Protection & Indemnity Market Review 2002/3

Transcription

1 Protection & Indemnity Market Review 22/3

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3 Contents 2 Summary 4 Market financial commentary 1 Risk of further unbudgeted calls 14 International Group re-insurance 16 P&I fixed premium market 22 Average Expense Ratio (AER) comparisons 24 Introduction to Club pages 26 Club Financial Pages 4 Supplementary call history 42 Comparison of original and actual supplementary calls 46 Percentage variation from initial estimated total call 5 Supplementary call history summary 52 Tonnage split by nationality of management 54 Tonnage split by vessel type 56 General increases Marine P&I Review Willis Marine P&I Review, December 22 1

4 Summary The P&I renewal at February 22 was the first genuinely hard market for nearly ten years. Premium increases actually achieved varied from Club to Club, but overall they were between 15 and 2 percent. Even with the expected significant improvement in underwriting results for the 22/3-year it is unlikely that the current year will show an overall surplus. Investment income is expected to be of limited help as the world's financial markets continue in turmoil leaving little optimism that investment income will recover in the near future. Against this background all Clubs will again be looking for significant rate increases at the renewal in February 23. One difference we expect however is that there will be a greater variation in the level of published general increases across the Clubs. Although the majority of the market will announce increases in the region of 25 percent, we expect three or four Clubs to publish relatively low figures, increases in the region of 15 percent. Following the expiry of the International Group's three-year reinsurance deal at the next renewal, reinsurers are positioning for substantial increases and these cost increases will be applied in addition to the general rises. The Group has various negotiating strategies, including the possibility of increasing the Pool retention, which may help to mitigate the final reinsurance cost. At the time of writing exact predictions regarding the quantum of rises are impossible, however we expect that reinsurance costs will increase materially and become a far more significant proportion of the overall premium to Shipowners. Although more and more information about the P&I market is increasingly available, the quality and practicality of the data is often questionable. With a certain amount of analysis however this 'background noise' disperses and a number of patterns emerge: Variation between Clubs There are significant differences in relative asset holdings and free reserve levels between the strongest and weakest Clubs. In addition to the disparity in current financial strength, there is also substantial variation in the underwriting trends between Clubs. Volatility affecting all Clubs Investment income fluctuations. Potential for individual Clubs to experience abnormal claims results. Reinsurance cost increases. 2 Willis Marine P&I Review, December 22

5 Despite the apparent variation and potential volatility within the market, it is possible to interpret the market results providing a relatively predictable environment enabling both short-term leverage and effective medium-term planning of entries. Predictability of Results Broad predictability of financial results for the market as a whole. In spite of greater potential for statistically unusual claims fluctuations, individual Clubs show distinct and foreseeable trends in underwriting results. The Willis P&I Reviews over recent years have consistently highlighted the trends in the market and predicted these going forward with some accuracy. In a changing and hardening market the choice of professional advisor becomes even more paramount to ensure the most competitive sustainable terms are achieved. This report concentrates primarily on the quantitative aspects of the P&I market. Even in this limited aim it can only provide a general overview. The Willis P&I team would be happy to expand in more detail on any issues raised and how they might affect individual operators. Willis Marine P&I Review, December 22 3

6 Market financial commentary The financial predictions highlighted in our P&I Review last year regarding the expected state of the market have largely materialised in the Clubs' published financial results. We expected underwriting deficits to improve marginally, but without any expectation of a significant improvement in investment income levels. We forecast that the market would continue to show material overall deficits. The overall deficit was however expected to be slightly improved on the 2/1 year. There were two factors that were surprising: 1. Investment Income The first was quite the extent of the investment income loss. We expected an adverse year, but one close to the almost neutral investment result in 2/1. In actuality investment income was much worse. Negative results were widespread and overall the market investment loss was in the region of US$74 million. 2. Unbudgeted Supplementary Calls The second factor was the contribution unbudgeted supplementary calls would have on the underwriting result. Across the market unbudgeted calls in the region of US$154 million were allocated to the 21/2 financial year. We predicted supplementary calls would be made over budget, but the quantum was greater than expected. The combination of these two factors, increased market income offsetting worse than expected investment losses, lead almost exactly to our expected overall market result. The forthcoming renewal in February 23 will again be vitally important to the Clubs as they continue to try to push up premium levels to address not just the underwriting deficits but also the likelihood of similar investment income results for the next reporting period(s). The figures used in the following sections are collated from all the International Group (IG) P & I Clubs' that we have consistently included within our P&I Reviews. They therefore represent the P & I Market results for approximately 9% of the world fleet. All the figures are based on the consolidated financial year results and are in US$,s. 4 Willis Marine P&I Review, December 22

7 Underwriting results improve marginally Gross claims levels across the Group have remained relatively stable over the last eight financial years. A number of Clubs continue to comment that the claims trend appears to be one of the value of individual claim amounts increasing, but the number of claims remaining relatively consistent. Despite fairly good claims results in 21/2, the medium term trend gives some support to the theory of increasing overall claims costs. The broad pattern over the last eight years is of increasing claims, but this underlying trend is still very gradual. 21/2 was the first financial period for six or seven years that reported an increased level of premium paid into the market. The premium level however remained significantly lower than was required to break even on a 'gross' underwriting basis. The graph (bottom left of this page) shows this trend, comparing paid premiums to gross paid claims for the whole market over the last eight reported financial years ('gross' underwriting result). The 'net' underwriting result shows the market deficit more clearly. The graph (bottom right of this page) shows the development of 'net operating income' compared to 'net paid claims' (net underwriting result). We define net operating income as paid premiums less operating expenses and reinsurance costs. Net paid claims are defined as gross claims less reinsurance recoveries. The combination of improved net claims and increased premium income in 21/2 has lead to an improved, though still significant, net underwriting deficit. International Group Development of Calls and Gross Paid Claims International Group Development of Operating Income Compared to Net Paid Claims US$ 's 2,, 1,8, 1,6, 1,4, US$ 's 1,4, 1,2, 1,, 1,2, 1,, 8, 8, 6, 6, 4, 2, 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 4, 2, 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 Calls and Premiums Gross Paid Claims Operating Income Net Paid Claims Willis Marine P&I Review, December 22 5

