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Law360, London (February 17, 2021, 3:07 PM GMT) -- Most global shipping insurers are set to hike prices this month, but analysts have warned that the rises may not be high enough to offset what could be a costly year for claims.
Ratings agency AM Best said on Tuesday that 10 of the 13 biggest shipping insurers have announced premium increases for policy renewals this month. But it added that the increases were "modest" after insurers dealt with a record number of claims from ship operators in 2020.
The COVID-19 crisis has hit cruise operators particularly hard, buffeting them with a wave of cancelations and the additional cost of keeping vessels quarantined at ports after outbreaks of the virus on board.
AM Best said that claims linked to COVID-19 were not the main factor behind price hikes, but insurers have nevertheless received three major claims filed by shipping operators as a result of the health crisis. It did not provide more detail.
"In addition, the pandemic may have had an indirect impact as the shortage of experienced employees and the higher levels of fatigue and stress, caused by a reduction in crew rotation and rest periods, might have led to an increase in claims caused by crew errors," the ratings agency said.
Ship insurance is typically provided by a type of mutual insurer known as a protection and indemnity club. The 13 biggest P&I clubs are together known as the International Group, which collectively insures 90% of global shipping.
AM Best said that, based on numbers from individual company reports, the International Group had collectively reported an underwriting loss of $400 million in the 2019/20 financial year.
This represented a total combined ratio of 114%. A combined ratio is a measure used by insurers to illustrate underwriting success: a number below 100% indicates a profit while a figure above 100% represents a loss.
Financial accounts for 2020/21 are not yet available, but AM Best said it expected a further underwriting loss.
"AM Best considers the level of general increases modest given the underwriting loss expected for 2020/21," it said in its report.
But the company said that the COVID-19 pandemic has made commercial conditions for ship owners "even more challenging than previous years." The relative financial health of the P&I clubs means that greater price hikes than the 5-10% insurers that had already announced would be difficult to justify, AM Best said.
"As mutual insurers operating for the benefit of their members, the 13 clubs must balance the need to maintain their financial stability with the economic constraints of their membership," AM Best added.
--Editing by Joe Millis.
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