P&I clubs must improve underwriting performance, HSBC Insurance Brokers has warned.

"Inferior underwriting results and inadequate or even negative investment income continue to haunt P&I clubs," Lloyd's broker and P&I specialist HSBC Insurance Brokers said in its Protection & Indemnity Review 2003.

HSBC says that the market environment for the traditional February renewal will be hard: "Realistically, there is some way to go before the clubs move back into an underwriting surplus, or even underwriting balance."

Nigel Russell, Managing Director of the Marine Division of HSBC Insurance Brokers, concluded, "The plain and simple fact is that the clubs must improve underwriting performance. They must also bolster free reserves, and
cannot rely on investment income."

HSBC also said that, if there is a serious stand-off between the International Group of P&I Clubs and the lead underwriters of the Group reinsurance contract, it is quite probable that the pool limit will be increased from its current level of $30m. "Even the smaller clubs should be
able to withstand an increase in pool limit, even if it were to be doubled," says the broker.

"The smaller clubs would find it far harder to withstand a significant increase in retention. Only four clubs do not buy separate reinsurance to protect their retention of $5m, and these four are amongst the strongest in financial terms. All the smaller clubs buy reinsurance to protect their retention. This low level of reinsurance is costly and is likely to be more costly and harder to buy in the immediate future. A significant increase in retention could be detrimental, especially to those clubs with a lower
capital base."

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