8 Market financial commentary (continued) Investment Loss Dramatic The turmoil in the world financial markets has impacted dramatically on the Clubs' investment income results. At this point last year, we expected the investment income result for 21/2 to be around the same sort of break-even level as 2/1. The actual result was significantly worse. Most Clubs reported negative investment income and even the best performing Clubs showed only nominal returns. Overall the IG market reported an investment loss in the region of US$74 million. Consequently the improvement of the market operating/ underwriting result was offset by the extremely adverse investment loss. Underwriting trend not as positive as it appears The previous graph shows a relatively favourable underwriting trend, despite extremely adverse investment results. The underlying underwriting trend is however thrown out slightly by a number of isolated but significant unbudgeted supplementary calls. The graph, below attempts to show the underlying trend more clearly. In this graph we have extracted the exceptional unbudgeted supplementary calls to demonstrate how the overall underwriting trend for the market would have looked without them. Clearly the underlying underwriting improvement for the market was much more marginal than it first appeared. The graph (bottom left) demonstrates the development of the Group's underwriting results, the 'Operating Surplus/Deficit' (the difference between operating income and net paid claims) and compares this to the investment results amounts for the respective years. The graph also highlights the overall surplus/deficit for the market (Operating result plus/minus Investment result). International Group Underwriting Development International Group Underwriting Development US$ 's 4, 3, 2, 1, -1, -2, -3, -4, -5, 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 US$ 's 5, 4, 3, 2, 1, -1, -2, -3, -4, -5, 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 Operating Surplus (Deficit) Surplus for Year Investment Income Operating Surplus (Deficit) Surplus for Year Investment Income 6 Willis Marine P&I Review, December 22

9 Asset and Free Reserve Deterioration The negative overall market result noted above has naturally resulted in a material reduction in the Total Assets and Free Reserves within the IG system. Reviewing the trend over the last eight years, assets and free reserves grew strongly between 1994/95 and 1997/98; this growth then slowed and 1998/99 represented a high point for the IG. 1999/ showed a marginal reduction in overall levels. The two most recent years however have resulted in the reduction of asset levels by a relatively significant amount. Effectively the market now has similar levels of total funds available to pay claims as they did in 1995/96. Five years of steady growth eliminated by two years of significant deficits. This trend is highlighted in the two following graphs. They show the development of Total Assets and Free Reserves within the IG market. The first graph attempts to display how the free reserves are constituted by also including information regarding estimated outstanding claims and forecast additional calls (in addition to the levels of total assets and free reserves). The second, in order to highlight the overall trends more clearly, simply shows assets and free reserves. International Group Financial Development International Group Development of Assets and Free Reserves US$ 6bn US$ 6bn 5bn 5bn 4bn 4bn 3bn 3bn 2bn 2bn 1bn 1bn 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 Net Assets (Market) Forecast Additional Calls Outstanding Claims Free Reserves Net Assets (Market) Free Reserves Willis Marine P&I Review, December 22 7

10 Market financial commentary (continued) Future trends As mentioned earlier, claims levels have been relatively stable over recent years. There is a consensus from various Clubs that the quantum of individual claims is increasing. There is also some evidence from the financial results that the overall market level of claims are edging upward. It is not expected that there will be a dramatic increase, however a continued gradual increase in total claims looks likely. The renewal at 2 February 22 experienced the first genuinely hard market for nearly ten years. Premium increases obtained varied from Club to Club, but overall they were probably in the 15 percent to 2 percent range. We would therefore expect the underwriting result for the current 22/3 year to show a significant improvement on the previous year. No one is being optimistic about investment income for the 22/3 year. The world financial markets continue in turmoil, with no obvious safe investment environment. The Clubs continue to try to amend their investment strategies in an attempt to deal with the current world financial climate. Despite the pessimism therefore we would still hope for slightly better investment income results for 22/3 than were achieved in the previous year. There is unfortunately still no expectation that investment income will return to the same sort of levels seen in the mid/late 199's, in the foreseeable future. It is unlikely that even the expected significant improvement in underwriting results will be sufficient to prevent the 22/3 year also showing an overall market deficit. However, we would expect this overall deficit to be substantially less than in 21/2. As mentioned in our market review last year, in terms of total Assets and Free Reserves within the market, the 1998/99 year represented a 'high point'. Since then we have seen three years of increasing deterioration. Looking forward, the results for 22/3 will probably show a further weakening of the market asset position, though by a much smaller margin than experienced in 21/2. Within the market individual Clubs have varying abilities to absorb such deficits. Already we have seen some of the less well-reserved Clubs resort to unbudgeted supplementary calls. As the current year looks likely to also end with an overall deficit this will inevitability put further pressure on the market. Clearly the next couple of years will become critical to the long-term viability of certain Clubs. 8 Willis Marine P&I Review, December 22

