Insurance underwriter says P&I clubs are overcompensating for bumps. Chicago-based Aon Corporation suggests that clubs of individuals insuring shipping should reduce their reliance on unbudgeted or high-risk investment income.

Protection and indemnity clubs -- P&I clubs for short -- are consortiums of private individuals who insure ships, commanding premiums for their liability. Through 2006 and 2007 there was a surge in the number and value of shipping claims. More recently the clubs' high exposure to equities markets caused heavy losses.

Horse out of barn

According to Aon, the P&I clubs' reaction has been to seek riskier investment income rather than becoming more conservative. Not only have some clubs been tardy in decreasing their investment portfolio risk profile, seven out of the 13 clubs have made unbudgeted refinancing calls over this last year, according to Aon.

"The flight from equity to cash and bonds was for many clubs too little too late: the P&I landscape resonated to the crashing of barn doors as the horses disappeared over the horizon," said Stephen Hawke, head of Aon's marine liability team.

Aon views the shipping-claim surge of 2006 and 2007 as a one-off, so that there is no need for P&I clubs to chase high investment revenues as an permanent offset. meanwhile, reduced shipping activity due to the global slowdown should lower the overall number of claims, stabilising ship-owners' premiums.

"P&I clubs can't be blamed for the unpredictable but can grasp control of their own underwriting and investment strategies," says Hawke. "The inability to predict the inherent volatility of the modern world -- random years of very high value claims and falling investment markets -- is excusable. What is not is a persistent inability for clubs to control the controllable by continuing to run underwriting deficits."

Hawke advocates a "modest" 0-7.5% general premium increase in 2010. -FWR

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