London P&I Club Outlook Revised To Stable On Better Operating Performance Strengthening Capital; ‘BBB’ Ratings Affirmed

S&P Global Ratings today revised its outlook to stable from negative on The London Steam-Ship Owners’ Mutual Insurance Assn. Ltd. and The London P&I Insurance Co. (Europe) Ltd. (collectively, The London P&I Club or the Club). At the same time, we affirmed our ‘BBB’ long-term financial strength rating.

The outlook revision reflects the improvement of its underwriting performance and the capital position of The London P&I Club.

The Club has shown a strong commitment to improving its underwriting performance through rate increases and underwriting actions. We expect that the Club will maintain its capital position above the 99.95% confidence level in our model. Capital adequacy has been bolstered by the Club’s recent positive operating performance, which has helped provide a significant capital buffer under a severe stress scenario. The improvement comes after a period of significant poor operating results prior to 2024.

The club’s solvency ratio has also improved, reaching 190.5% as of February 2024, up from 129% in February 2023. This substantial rise is attributed to both enhanced operating performance and the PRA’s recognition of a larger portion of tier 2 capital, thanks to the Club’s ability to make unbudgeted calls. While The London P&I Club receives credit for this ability in its Solvency II capital calculation, we do not give explicit credit for this in our capital model. Nevertheless, the club’s ability to make unbudgeted calls is the primary factor in our choice of the ‘bbb’ anchor.

We expect continued growth in the Club, while maintaining strong underwriting discipline. After derisking its underwriting portfolio over 2022-2023, the Club recorded a strong combined ratio of 83% in the year-ending February 2024. The Club aims to reach breakeven underwriting performance in the coming years. We anticipate that the Club’s operating performance over the next two years will be sufficient to ensure a reasonable surplus at the 99.95% confidence level in our model. Furthermore, we forecast that net earned premiums will increase by approximately 10% annually, through both rate and volume increases contributing to the Club’s overall financial stability.

We expect the new CEO will continue to prioritize disciplined profitable growth. On Nov. 4, 2024, James Bean was appointed CEO of The London P&I Club following the retirement of Ian Gooch, the former CEO. Mr. Bean brings over 20 years of experience in the maritime, and protection and indemnity (P&I) sectors, most recently with North Standard. We do not expect that the change in CEO will result in a significant change in the club’s strategy.

The stable outlook indicates our expectation that the club will continue to record close to breakeven underwriting results over 2025-2026 so that the club is able to maintain capital adequacy above our 99.95% confidence level per our model.

We could lower the ratings within the next two years if:

The Club fails to maintain capital levels above our 99.95% confidence level; or
The Club experiences outsized losses or higher-than-expected volatility in financial performance during our forecast period.
Although we consider it unlikely, we could raise the ratings over the next two years if the company consistently maintains capital levels above our 99.99% confidence threshold, while achieving underwriting results that are more comparable to the average of its P&I peers.
Source: S&P Global Ratings