11 We have mentioned over the last two years, and it is just as valid this year, that unless the Clubs can increase overall premium levels, it will not be too long before the depletion of Assets becomes a major problem. The P&I market at the forthcoming renewal will also have the challenge of increased reinsurance costs. At the moment it is difficult to predict with any accuracy the outcome of the renewal negotiations of the IG reinsurance program. The reinsurers and the Clubs are currently positioning themselves with diametrically opposite statements, prior to the start of any formal discussions. It is certain however that the reinsurers will want to take advantage of this renewal to also make up for the higher increases they could not apply last year. The IG by contrast are signalling their willingness to consider increasing the IG retention to mitigate any excessive increases. All Clubs are intimating that they will again be looking for significant rate increases at the renewal in February 23. There will however probably be a greater variation in the level of published general increase across the Clubs than was seen at the last renewal. Three or four Clubs are expected to publish relatively low figures (in the region of 1 to15 percent increases) with the majority of the market in the region of 25 percent. Some of the weaker Clubs may want to exceed this level, however we do not expect them to stray too far from the market average. IG reinsurance cost increases will almost certainly be in addition to these retained income increases. The P&I market needs to address the financial results at the forthcoming renewal and significant general increases are logical. However, with a continuing adverse economic climate, poor freight market and increasing costs from other areas already impacting on Shipowners' income, further premium rises will again be fiercely resisted. Willis Marine P&I Review, December 22 9

12 Risk of further unbudgeted calls The renewal at February 2, 22 was the 'hardest' that the P&I market has seen for 1 years. Individual Clubs took remarkably similar approaches to the renewal. Over the last five or six years, in spite of relatively narrow variations in general increase levels, the degree of flexibility from the 'general' position varied widely between different Clubs. By contrast at the 22 renewal the vast majority of Clubs took a very firm line in trying to attain their published general increases and consequently the discrepancies in the market were much less. September 11 was certainly a catalyst in the speed of the hardening of the market, but it was not the underlying cause. As highlighted in the previous section the market as a whole has reported pure underwriting deficits since 1995/96. Despite this premium levels fell year on year from 1994/95 to 2/1. Over the same period claims remained relatively stable. Investment income was able to compensate for these 'technical' deficits until 1998/99, however for the last three years the market has experienced overall losses and resultant deterioration in the asset base. Clearly in a mutual market this situation is unsustainable. The weaker Clubs have already been forced to resort to charging unbudgeted supplementary calls to maintain their free reserves at an acceptable level. The questions in the mind of many shipowners are whether this is the end of the story for these Clubs and indeed will other Clubs follow with similar problems? Is the mutual P&I market experiencing a repeat of the late 198's, early 199's when the vast majority of the Clubs had to make excess calls, or are the current Clubs in difficulty 'isolated incidents'? Are the recent unbudgeted supplementary calls the tip of the iceberg or just three individual Clubs under-performing? In our view it is very unlikely we will see the majority of the market resorting to unbudgeted supplementary calls as in the late 198's. With so much market-wide pessimism, why do we believe this to be the case? 1 Willis Marine P&I Review, December 22

13 The following graph plots the average market supplementary call accuracy over the last 16 years and compares it to the average market general increases announced over the same period. The intent of the graph is to demonstrate the market cycle. The last hard market phase in the late 198's peaked in 1992 and subsequently softened markedly in the mid to late 199's before hardening significantly again in 22. The graph clearly shows the progression and extent of the excess calls charged between 1987 and Increases in advance call levels, as highlighted by the general increase line, however 'lagged' behind the problems by at least two years. Why did things go so wrong in the late 198's? There were a number of factors involved, both internal and external. Within the market the prevailing philosophy of the Clubs was one of not building or retaining significant reserves preferring to allow the shipowning Members to hold on to, what is in effect their own money. Risk modelling was almost unheard of and certainly no one at that point was working on reviewing factors outside of the market to try to predict claims trends. In terms of 'external factors' in the late 198's the world was emerging from recession, ships were being reactivated from lay-up. The world was also becoming a more litigious place to do business. This combination of such factors lead to a huge increase in overall claims levels. This was a relatively sudden increase in underlying claims trends that caught the market completely by surprise and largely unprepared. Broadly speaking therefore the unbudgeted supplementary calls of the late 198's were caused by a combination of inadequate reserving within the Clubs and a sharp upturn in claims in the shipping world. Call accuracy 6% 5% 4% 3% 2% 1% % General increase -1% Average Percentage Variance in Estimated Total Call Average General Increases Willis Marine P&I Review, December 22 11

14 Risk of further unbudgeted calls (continued) What is different today? Like most underwriting cycles, the hard market phase in the early 199's saw a typical over-correction in terms of rating. Rating levels were raised massively and probably out of proportion with the increase in risk. This was due to a straightforward overreaction to the problems in the previous years, genuine fears about continuing increases in claims levels and a conscious strategy in a number of cases to actually build free reserves. Premium levels within the market were more than doubled over this period. Following these five years of rapid rate increases, market income peaked in 1994/95. This increase in the premium base allowed the Clubs to grow the amount of funds held as reserves. At this point the market philosophy had changed to a prevailing view that reserves were a positive thing, necessary to insulate Members against underwriting results and prevent unbudgeted supplementary calls. Over roughly the same period (1991 to 1995) individual Club retention's within the International Group pooling arrangement increased from US$1.6 million to US$5 million each loss. This added further potential volatility to claims on individual Clubs and consequently provided greater necessity to increase reserves. Significantly there is also a difference in the cause of the deficits experienced by the Clubs. There has been no recent rapid rise in claims levels, as seen in the late 198's. The current deficits are as result of premiums falling due to competition, against the background of relatively stable claims levels. Against such a background therefore, our optimism that there will not be a return to the market wide excess supplementary calls is based on: Proportionately higher reserves, which give the Clubs more time to 'underwrite' out of the current deficits The rapidly hardening market, should enable viable premium levels to be restored before the deficits become 'critical' This is not to say that all the individual Clubs within the market will not have (continued) problems we do expect further 'isolated' difficulties, however we do not expect the market wide effects of a decade ago. The above analysis is also not a foregone conclusion. The renewal in 22 will not be enough to bring the market as a whole into 'balance'; at least a further round of significant increases at the forthcoming renewal will be necessary to achieve this. This Section is an updated version of an article written by Willis for Lloyd's List in April 22. The current deficits are as a result of premiums falling due to competition, against the background of relatively stable claims levels. 12 Willis Marine P&I Review, December 22

