deadline of February 20, so any mid-year decline will mean at least a paper loss.

Combine these factors and the outlook is for further rate rises at the 2026 renewal, with clubs setting out their prices for next year this autumn. But their extent is yet to be determined.

Atkins’ job as a broker entails negotiating on behalf of owners to get the best deal from P&I providers.

“It’s too early to say there will be hefty rate hikes at this point. But all of the signs are saying that if everything continues as it is at the moment, we’ll definitely be looking at general increases.”

#PippaAtkins #Insurance #Brokers #Containers #DryBulk #Tankers #Gas #MarketInsight #VLCC #NorthAmerica #Gallagher #StandardPoors

Lloyd's List Daily Briefing 16 April 2025