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DIVERSIFICATION In association with Skuld
Diversity provides platform for success P&I Clubs can no longer rely on a single product to deliver sustainable success particularly in an era when investment returns are so uncertain. Stüle Hansen, president and CEO of Skuld argues that diversification is the only way ahead. Diversification is essential for the future of the P&I sector. If Clubs are to continue to serve their Members well, to remain financially robust, and to provide mutual liability coverage at consistently competitive premium rates, we must all seek reliable secondary income streams through product diversification, extended geographical reach, and extension of the expertise we consider core. We can achieve these goals by leveraging our key competences against existing and emerging opportunities. Commercial insurers of all types have weathered a challenging time. During the past decade, P&I premium rates have fallen by as much as 45%, driven down by competition and the improved quality of Members’ operations and risk management, which has reduced claims. But the decline in prices has been greater than the improvement in industry loss records. Rates have fallen below the level where it is possible for a monoline P&I insurer to achieve a sustainably balanced underwriting result. In the past many Clubs survived on investment returns, but the financial crisis of 2008 has made that fall-back a steep upwards climb. We do not expect to be able to rely on investment returns to smooth the inevitable cyclical swings in rates while providing Members with premiums set at economic levels. This is especially true now, as we enter a new financial-markets cycle during which, we believe, almost The Marine Insurer P&I Special Edition | July 2020
every asset class has passed its peak value. Clubs cannot levy premiums at the significantly higher levels required to make good the shortfall and achieve a stable operating performance. Therefore, they must seek alternative sources of income to maintain the enormous benefits of mutuality and risk pooling through the International Group.
EXPANDED RANGE Diversification is the solution. Skuld has achieved 16 consecutive years of positive operating results because we expanded the range of products and services we offer to create new income. For most of its recent history, Skuld was a Club for tanker and bulker owners. But ship types have evolved, and our appetite has expanded with those changes, as a cornerstone of our diversification strategy. During the initial years of the 2000s, for example, we added charterers P&I services to our stable. Later in that same decade we successfully fully entered the offshore sector, where we today provide coverage for the far more sophisticated vessels and rigs which now operate in the energy industry. Outside of mutual coverage, we have successfully expanded into hull and machinery classes, as well as in the fixed P&I market for smaller sized vessels and for superyachts. More recently we established a bespoke cruise team which is beginning to accept members in the cruise liner segment, and will ensure we are well positioned to benefit from anticipated consolidation of the sector. Not every effort has been a success