15 Willis Marine P&I Review, December 22 13

16 International Group re-insurance At the 22 renewal, the International Group (IG) opted to take the third year option on a three-year deal, which effectively capped any rise to a maximum of 2 percent. This cap only applied to the main part of the programme and the upper layers were subject to normal market renegotiation. The combined effect saw an increase in the re-insurance rates varying from 23 percent on 'dirty' tankers to 37 percent on dry cargo and passenger vessels. The movements in re-insurance rates over the last 13 years are highlighted in the following graph. With the exception of passenger vessels, which were rated as dry cargo vessels until 1996, the re-insurance rates are still well below those that applied during the early nineties. With the significant hardening of the Insurance markets, the IG will inevitably be quoted a very significant rise at the forthcoming renewal. This is regardless of the programme's continuing positive claims record. Last year we mentioned that one concern with the IG deciding to take the third year option, rather than to undertake a voluntary re-negotiation, was the re-insurance market would take a particularly harsh line at the 23 renewal. At the time of writing the current arrangements still have four months to run, therefore the renewal negotiations are at a very early stage and nothing has yet been agreed. Both the Clubs and re-insurers are currently engaged in attempting to establish the more favourable negotiating position. Theoretically, the IG has a number of options, which it could exercise during the negotiation process. The Clubs could increase their individual Club and/or the Pool retentions. They could also simply take a greater amount of co-insurance on the main re-insurance programme itself. Over the last few months the IG has had a reinsurance study group review all these alternatives. Development of IG reinsurance rates US$ per GT Dirty Tanker Passenger Clean Tanker Other 14 Willis Marine P&I Review, December 22

17 US$ 4.25bn The structure of the IG's re-insurance programme remained unaltered as follows: Catastrophe call liability of shipowners Club catastrophe reserve or insurance (if any) Reducing risk passed on to the IG reinsurers should help in mitigating increases in the main reinsurance premium, however the Clubs will still have to account for the increased exposures they retain. As retentions increase, the potential volatility of the cost of retained claims also increases. With the Clubs' balance sheets already under strain, their ability to successfully manage the impact of increased claims volatility without additional, separate reinsurances for their individual exposure is questionable. Buying individual reinsurance, for most Clubs, would cost more proportionately than retaining the risk within the main IG programme. 2.3bn 1.53bn 1.3bn Top layer Third excess Oil pollution 1bn limit The effect of re-insurance costs on overall P&I premiums remains significant. In overall terms, each 5 percent rise in the re-insurance costs, on average, would equate to a 1 percent rise in the overall P&I premiums. The impact will naturally vary for individual shipowners, depending on fleet profile. Second excess 53m 1m 3m 2m 5m 75% First excess Upper pool Lower pool Co-insurance 1% Benfield Greg 15% 1m With the significant hardening of the Insurance markets, the IG will inevitably be quoted a very significant rise at the forthcoming renewal. Club retentions Willis Marine P&I Review, December 22 15

18 P&I fixed premium market Following two years of significant change in the fixed premium market, the last twelve months have seen comparatively little activity in this sector. Despite the downturn in the financial position of the mutual P&I Clubs and increased concern about further unbudgeted calls, the fixed premium sector as a whole has not seen substantial growth in their market share. This is arguably a positive sign as stability is a prerequisite to confidence in any product and the fixed premium facilities need to demonstrate some continuity if they are to lose the perception of being a "short term market". Nearly all the fixed markets have seen limited growth in their business and are looking to develop relatively conservatively over the next twelve months. This is despite a background of sizeable general increases being called by the P&I Clubs at the last renewal and the announcement of similar rises for 23. AXA Corporate Solutions AXA Corporate Solutions is a 1 percent owned subsidiary of the AXA Group. AXA provide P&I cover with varying limits, up to a maximum of US$5 million. They also offer FD&D and Charterers Liability covers. Broadly speaking thepolicy wordings offer similar cover to that of International Group Clubs. Since establishing the P&I facility in November 1999, the insured fleet has grown to a current total of about 6 vessels with a combined gross tonnage in excess of 2 million GT. The insured portfolio is predominantly European, smaller dry cargo vessels. The average per-vessel size is approximately 3,3 GT and about 28 percent are ocean going. The 21 year saw a 1% increase in premium income to US$7 million and AXA expect to see a further 5% growth this year. Going forward, they are mainly aiming to target 'blue water' dry cargo vessels up to approximately 4, GT. They will consider other types of vessel, but specifically avoid tankers over 3, GT or those that carry persistent oil as cargo. AXA are also unwilling to quote for passenger vessels carrying more than 1, passengers, reefer vessels or US flagged, owned or crewed vessels. AXA market themselves as endeavouring to focus their efforts on quality both in terms of their client base and in the service which they offer. In addition to the usual global network of independent correspondents, AXA Corporate can also rely on the support of local AXA Group subsidiaries around the world. 16 Willis Marine P&I Review, December 22

