SIMON LOCKWOOD: Hello and welcome to today's episode of Waves by Willis. I'm your host, Simon Lockwood, and I'm delighted to be joined by our P&I specialist, James Ryan.
JAMES RYAN: Hello.
SIMON LOCKWOOD: And Kim Wood.
KIM WOOD: Hello.
SIMON LOCKWOOD: Today, we are discussing the 2025 International Group P&I renewal that was, at times, contentious, and highlighted to some the consequences of mutuality.
Despite a spectacular result for the P&I market in 2023-24, the resurgence in pool claims in 2024-25 drove a slightly harder renewal than would otherwise have been expected. Kim, what were the major factors leading up to the 2025 P&I renewal?
KIM WOOD: Thanks, Simon. So, as you alluded to, the 2023 financial year was very positive, but this is the full year that we have accounts for, so that is the year we'll consider now. So the underwriting results were very positive, with market-combined ratio sitting at 96%, which was an improvement from 99% the previous year.
A big driver was the investment income across the market as well with 6.6%, which was a huge turnaround compared to last year. And the combination of this positive underwriting and improved investment income resulted in the free reserves being driven up by 15%. So it put us in good stead leading into the 2024 policy year, but then the market played against us, as you say, in the 24 policy year with some large pool claims. James, did you see the same from your side?
JAMES RYAN: Yeah, definitely. And I think it's probably worth highlighting that the 2023 year, we actually saw a record surplus in the P&I market of $902 million. So if you just look at the 2023 year in isolation, a pretty remarkable year, very, very positive year for the International Group of P&I clubs.
On the back of that, as Kim just mentioned, there were resurgence in the number and severity of pool claims in the 2024 policy year which completely overshadowed, shall we say, the positive financial results that we saw in 2023.
KIM WOOD: Yeah. I think – so the '22 and the '23 policy year, we saw, I think off the top of my head, it was four or five pool claims throughout the whole year. And then, although I haven't got the final figures for 2024, I think it's around 15, and everybody's now going, oh, maybe we're just returning back to the normal level. So we're all now doubtful that the benign years are here to stay or they've gone.
JAMES RYAN: Yeah. And we've always said that there's massive volatility in pool claims and claims in the market overall. So in 2024, at the half-year point – so in August in 2024, we had more pool claims – or roughly the same number of pool claims reported as the number reported in the entire 2022 policy year. And at the end of the 2024 policy year, it looks like the number of pool claims will be in excess of the number of pool claims reported in 2023 and 2022 combined.
So it just shows that rather extraordinary last two years in pool claims, very benign, but are we returning back to the levels that we saw before; which was roughly about 21 pool claims a year. And that's really what underwriters seem to be focusing on.
Despite their very positive underwriting results in the 2023 year, the message really was from underwriters that those two years or at least the 2023 year was very positive because of the benign pool claims. We can't rely on there being no pool claims or very benign pool claims going forward as we saw in 2024.
So that's why the 2025 renewal was harder than we would have originally expected when looking at the results at the beginning of 2024, because underwriters were really focusing on the number of those pool claims that were coming through.
KIM WOOD: Yeah. I think we also... circling around the fact that there was a very large claim in March last year, the Dali incident, which is one of those pool claims, but has been a massive talking point all year, hasn't it? I don't know about you, James, but I think every renewal this year there was a query around, how does Dali impact us? What do we need to be worried about?
SIMON LOCKWOOD: What did Dali do to the renewal? And you said there was lots of talk about it, lots of speculation that – around the size and quantum of this loss as well. But what impact did that have on the 2025 renewal?
JAMES RYAN: The Dali was obviously a massive talking point in 2024. And really, right from the beginning of the 2024 policy year, because it happened in March; so I'm sure you all are aware of what happened, but just as a very quick recap. In March 2024, the container vessel the MV Dali, collided with the Francis Scott Key Bridge in Baltimore, which resulted in the collapse of the bridge and the tragic loss of six workers who were on the bridge.
So there's lots of noise about the Dali being the biggest claim in P&I market history. Figures were being thrown around of between $4 billion and $5 billion. But actually, there is a difference between economic losses and losses, which are the liability of the shipowner. And then consequently, those which fall into the P&I market.
