Correction in premium levels is inevitable according to The Swedish Club

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Hull and P&I insurance costs are continuing to rise with “severely under priced”  hull cover in 2007 likely to result in an inevitable and profound correction in the hull market, according to The Swedish Club.

Addressing the Club’s AGM in Gothenburg, Frans Malmros, Managing Director of The Swedish Club, said: “There can be no doubt that a profound correction in the hull market is inevitable. Current premium levels are completely out of step with risk and cannot be sustained.”

In what is his final address before handing over to his successor Lars Rhodin, Mr Malmros said P&I premiums would continue to rise, “to match increased exposure.”

The need for hull premium increases reflected higher claims values but he claimed this broad explanation was now over-simplistic.

“It fails to take account of many factors producing a fundamental change in claims pattern. Some commentators are still reluctant to describe the current market as soft, yet it is soft if the significant changes in the claims pattern are included in the premiums equation.”

Turning to P&I, he noted that the key decisions producing an escalation in ship owner liabilities “are taken at the highest political level, seemingly without administrations possessing real under¬standing of the shipping industry and its vital role in the world economy.”

He warned: “All Clubs face the problem of accelerating claims inflation. The drivers include soaring freight rates, higher commodity prices and other factors associated with a protracted shipping boom. Loss of hire claims costs have escalated, as has the cost of repairs. Prices are high in the yards, if a slot can be found. Major claims con-tinue to grow in this inflationary environment.”