19 An interesting supplemental cover from AXA is their 'medical assistance' programme arranged with the co-operation of AXA Assistance. This is an automatic additional cover for persons onboard ships insured for P&I by AXA. The facility provides in-house diagnosis, emergency embarkation, hospitalisation, transport, medical expenses and repatriation. Costs will be paid directly by AXA thereby avoiding relatively small transfers of funds by an assured. AXA is rated AA by Standard & Poor's. British Marine Luxembourg SA Following its successful demutualisation, the British Marine (BML) is now an independent fixed premium Insurer offering P&I, FDD and H&M insurance. The maximum limit offered for P&I business is US$5 million each incident. The US$25 million rights issue referred to in our review last year has been completed and it leaves the Club with free reserves (over all classes) in excess of US$5 million. BML are currently rated as BBB+ by Standard and Poor's with "outlook stable". On the management side, there has been further changes with Ian Agnew, a former senior marine Lloyds Underwriter joining as Chairman and Tim Harris leaving the Steamship Mutual to take up the role of Director of P&I Underwriting. BML has continued its policy of concentrating on its traditional core book of smaller vessels up to a maximum of about 1, gross tons. The tonnage insured for P&I risks is about 3,5, gross tons covering 3,5 vessels. The annual premium income on this business is about US$26,5,. Europe and the Far East remain the main sources of business with Dry cargo vessels representing the single largest class of vessel. BML is rated BBB+ by Standard & Poor's. Osprey Underwriting Agency Ltd Osprey was founded in 1991, making it the longest established of the current fixed premium facilities. Osprey is an agency, which underwrites on behalf of Lloyd's insurers. From the beginning Osprey sought to provide cover only to owners that they recognised as not requiring the limits offered by the mutual clubs. Consequently they concentrate on smaller vessels, usually with relatively limited trading. Unlike the other fixed premium facilities mentioned in this section, Osprey are also willing to insure US based vessels. In terms of premium income the US market represents approximately 49 percent of their portfolio. British Marine Tonnage split by geographical location British Marine Tonnage split by vessel type UK ROW Far East Southern Europe Northern Europe 4% 13% 2% 19% 44% Smoothwater Tugs Dry Cargo Containers Fishing Tanker 15% 1% 41% 12% 9% 6% Other 16% Willis Marine P&I Review, December 22 17

20 P&I fixed premium market (continued) Osprey currently provide cover for P&I risks up to a maximum limit of US$25 million. As with the other fixed premium providers Osprey's P&I wording offers similar 'heads of cover' as the mutual clubs. In addition to standard P&I, Osprey are also able to provide cover for: Maritime Employers Liability exposures, for those who do not own or operate vessels but whose employees work within the maritime industry. Third party liability coverage for owners and/or operators of shipyards, stevedores, wharfingers and other marine contracting companies. They also have a facility to offer evidence of financial responsibility to support applications for US Coast Guard Certificates of Financial Responsibility. All the above policy forms are backed by security with an A rating from Standard & Poor's QBE Hongkong & Shanghai Insurance Limited The "Blue Water" division of QBE is based in Hong Kong and commenced operating at the beginning of the 22. QBE have previously offered P&I cover to "brown water" and coastal tonnage in Asia and this new division will augment these products. Claims will be handled by QBE's specialist P&I division in Hong Kong assisted where necessary by its international network of correspondents. QBE are expecting to be insuring about 15 vessels under this facility by the end of 23. The underwriting security will be 5 percent Swiss Re (Asia) and 5 percent QBE. Cover is available up to a top limit of US$1 million each incident. This facility is aimed at Owners and Managers of dry cargo vessels in the 5, to 3, GT range built after It is QBE's stated intention that all insured vessels will have to be IACS classed and undergo condition surveys within 3 days of attachment. Although the focus is on Asian clients, there is no restriction on the trading limits applied to Insured vessels. Currently, QBE are not able to arrange COFR's themselves but it is their intention to be able to facilitate these at some stage in the near future. QBE are rated A+ and Swiss Re AA+ by Standard & Poor's Osprey Tonnage split by geographical location Osprey Tonnage split by vessel type USA Africa Asia Caribbean Europe South America Middle East 49% 2% 18% 4% 16% 5% 6% Tug and Barge 22% Crew only 1% Tanker 26% Passenger 1% General cargo 18% Offshore contractors 5% Other 3% Marine contractors 4% Fishing 26% 18 Willis Marine P&I Review, December 22

21 Southern Seas Management (UK) Limited Brighton based Southern Seas offer cover up to a limit of US$5 million. Like most of the other fixed premium facilities it is aimed at operators of non US vessels, particularly dry cargo, of up to 1, Gross Tons. For vessels that trade to the United States, they have an arrangement with Arvak for the provision of COFR's. In addition to the core P&I business which utilises Lloyds security, they can provide Freight, Demurrage and Defence cover through the Hanseatic Pool and have developed a Concessionaires cover for cruise ships with a US$15 million limit, again with Lloyds security. Southern Seas currently arrange insurance on about 12 vessels, mainly dry cargo, which emanate predominantly from East Europe including Greece and Turkey, South America, India and East Africa. Southern Seas are also currently working on creating a Bermudan mutual insurer, which will be designed to offer cover to vessels up to about 25, Gross Tons. The focus will again be on dry cargo vessels and will offer a top limit of US$5 million. They hope to launch this mutual, which will be named The South of England Protection and Indemnity Association (Bermuda) Limited, early in 23. The current P&I cover is placed with Lloyds which is rated A by Standard & Poor's Terra Nova Insurance Co. Terra Nova have been established for over five years. The P&I team is led by Andrew Barker and Michael Newbury, both of whom are experienced in both the fixed and mutual P&I markets. Terra Nova currently insure over 2,5 vessels, the majority of which are small craft below 5, GT engaged in local, coastal and short sea trade. General cargo vessels account for over 5 percent of the tonnage covered. They do not write any US flag tonnage for non-us vessels calling at US ports however Terra Nova can arrange OPA/COFR coverage. Limits are offered up to a maximum of US$25 million although a significant number of Owners buy lower limits. Terra Nova's P&I wording offers similar 'heads of cover' as the mutual clubs. Although Terra Nova do not offer insurance for Freight, Demurrage and Defence risks, they can give aid and advise to their assureds and can arrange fixed price legal aid and litigation support. Terra Nova Tonnage split by geographical location Terra Nova Tonnage split by vessel type Far East Middle East Indian Sub-Continent Eastern Europe Africa Canada Western Europe South America 7% 11% 2% 12% 5% 2% 34% 27% RoRo/Container Passenger General cargo Tug and barge Fishing Tanker Specialist Bulker 8% 6% 41% 13% 7% 16% 6% 3% Willis Marine P&I Review, December 22 19

