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Equilibrium in Marine Mutual Insurance Markets with Convex Operating Costs


  • Aase, Knut K.

    () (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)


The paper analyzes the possibility of reaching an equilibrium in a market of marine mutual insurance syndicates, called Protection and Indemnity Clubs, or P&I Clubs for short, displaying economies of scale. Our analysis rationalizes some empirically documented findings, and points out an interesting future scenario. We find an equilibrium in a market of mutual marine insurers, in which some smaller clubs, having operating costs above average, may grow larger relative to the other clubs in order to become more cost effective, and where medium to larger cost efficient clubs may stay unchanged or some even downsize relative to the others. Some of the very large clubs suffering from diseconomies of scale may have a motive to further increase relative to the other clubs. According to observations, most clubs have, during the last decade, expanded significantly in size measured by gross tonnage of entered ships, some clubs have merged, but very few seem to have decreased their underwriting activity, in particular none of the really large ones. The analysis points to the following future scenario: The small and the medium to large clubs converge in size, while there is a possibility for some very large clubs to be present as well.

Suggested Citation

  • Aase, Knut K., 2005. "Equilibrium in Marine Mutual Insurance Markets with Convex Operating Costs," Discussion Papers 2005/10, Norwegian School of Economics, Department of Business and Management Science.
  • Handle: RePEc:hhs:nhhfms:2005_010

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    References listed on IDEAS

    1. Anja De Waegenaere, 2000. "Arbitrage and Viability in Insurance Markets," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 25(1), pages 81-99, June.
    2. Borch, Karl, 1960. "Reciprocal Reinsurance Treaties," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 1(04), pages 170-191, December.
    3. Frances A Katrishen & Nicos A Scordis, 1998. "Economies of Scale in Services: A study of Multinational Insurers," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 29(2), pages 305-323, June.
    4. Aase, Knut K., 1993. "Equilibrium in a Reinsurance Syndicate; Existence, Uniqueness and Characterization," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 23(02), pages 185-211, November.
    5. Baltensperger, Ernst, 1972. "Economies of Scale, Firm Size, and Concentration in Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 4(3), pages 467-488, August.
    6. Raviv, Artur, 1979. "The Design of an Optimal Insurance Policy," American Economic Review, American Economic Association, vol. 69(1), pages 84-96, March.
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    Cited by:

    1. Nektarios Milton, 2011. "A Catastrophe Insurance System for the European Union," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 5(2), pages 1-22, July.

    More about this item


    Marine Insurance; syndicated market; P&I clubs; equilibrium; economy of scale; diseconomy of scale;

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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