S&P Global Ratings, a provider of credit ratings, research and analysis, predicts that most protection and indemnity (P&I) clubs will achieve results close to the threshold for the financial year ending February 20, 2025.

The 12 International Group (IG) P&I Clubs, which collectively underwrite approximately 90% of the global ocean fleet liability insurance, have benefited from reduced group claims volume over the past two financial years.

Under an excess loss pooling arrangement, IG members share claims between $10 million and $100 million.

Historically low receivables improved the operational performance of the P&I sector during FY2023 and FY2024.

However, in the 2025 financial year, the number of serious claims is expected to increase, which could affect the performance of clubs.

S&P Global expects IG to raise rates by an average of nearly 5% in 2025, similar to the increase seen during the 2024 renewals.

The average combined ratio for FY2025 is expected to be between 100% and 105%, an increase from the 95% combined ratio seen in 2023 and 2024. A ratio above 100% indicates a loss of underwriting. Preliminary results from clubs that have released half-yearly reports indicate that the combined ratio may worsen in 2025.

“The protection and claims sector remains well capitalized,” commented Sachin Bhojani, credit analyst at S&P Global Ratings. “Overall, capital levels have gradually recovered, supported by strong underwriting performance over the past two years and robust investment returns.”

However, high capital levels may lead to challenges during the 2025 renewal period, particularly with reduced freight rates affecting negotiations. The clubs’ significant capital levels, coupled with these low rates, could complicate negotiations when policies come up for renewal, as they make it harder to justify even modest rate increases.

Some clubs, including Assuranceforeningen Skuld and the Swedish Club, reported a combined average rate of 101%, primarily due to a resurgence of group claims.

For example, Skuld’s receivables reached $25.2 million, more than double the previous year’s $11.7 million, indicating growing pressure on the sector.

Claims prove costly, even if their frequency remains below average. In particular, the serious incident involving a container ship hitting the Francis Scott Key Bridge in Baltimore resulted in one of the industry’s costliest claims, comparable to the Costa Concordia disaster.

Other significant claims include collisions involving YM Witness and Vox Maxima, which are likely to impact IG’s reinsurance costs in 2025.

In terms of premium rates, S&P Global expects the average increase for policy renewals to be just under 5%, lower than in previous years, with individual increases between 3.0% and 7.5%.

Future renewal talks may pose challenges for both insurers and members, as shipowners may resist further rate hikes despite recent underwriting gains reported by P&I clubs.

In addition, the growth of the “dark fleet”, comprising vessels operating outside traditional regulatory frameworks, raises concerns for P&I clubs. While around 90% of the global fleet remains insured in IG, an increasing number of aging vessels are sailing without cover, posing risks to the market.

Geopolitical tensions have also tested P&I clubs, particularly after Houthi attacks on naval vessels in January 2024.

These events led reinsurers to withdraw Red Sea war risk cover, prompting P&I clubs to advise members to take alternative routes. Fortunately, effective management of the situation minimized the potential financial losses from these disruptions.

Overall, while challenges are on the horizon for P&I clubs in 2025, their solid capital base and past performance provide a foundation for navigating these uncertainties.