And that's really down to US case law, hundreds years of US case law which says there can't be any recovery for economic losses unless there was physical damage. So although economic losses might have been $4 billion or $5 billion – so restrictions on entering into the port, getting cargo out of the port, actually, the losses were probably – or will probably be limited to the wreck removal of the bridge.
For example, toll revenues of the bridge, the loss of life from the workers on the bridge. We're estimating those losses could be as high as $1.5 billion to $2 billion to the marine liability market.
SIMON LOCKWOOD: To put some perspective on that, James, where does that stand in terms of a previous large loss?
JAMES RYAN: So the previous large loss – or the most – or the largest one in the history of the IG is the Costa Concordia, which is in 2012, and that was a loss of $1.6 billion into the market.
So when we were talking to clients who were asking questions about the Dali and the possible impact that it was going to have at renewal on the International Group market, we were modeling it based on the increases to the International Group reinsurance program following the Costa Concordia.
And back in 2013 and 2014, the International Group reinsurance rate for passenger vessels, for example, trebled following that incident. And International Group reinsurance costs for other ship types increased by 22% or 45% – as much as 45% over a two-year period. So that's where we're, modeling our very early predictions on.
But actually Kim, you might have more to say as well, that what we saw was actually much more moderate response from the international group reinsurers. And the increase overall was just above 10%.
KIM WOOD: Yeah. Yeah, no, absolutely. And then the hardest hit were the container ship operators where the increase I think now was 23%. And actually, everyone else was relatively moderate. So, as James said, we'd all been budgeting for every – our clients with much higher increases, which obviously makes it nicer when it comes to renewal and we turn around and say, oh, it's actually x.
But particularly for container ship operators, it was still a big number being applied to their premium at this year's renewal because it's a direct pass-through. The clubs don't offset this against their general increases or the premiums they're seeking. So yes, it was impactful.
SIMON LOCKWOOD: So clearly, Kim, reinsurance increases have materially affected members, particularly those operating in the container sector. But what were the individual clubs' approaches to the renewal separate to the reinsurance increases?
KIM WOOD: So we were hoping to see the clubs alleviating the pressure of the reinsurance increases by moderating their general increases, particularly for those members facing the largest reinsurance increases. However, we did actually see the clubs remaining very firm for hitting their targeted increases across the membership.
I think we have to remember, the reinsurance costs are pretty much a pass-through, and it's – although you get one premium allocated, it is split, but it's the same. So the clubs still need to charge their increases. And this is impacted by claims inflation. It's impacted by the continued pressures from rating agencies. They've still got other costs internally that they need to account for.
It's probably worth noting also that reinsurance costs, when they do go down, do also get passed through. Last year, we saw passenger vessels benefiting from 12.5% return. But James, did you see the same with the insurer – with the clubs remaining firm on your accounts as well?
JAMES RYAN: Yeah. To give context to the clubs' individual approaches to renewal, we saw a range of general increases, the lowest being nil, which was the Shipowners Club, and the highest being 7.5%, which was Britannia. And the market average generally increase was just above 5%. So that was the clubs' position going into the renewal. And then the International Group reinsurance costs are applied in addition to that as well.
KIM WOOD: These clubs, as you said, that were applying the higher end of the general increases are the ones that we'd seen hit by pool claims of the 2024 policy year, wasn't it?
JAMES RYAN: Yeah, exactly. And obviously, there's a lot of noise about Dali, but Dali isn't an individual club issue. It's a P&I market issue and it's an International Group reinsurance issue. And to put the Dali to one side, yes, it was a massive claim, but there was also a significant increase in the number of pool claims. In addition to the Dali. So we could be looking at one of the worst years in the pool for the last 20 years.
So that was definitely in the clubs' minds when they were setting their general increases, in addition to the pressure from rating agencies and just claims inflation. So that's why going back to the 2023 year, even though it was a record year in terms of the surplus into the market and underwriting results, clubs were still taking a very cautious approach going into 2025 renewal.
And they're still looking to increase their premium base to take into effect the increase in number of pool claims, claims inflation, and the pressure from rating agencies as well.
KIM WOOD: Yeah. And actually, we saw four of the clubs announcing capital – or that they would be issuing capital returns to the members this year, which a few of the clubs have been doing consecutively for the past few years, but we also saw Skuld able to offer capital returns this year as well.
