Protection and Indemnity (P&I) rates are expected to harden marginally at the February 2001 renewal, but will remain soft in the near-term, according to Standard & Poor's.

Rate increases are likely to stem from the market's first negative operating performance since 1990.

The clubs continue to enjoy extremely favourable terms on the international group excess of loss reinsurance programme, because terms were fixed last year until renewal 2002. This makes it difficult for them to press for substantial increases.

Rowena Potter, managing director of Standard & Poor's Financial Services Group, said: “It is clear that the majority of clubs are seeking modest rate increases, in the 7.5% to 10% range.

“Whether they will manage to impose the full amount of the announced increase is, of course, another matter.

“Although current rates are uneconomical, the clubs' free reserves remain very robust and there will therefore be a very gradual process of rebalancing,” she said.

The report also notes that many clubs were hit by a drop in investment income. P&I clubs have been particularly hit by rising government bond yields.