Blow for Insurance Group as Ratings Agency Revises Downward

UK – The full effects of the pandemic are now coming home to roost with talk of tax increases, inflation and all the other bad economic news that follow any form of disaster. One sector which will certainly see rising rates is the insurance sector and now that has received almost official recognition with news out this week.

Rating agency S&P Global has announced that it has revised its rating for the UK P&I Club, one of the foremost providers of protection and indemnity (P&I) insurance downward, from A (negative) to A-(Stable). A naturally disappointed reaction led to the Club pointing out that the rating remains in the ‘A’ range, a measure regarded as healthy within the insurance sector.

It goes on to say that the Club’s financial position remains strong  and it continues to comfortably meet all its regulatory capital requirements and exceeds S&P’s own ‘AAA’ capital benchmark with free reserves of $534 million as at 20 August 2021.

It also points out that the P&I sector’s unsustainable premium rates led to an average combined ratio across the sector of over 120% last year. The market now faces increasing Pool claims and reinsurance costs as well as a steady flow of Covid19 claims. As such, rates across the sector will need to increase accordingly. Andrew Taylor, CEO of Thomas Miller P&I which manages the Club, commented:

“We are naturally disappointed S&P has taken this step to revise our rating at this time. The estimated cost of Pool claims is the largest in history, this, coupled with premium levels that have failed to keep up with rising claims, has resulted in this change of rating from S&P. The whole P&I sector has been hit by the same factors. The resulting increases in combined ratios have placed pressure on ratings across the sector and resulted in the majority of the IG Clubs being placed on negative outlook.

“The UK Club remains very strong financially and this has allowed us to take a measured approach to addressing inadequate premium rates. The combined ratio of 115% for the first half of 2021 was in line with the Club’s plan and the Club remains in a strong competitive position. The Club remains focused on its key aims of returning to balanced underwriting while providing excellent service to our Members.”

Photo: Disasters like the Rena which grounded off North Island New Zealand in 2011 cost the insurance industry many millions each year.