This is pretty much contingent on vessels renewing at 20th Feb. And apart from Skuld, capital return is based on the 2024 policy year. So they will do it slightly differently, but there's some money being returned to the members.
SIMON LOCKWOOD: But how can this be happening? So Kim, James, some clients and our clients have been questioning how, on the one hand, clubs say they need more money from their members, at the same time as has been able to return money to those members. It seems somewhat counterintuitive. What has happened? What is triggering this ability?
JAMES RYAN: Yeah. I mean, this is definitely a question that we got from many, many of our clients. How can clubs give back money at the same time asking us for more money? And the level of returns that we saw from clubs, it was quite material. So Steamship were giving back 12.5%. Britannia were giving back 12%. Gard were giving back 10%. And Skuld are giving back 5%. So it's a material amount of money that the clubs are returning.
The way you have to look at it is that there's two different pots, effectively. There's the clubs' capital base, their reserves, which is the money they hold to meet the cost of claims. And if that's over a certain threshold, then some clubs feel like they can return that money to their membership.
So, they'll have their solvency ratios, and if the capital that they're holding is above their set capital solvency level, then they will, or can return that money to the membership, which is what we saw some clubs doing, and they've built that capital up over a number of years to be in a very strong and solvent position.
But at the same time, given the pool activity in 2024, we expect to see a number of the clubs announcing combined ratios in excess of 110%, particularly those that have been hit hardest by pool claims in the 2024 policy year. So that still means they've got a long way to go to correct their premium base, their rating base, to hit that break-even level, which they will aim for at 100%
So, while they might be very solvent and have adequate capital that they're able to return to members, on a year-to-year basis, they're having to increase their premium to make sure, year-to-year, they're able to meet their claims obligations.
And that's what S&P, the rating agency, seemed to focus on, is the annual premium base of a club, which is why – well, the majority of the market, every P&I club except for Shipowners Club, we're looking for general increases at the 2025 renewal, while four of the clubs are able to give money back to their members.
SIMON LOCKWOOD: Thank you. Right, Kim James, it is 12:01 on the 20th of February 2026. Greenwich meantime. How's renewal been this year for you?
KIM WOOD: Oh, I think it's been a very similar year to the 2025 policy year. I think as we've been whittling on. We feel the 2024 policy year had these pool claims which are going to impact the combined ratios of pretty much the majority of the clubs.
So ultimately, we're very likely to see again average targeted increases of between 5% and 7.5%. That volatility and severity of the pool claims is always hard to predict, but it feels like we're heading back to more normal levels and those general increases feel that they would match that. James, would you agree?
JAMES RYAN: I would, yes. I think we're going to see a very similar year to what we saw at 2025 renewal. Again, because of the rebound in pool claims, because of continued claims inflation, and because we're likely to see a number of the clubs announcing combined ratios in excess of 100% and maybe even in excess of 110%.
KIM WOOD: Yeah, and I think we're probably likely to see the strongest clubs continuing to return capital to the members as well, aren't we? I think Gard, they've been able to do their – what they now call the Owner's General Discount for I think over 15 years or so. Steamship remain in a really good position. I think Britannia and Skuld also equally strong to possibly be able to. But again, it depends on how the pool claims unfold over the next year.
And then, of course, we have to – our crystal ball wasn't very accurate for last year, was it? I think we were expecting a slightly softer renewal. So you never know. It might be a softer renewal next year, or it could be 10 times worse, we might have more awful incidents like the Dali to face, which hopefully we don't. But yeah.
JAMES RYAN: Anything can happen.
KIM WOOD: Anything can happen, yeah. So I think at the moment, our underlying feeling is unless this policy year was to be really different to this year, that it would be very similar.
SIMON LOCKWOOD: The previous policy was defined by large claims. James, what could the next 12 months potentially have in store for the P&I market?
JAMES RYAN: So we think that a big focus in this policy year will be on geopolitical issues, which will invariably impact the global shipping industry. We've already seen some pretty seismic shifts in world affairs, particularly driven by US foreign policy under Donald Trump or the rhetoric that's coming from the US. For example, US trade tariffs will likely have, or could likely have an impact on global trade, trade between China, the US, or the US and Canada.
