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S&P confirms Norwegian Hull Club’s ‘A’ rating

Standard & Poor’s has given Norwegian Hull Club a glowing report and has confirmed its ’A’ rating, with a stable outlook. In its latest report, issued on June 29th, S&P noted the Club’s “recent exceptional underwriting performance with improved conditions in the marine market”, its “extremely strong capital adequacy”, and its “strong reputation in the hull and loss-of-hire markets”.

S&P said that it expected Norwegian Hull Club to “continue to record exceptionally strong underwriting results with combined ratios below 90% over 2023-2025’’.
S&P expected the Club to maintain its position as market leader in loss-of-hire insurance, and to remain “a significant provider of marine energy sector insurance and of hull and machinery insurance’.

S&P expected the Club’s membership to remain loyal “due to its strong service proposition.”

Norwegian Hull Club has significant excess of capital to the rating agency’s ‘AAA’ benchmark – as is the case with all of the mutuals, it is the lack of diversity in the range of insurance sold that causes the rating to be marked down.

CEO Hans Christian Seim said that the stable outlook on NHC reflected the strength of the company’s brand and its business mix, which differentiates its operating performance from that of peers.

“We anticipate the club will maintain its capital-adequacy ratio above the level we expect of a ‘AAA’ rated entity, according to our risk-based model. We also expect the club to maintain its premium reputation in the market and to expand its premium client base conservatively over the next three years” S&P said.

The agency said that a lowering of the rating was only a possibility if its results proved more volatile than S&P currently expected, or if its risk-based capital adequacy fell significantly and stayed below the ‘AAA’ level in the S&P model.

“We could also lower the ratings if we consider NHC unlikely to sustain its peer-leading profitability and a long-term average combined (loss and expense) ratio below 95%”, the agency said.

A positive rating action was thought unlikely over the next two years. It would depend on NHC substantially increasing its scale and diversity, while not diluting its operating outperformance relative to its peers.

Key Assumptions

  • S&P expects limited growth of less than 1.0% in GDP in both the US. and the eurozone in 2023 (0.7% and 0.3%, respectively). Growth in 2024 will be constrained, but slightly higher (1.2% in the U.S. and 1.0% in the eurozone).
  • Monetary policy should remain tight. Central banks will tend to be cautious and lean toward higher rates and tighter conditions to bring inflation back to target rates.
  • Container liners’ significant capacity withdrawals should help stop freight rates falling over 2023-2024, allowing shipping companies to compensate for recent operating cost inflation.
  • Oil shipping has entered a bullish cycle due to a surge in ton-mile demand and the lowest new tanker orderbook in more than 20 years. Meanwhile, dry-bulk shipping’s charter rates are unlikely to improve before late 2023.
  • NHC will continue to return premium to members at levels allowing it to maintain excess capital at S&P’s ‘AAA’ benchmark.

Norwegian Hull Club–Key metrics

2024f 2023f 2022 2021 2020 2019
S&P Global Ratings capital adequacy AAA AAA AAA AAA AAA AAA
Gross premium written ($m) ~360 ~340 324.9 289.2 247.6 240.8
Net income ($m) ~50 ~50 9.2 37.8 34.8 (2.4)
Return on members’ funds (%) ~12 ~12 2.4 10.6 10.9 (0.8)
P/C net combined ratio (%) ~85 ~85 84.0 85.5 96.3 130.5


S&P expects gross premiums to continue to grow over 2023-2025. This was likely despite a likely tempering of the favourable rating conditions that we observed in the marine market in the last few years. S&P expects premiums will reach close to $360m in 2024.

Over the past two years NHC grew premiums by over 10% as rates in the marine markets improved.

The club’s recent underwriting performance had been very strong, said S&P. The combined ratio in 2022 was 84%, contributing to net income of $9.2m.

“We expect NHC will continue to generate a strong underwriting performance in 2023-2025, with combined ratios of about 85%. The 77% combined ratio in the first quarter of 2023 was a solid start toward achieving our forecast”, concluded S&P.

Source: Insurance Marine News 3rd July 2023

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