Friday, 17 February 2012
S&P raises P&I capital concerns
The International Marine Protection and Indemnity sector may face capital pressures going forward, according to S&P. Despite this fear the rating agency maintains its stable outlook for the business, partly on the basis of its current capital strength.
The grounded Costa Concordia
In its 'International Marine Protection And Indemnity: Bucking The Global Credit Trend, So Far' report, S&P said there are signs of pressure on the sector’s 'strengthened level of capital, which may yet cause us to view the sector and even some individual (P&I) clubs slightly less positively'.
“The positive underwriting trends and investment results of 2011 have not continued. Somewhat expectedly, claims activity has increased and has been accompanied by decreasing and volatile investment returns,” continued S&P.
The sector was however congratulated on its current stable outlook and general performance by S&P's credit analyst Peter McClean.
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"We see the sector's stable outlook as no mean achievement at a time when credit quality across all sectors globally is under tremendous pressure," he said. “We also believe the recent high profile loss arising from the grounding of the Costa Concordia may prove to be the greatest demonstration yet of the resilience of the International Group of P&I Clubs (IG) structure."
During the financial year ended February 2011, the risk-based capital adequacy of the sector improved to what is likely to be its best-ever level, said S&P.
This development was supported mainly by continued improvements in underwriting results and the somewhat unexpected resilience of investment returns, the rating agency explained.
'Broadly, we believe the clubs' careful management of risks to capital will be key to our maintaining the stable outlook on the sector. Capital strength will also continue to be central to our opinion of the resilience of the IG structure. We believe it will be strong enough to dilute the impact of the Costa Concordia grounding, and appears generally to be robust against a backdrop of increasing pressure on global creditworthiness,” concluded S&P.
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