And we've even seen the US going as far as saying that they could levy potential service fees on Chinese-built vessels of up to a million dollars, and that could even stretch to an owner who's got Chinese-built vessels in his fleet, or has Chinese-built vessels on order in Chinese shipyards.
So, that obviously would have a huge impact on the global shipping industry, if tariffs like that or service fees directed at certain nations are imposed by the US.
There's also rhetoric from Donald Trump, about taking over control of the Panama Canal. So what happens if there's a dispute between control of the Panama Canal and because of that dispute the Panama Canal closes for a period of time.
Vessels will then have to reroute round Cape Horn, which is a very perilous route to have to send your ship, which would result in a heightened risk of large claims, and we saw that with the closure of the, well, not the closure, but the vessels not being sent through the Suez Canal, being rerouted around the Cape of Good Hope, where there could be an impact on large claims, and we definitely saw one big claim that was a direct result of the vessel having to reroute round the Cape of Good Hope.
SIMON LOCKWOOD: The other thing that we hear quite a lot about is the impact of the shadow fleet. Do you think this will have any issues with regard to, or impact on the P&I market in the next 12 months?
JAMES RYAN: Yes, so there's an enormous risk being posed by the shadow fleet, and we estimate that where we say 90% of world ocean going tonnage is insured in the International Group system. We estimate that it could be up to 10% reduction in the global fleet being insured by the International Group, because vessels have been taken out to take part in sanctioned trades effectively and form part of the shadow fleet. You can imagine which is the fear of all shipowners and all P&I clubs in all nations is if, there was an incident involving a shadow fleet vessel, which was effectively underinsured, and there was no insurer there to respond to a large oil spill, a wreck removal, for example. Then who's going to be picking up that cost? It's going to be the jurisdiction where the event happened, for example, but also the reputational damage for the shipping industry will be enormous.
Again, there seems to be more dialogue between the US and Russia, and we seem to be moving towards some sort of or form of ceasefire between Russia and Ukraine. Will that mean that the US starts to lift sanctions on Russia in an attempt to ease that relationship? And I suppose the question then is, if you have US lifting sanctions on Russia and Russian shipowners of Russian ships and Russian cargoes, then that won't be considered sanction trade from a US perspective but what about those UK and EU P&I clubs? How would that impact their sanctions? So, it could be a whole chaotic situation where different sanctions regimes apply to different shipowners and to different P&I clubs, which would be, you know, a nightmare really for shipowners and P&I clubs.
SIMON LOCKWOOD: I guess there's a natural assumption that the EU and the UK stand in step with regard to, you know, to sanctions with the US, but at this stage, there's a likelihood that wouldn't as well, and presumably chaos will, you know, has the potential to exist in that situation.
JAMES RYAN: Yeah, exactly. It seems at the moment that the US has taken a very different view than the UK and the rest of the EU when it comes to Russia and the Ukraine war. So, however, that develops could have a significant impact on the shipping industry in this policy year.
SIMON LOCKWOOD: How do you foresee the situation in the Red Sea evolving with regard to a tax on shipping?
JAMES RYAN: The Red Sea, it's a continuingly developing situation. One minute we're close to a ceasefire, and the next the ceasefire has been broken, and I suppose the question is when will vessel owners feel like it's safe enough to send their vessels through the Red Sea and, if they do feel safe enough to send their vessels through the Red Sea, what a war risks insurers are going to consider that risk to be? Are they going to see it as a reduced risk and then war rates go down in the area, thereby opening up the Red Sea again to, to most shipowners. So it's definitely an interesting time, an interesting time in the world in general. So anything can happen over the next 12 months and we will have to wait and see.
SIMON LOCKWOOD: James and Kim, we, we truly appreciate your insights and contribution to today's discussion. Thank you. Goodbye. Thank you to all our listeners for tuning in. We're glad you joined us for this episode of The Waves, our marine podcast series. Until next time.
KIM WOOD: Thank you.
JAMES RYAN: Goodbye.
SIMON LOCKWOOD: Thank you to all our listeners for tuning in. We're glad you joined us for this episode of The Waves, a marine podcast series. Until next time, goodbye.
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