22 P&I fixed premium market (continued) Early in 2 Terra Nova were acquired by Markel Corporation, a large American composite insurer with total assets in excess of US$5 billion. Since Markel's involvement certain loss making units have been placed into run-off, however the Terra Nova P&I division have been publicly supported as a niche area with long term potential. Although Terra Nova Insurance Company is currently rated BBB- by Standard and Poor's, the cover is also available utilising Lloyds security through the Markel Syndicate who are rated at A- by the major rating agencies. Other Markets There are a number of other facilities offering fixed premium P&I cover. Of these Ingosstrakh (previously the Russian state insurance company for International business) is of note, particularly for Russian and ex-russian business. Ingosstrakh Insurance Co. Ingosstrakh have been offering P&I Insurance for 3 years. Their current portfolio consists mainly of owners/operators from Russia and other East European Countries. The remaining portfolio, whilst appearing to be of an International nature has in most cases some form of Russian or former Russian connection. Ingosstrakh cover is similar to that provided by the International Group Clubs. Limits of liability can be provided up to a maximum of US$1 million although the vast majority of Owners have limits of no more than US$1,,. Ingosstrakh Tonnage split by geographical location Ingosstrakh Tonnage split by vessel type below 1, 2% General cargo 48% 1,1 to 3, 3,1 to 5, 5,1 to 1, 1,1 to 15, 38% 28% 7% 3% Bulker Tugs and barges Fishing Reefer Ro-Ro/Ferries 5% 4% 11% 6% 3% 15,1 to 2, 2% Tanker 18% over 2,1 2% Others 5% 2 Willis Marine P&I Review, December 22

23 Ingosstrakh cover a wide range of ships, from very small inland operating vessels through to larger (in excess of 2, GT) ocean going vessels. They insure approximately 1,2 vessels, with an annual premium income of about US$13 million. Ingosstrakh are yet to seek S&P rating. As a consequence they are unlikely to imminently attract a wide range of international based tonnage. At this time however Ingosstrakh remain an important insurer to many shipowners within Eastern Europe and to those with Eastern European connections. Fixed Market Summary Facility Maximum limit (US$) S&P rating No. of vessels AXA 5 M AA 6 BML 5 M BBB+ 3,5 Osprey 25 M A N/A QBE 1 M A+/AA N/A Southern Seas 5 M A 12 Terra Nova 25 M BBB-/A- 2,5 Ingosstrakh 1 M N/A 1,2 Willis Marine P&I Review, December 22 21

24 Average Expense Ratio (AER) Comparisons Section four Average Expense Ratios (AER's) were introduced in 1999 with the intention of enabling direct cost efficiency comparisons to be made between all the International Group Clubs. Their introduction was in part due to pressure from the European Commission to improve transparency and cost competition between the Clubs. All Clubs are required to follow exactly the same format when calculating their AER figure. The ratio is a five year average of: operating costs X 1 (premium income + investment income) AER's are a reasonable idea in principal, however direct comparisons are difficult in this area. It would be too simplistic to state that the Club with the lowest AER was the most efficient and the highest the most inefficient. There are a number of factors that affect the AER figure. For example, a Club with a disproportionately high level of premium or investment income will produce a lower AER. Conversely loss prevention programmes, which nearly all Clubs now consider critical to reducing the overall cost of insurance, increase direct operating costs therefore pushing up the AER. Another major factor that affects the AER is whether the Club owns or rent their office space. If it is owned, the operating costs will be less, therefore reducing the AER. Owning property however is not automatically a benefit, as it means the costs associated with the purchase are not available for investment. The AER figures for the 2/1 and 21/2 years also demonstrate another difficulty with this measure of cost efficiency. The increase in average AER figures for these years is largely as a result of poor investment income performance, rather than from less efficient operations. As will be noted from the above formula, a reduction in investment income produces an automatic increase in the AER figure. The Shipowners' Club has a significantly higher AER than the other Clubs, but this is also to be expected as their business consists of large numbers of small ships paying relatively low premiums per vessel. The results themselves are of limited use to Shipowners seeking to establish the cost efficiency of their Club, compared to others in the market. A more useful guide will be to see the trends over a number of years. These trends, along with other factors, can be used to assist owners in understanding how well their Club is operating, both in itself and in comparison with the rest of the market. Consequently we have included all four years published AER's in the following graph. Average Expense Ratios (AER) Japan Standard Gard Britannia London North of England Steamship Swedish Skuld UK Club American West of England Shipowners 1998/ / 2/1 21/2 22 Willis Marine P&I Review, December 22

