Underwriting results reverse into negative territory

Reversing the positive underwriting results of the previous two years, the P&I market dipped into an underwriting loss in 2017/18. The overall market combined ratio in 2017/18 was 104% (i.e. 4% worse than the breakeven, 100% position).

It could however be argued that the ‘underlying’ underwriting result is somewhat more positive. In 2017/18 six IG clubs made some form of premium rebate or capital redistribution. If these were all retained as ‘premium’ then the market combined ratio would have been 99% (i.e. just under break-even).

Whichever figure is taken however, the trend in the market combined ratios is clear. The reported combined ratio deteriorated materially from a substantial surplus of 88% in 2015/16, declining to 93% in 2016/17 and moving to a 4% underwriting deficit in 2017/18, with a combined ratio of 104%.

Ironically the ‘underlying’ combined ratio (excluding capital rebates) showed an even more dramatic deterioration, from 86% in 2016/17 to 99% in 2017/18.

Positive investment return

The average investment return across the P&I market in 2017/18 was 5.5% (improved on the 3.5% investment return in 2016/17).

Despite the negative underwriting result therefore, the healthy investment return drove the 2017/18 market overall surplus to USD 414 million (slightly reduced on the 2016/17 figure of USD 485 million, but still an extremely positive overall result).

The graph below shows the progression of underwriting, investment and overall result for the market over the last 19 years.

N.B. to reflect the underlying underwriting result, the solid lines show the results as reported, the dashed lines display how the underlying trend would have looked without the unbudgeted calls from 2008/09.

If premium rebates or capital redistributions were all retained as ‘premium’ then the market combined ratio would have been 99%, just under break-even.