Friday, August 28, 2009

Aon says Club behavior is "inexcusable"

I don't know Stephen Hawke, head of Aon's marine liability team in London; I've been away from the market too long. He's probably a decent fellow, but no broker has the right to criticize Club underwriters for running underwriting deficits.
In Aon's P&I Mid-Term Review, the Clubs are exhorted to seek only single-digit increases from shipowners at the next renewal and upbraded for continuing to run underwriting deficits when they know they can no longer rely on investment income. This pious nonsense was evidently printed over Mr. Hawke's signature.
The brokers are not only not the solution. They are a large part of the problem. Clubs know what the losses are likely to be. They have actuaries, and loads of data. They would not run underwriting deficits but for the pressure the brokers bring to bear on Clubs who dare to tell the brokers' precious risk managers that their loss record demands a greater than usual increase.
The rest of the problem is shipowners who think they can game the system. They're only cheating themselves. Mutuals don't make losses. Eventually, the members will have to make up the deficits. All they gain by not paying proper premiums up front is weaker Clubs.