25 Willis Marine P&I Review 23

26 Introduction to Club Financial pages The following individual Club pages include consolidated, Financial Year summaries for each Club. As in previous years, our main aim in presenting these summaries has been consistency. There are still variations between the way Clubs report, however we have tried as far as possible to compare 'like with like'. We have simplified and summarised certain aspects, but where information is available, we have tried to adopt the same approach for all Clubs. Estimates Used A number of Clubs are unwilling to disclose all the figures used in our analysis, consequently in the following pages we have been forced to make a number of educated estimates. These are highlighted as follows (all figures US$, 's): We define below the figures included under each heading: Calls and Premiums Reinsurance Premiums Expenses Operating Income Gross Paid Claims Net Paid Claims Operating Surplus Investment Income Surplus for Year Net Assets Outstanding Claims Forecast Additional Calls Free Reserves All calls less brokerage. All reinsurance premiums. All general management, administrative and audit expenses. Calls, less reinsurance costs, less expenses. Paid gross claims, including Pool contributions (for the sake of consistency we have only considered paid claims). Paid gross claims less reinsurance and Pool recoveries. Operating income, less net paid claims. All investment income, exchange gains, tax etc. Operating surplus, plus investment income. Total assets (at market value), less creditors, less miscellaneous provisions for taxation etc., less additional calls advised but not yet debited. Net estimated outstanding claims. Calls advised but not yet debited. Net assets (market value) + Forecast additional calls (where available) - Outstanding claims. Britannia 1996/97 Brokerage: 4,34 Claims management expenses: 5,5 1997/98 Brokerage: 3,899 Claims management expenses: 5,5 1998/99 Brokerage: 4,77 Claims management expenses: 5,5 1999/ Brokerage: 6,92 Claims management expenses: 6,7 2/1 Brokerage: 5, Claims management expenses: 5,5 21/2 Brokerage: 6, Claims management expenses: 6,5 Standard 1996/97 Claims management expenses: 3, /98 Claims management expenses: 3, /99 Claims management expenses: 5, 1999/ Claims management expenses: 4,6 2/1 Claims management expenses: 5,5 21/2 Claims management expenses: 7, UK 1997/98 Brokerage: 9, Claims management expenses: 18, 1998/99: Brokerage: 9, Claims management expenses: 18, 1999/: Brokerage: 11, Claims management expenses: 19, 2/1: Brokerage: 13, Claims management expenses: 18, 21/2 Brokerage: 13, Claims management expenses: 18, West of England 1998/99 Claims management expenses: 9,5 1999/ Claims management expenses: 8,54 2/1 Claims management expenses: 9,7 21/2 Claims management expenses: 1, 24 Willis Marine P&I Review, December 22

27 Club Financial pages Notes Britannia With effect from the 1997/98-policy year Britannia entered into a reinsurance contract with a newly formed company, Boudicca Insurance Company Limited, located and regulated in Bermuda. Boudicca Insurance holds assets (currently totaling US$16.7 million) in a way that they cannot be dissipated to the detriment of the reinsurance contract with Britannia. This is intended to be a tax efficient vehicle for a proportion of Britannia's reserves. Boudicca is owned and controlled by the Iceni Trust, a charitable trust for which Report and Accounts are unavailable. In our summary page for Britannia for the sake of effective comparison with previous years, we have included Boudicca's assets in the figures. The assets of Boudicca as disclosed by the Club are as follows: 1997/98 US$62 million 1998/99 US$87 million 1999/ US$97.5 million 2/1 US$15.4 million 21/2 US$16.7 million North of England/Newcastle Club The Newcastle Club merged with the North of England in 1998/99. To try to demonstrate the trends as clearly as possible the 1998/99-year figures for the North of England do not include the 'income and expenditure' figures for the Newcastle Club. We have however included the Newcastle Club's free reserve figure for this year to reflect the total combined reserve. For the subsequent years we have included the fully integrated figures under the North of England. As all open years for the Newcastle Club have now been formally closed we have not included a separate page for this Club. Swedish Club The Swedish Club discloses it's financial results on a different basis to the rest of the International Group. Within the Swedish Club's published Report and Accounts there is no allocation of funds between their Protection and Indemnity and Hull and Machinery Classes. This makes the P&I class impossible to compare directly with other Clubs and consequently we have not included a full financial summary for this Club. Standard and Poor's The Standard and Poor's (S&P) ratings mentioned in the following pages fall into two categories, interactive ratings and public information ratings. S&P establish interactive ratings following in-depth meetings with the Club Managers. Interactively rated Clubs are identified by '*' after the rating. Public information ratings are signified by a 'pi' subscript and are established purely on the basis of the information provided in the Clubs' published financial statements. It is the Clubs themselves that choose whether to pursue an interactive rating and there is a cost to the Club from S&P for the consequent additional work involved. It is worthy to note that when an interactive rating is undertaken, the rating of the particular Club usually shows some form of improvement from the public information rating. This is interesting as the majority of the interactive ratings have taken place over the last three years, when the market has generally experienced deteriorating levels of assets and free reserves. Willis Marine P&I Review, December 22 25

28 American Consolidated financial year summary (US$, s) 1999/ 2/1 21/2 Calls and Premiums 28,73 28,968 49,538 Reinsurance Premiums -5,271-7,818-8,284 Operating Expenses -5,945-5,137-6,778 Operating Income 17,487 16,13 34,476 Gross Paid Claims na na na Net Paid Claims 19,667 2,997 34,13 Operating Surplus (Deficit) -2,18-4, Investment Income 5,452 1,774-2,414 Surplus for Year (Deficit) 3,272-3,21-2,68 - Net Assets (market) 75,634 73,24 51,738 Outstanding Claims 59,452 69,337 59,69 Forecast Additional Calls 9,936 9,858 25,628 Free Reserves 26,118 13,725 17,676 (Including Forecast Supplementary Calls) Entered tonnage Owned / Mutual 7,88, 9,4, 12,3, Chartered / Fixed 92, 1,1, 1,45, Total 8,8, 1,5, 13,75, S&P rating US$ (,'s) 5, 4, 3, 2, 1, 15, 12, 9, 6, 3, -3, -6, -9, American Underwriting Development 97/98 Calls and Premiums Net Paid Claims American Underwriting Development 97/98 98/99 98/99 99/ 99/ /1 /1 1/2 Total tonnage (GT) 1/2 16m 14m 12m 1m 8m 6m 4m 2m BBBpi BBB+* BBB* Operating Surplus (Deficit) Surplus for Year (Deficit) Investment Income Total entered tonnage increased by 3% Premium increased by US$2.6 million, including the contribution of unbudgeted supplementary calls Net paid claims increased by US$13 million Net Assets reduced by US$21.5 million Free Reserves (including forecast additional calls) increased by nearly 29% 8, 7, 6, 5, 4, 3, 2, 1, American Assets and Free Reserves 97/98 98/99 99/ Net Assets (market) Free Reserves (Including Forecast Supplementary Calls) /1 1/2 26 Willis Marine P&I Review, December 22

