AM Best Observes Financial Resilience in P&I Clubs Despite Industry Challenges
AM Best, a premier credit rating agency focused on the insurance sector, reveals that Protection & Indemnity (P&I) clubs are maintaining robust financial health with record-high free reserves, despite ongoing technical performance challenges. These clubs, which offer mutual marine insurance to shipowners, are facing increasing reinsurance costs and shifting risk landscapes. Nevertheless, their financial solidity continues to be robust.
P&I Clubs and the International Group (IG)
P&I clubs affiliated with the International Group (IG) allocate approximately 22% of their gross written premiums to reinsurers. Through the IG pooling mechanism, clubs collectively manage claims exceeding USD 10 million, providing mutual security. Moreover, the IG secures a general excess of loss (GXL) reinsurance up to USD 3.1 billion, enabling clubs to negotiate more advantageous terms collectively than they could individually.
For the 2025/26 policy year, the IG successfully renewed its reinsurance programme within a more stable global market environment, although this still resulted in an overall price increase of slightly more than 10%. Notably, individual club retention remains at USD 10 million, while the GXL contract’s attachment point stays at USD 100 million. The overall upper limit of the GXL programme and the capacity for overspill protection also remain unchanged.
Impact of Rising Reinsurance Costs
The increased reinsurance costs are attributed to a particularly active claims year, highlighted by the significant Baltimore bridge incident. While the full extent of losses from this incident is still being determined, an initial settlement exceeding USD 100 million has already been disbursed to the US Department of Justice for channel clearance expenses. Any further claims beyond this amount will be absorbed by the IG’s panel of reinsurers.
Reinsurance rates have escalated across various vessel categories, with fully cellular containerships (FCCs) experiencing the highest percentage increase. AM Best indicates that these cost escalations are generally transferred to shipowners through additional levies on P&I premiums.
Comprehensive Coverage and Limitations
The IG’s GXL programme remains comprehensive, offering free and unlimited reinstatements for most risks. However, pandemic and cyber risks have specific limitations—unlimited reinstatements apply solely to the first coverage layer (USD 650 million excess of USD 100 million). Beyond this, the programme comprises two separate aggregated coverage towers, capping pandemic and cyber claims at USD 2.1 billion per annum. Any claims exceeding this cap would be pooled among IG clubs.
Additionally, each club arranges its own reinsurance protection for claims under the USD 10 million retention threshold. The extent of this protection varies according to a club’s capital strength and risk tolerance, with larger clubs typically possessing a greater capacity to absorb substantial losses.
Despite increasing reinsurance expenses and evolving market dynamics, AM Best concludes that P&I clubs remain financially stable, buoyed by prudent risk management and robust capital reserves. While rising costs may impose additional burdens on shipowners, the IG’s collective approach to reinsurance continues to offer a structured and effective strategy for managing maritime risks.