29 Britannia US$ (,'s) 2, 15, 1, 5, 5, 4, 3, 2, 1, -1, -2, -3, -4, -5, Britannia Underwriting Development 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 Calls and Premiums Gross Paid Claims Britannia Underwriting Development Total tonnage (GT) 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 1m 8m 6m 4m 2m Consolidated financial year summary (US$, s) 1999/ 2/1 21/2 Calls and Premiums 16, , ,568 Reinsurance Premiums -18,124-22,336-24,384 Operating Expenses -13,377-11,176-12,318 Operating Income 74,833 84,663 17,866 Gross Paid Claims 138, , ,471 Net Paid Claims 17, ,99 111,5 Operating Surplus (Deficit) -32,751-29,246-3,139 Investment Income 23,842-5,75-24,225 Surplus for Year (Deficit) -8,99-34,996-27,364 Net Assets (including Boudicca assets) 621, ,89 541,191 (Net) Outstanding Claims 415, , ,54 Additional Calls not yet debited - 1,22 13,541 Free Reserves 25, , ,678 (Including Supplementary Calls not yet debited, and including Boudicca) Entered tonnage Owned / Mutual 62,1, 63,8, 66,7, Chartered / Fixed 16,8, 18,, 19,3, Total 78,9, 81,8, 86,, S&P rating Operating Surplus (Deficit) Surplus for Year (Deficit) Investment Income Api Api Api Britannia Assets and Free Reserves 8, 7, 6, 5, 4, 3, 2, 1, 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 Net Assets (including Boudicca assets) Free Reserves (Including Supplementary Calls not yet debited, and including Boudicca) 5% rise in owned entered tonnage 22% increase in paid premiums US$27 million overall deficit largely as a result of negative investment performance 6% reduction in Net Assets 15% reduction in Free Reserves Willis Marine P&I Review, December 22 27

30 Gard Consolidated financial year summary (US$, s) 1999/ 2/1 21/2 Calls and Premiums 123, , ,263 Reinsurance Premiums -29,144-28,1-31,328 Operating Expenses -2,744-15,436-18,131 Operating Income 73,251 78,684 84,84 Gross Paid Claims 151, ,88 138,72 Net Paid Claims 18,57 146,738 11,53 Operating Surplus (Deficit) -34,86-68,54-16,699 Investment Income 39,95 1,1-12,518 Surplus for Year (Deficit) 5,144-66,954-29,217 - Net Assets (market) 68, ,178 61,519 (Net) Outstanding Claims 445,9 445,989 43,797 Forecast Additional Calls 13,917 22,75 24,5 Free Reserves 248, , ,222 (Including Forecast Supplementary Calls) Entered tonnage Owned / Mutual 59,422, 62,291, 65,799, Chartered / Fixed 3,416, 31,488, 31,898, Total 89,838, 93,779, 97,697, S&P rating Api Api Api US$ (,'s) 25, 2, 15, 1, 5, 8, 6, 4, 2, -2, -4, -6, -8, Gard Underwriting Development 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 Calls and Premiums Gross Paid Claims Gard Underwriting Development 94/95 95/96 96/97 97/98 98/99 99/ Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) Total tonnage (GT) /1 1/2 12m 1m 8m 6m 4m 2m Gard Assets and Free Reserves Total entered tonnage up by 4% Paid premiums up by 1% Gross paid claims down by 18% Operating deficit improved by US$51 million Assets and Free Reserves down marginally ( 3.5% and 2.4% respectively) 8, 7, 6, 5, 4, 3, 2, 1, 94/95 95/96 96/97 97/98 98/99 99/ /1 Net Assets (market) Free Reserves (Including Forecast Supplementary Calls) 1/2 28 Willis Marine P&I Review, December 22

31 Japan Japan Underwriting Development Consolidated financial year summary (US$, s) US$ (,'s) 15, 12, 9, 6, 3, 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 Calls and Premiums Gross Paid Claims Total tonnage (GT) 6m 5m 4m 3m 2m 1m 1999/ 2/1 21/2 Calls and Premiums 13,48 94,417 97,27 Reinsurance Premiums -18,877-15,359-14,69 Operating Expenses -13,567-13,384-11,128 Operating Income 7,64 65,674 71,29 Gross Paid Claims 9,961 75,679 64,117 Net Paid Claims 83,23 61,847 61,13 Operating Surplus (Deficit) -2,175-9,115-2,962 Investment Income 2,515 12,429 8,97 Surplus for Year (Deficit) 34 3,314 5,945 Japan Underwriting Development Net Assets (Market) 19,19 212,721 23,26 Outstanding Claims (P&I Only) 129,44 136,148 13,76 Forecast Additional Calls Free Reserves 6,975 76,573 72,446 15, 12, 9, 6, 3, -3, -6, -9, -12, 94/95 95/96 96/97 97/98 98/99 99/ Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) /1 1/2 Entered tonnage Owned / Mutual 42,5, 45,, 48,, Chartered / Fixed 5,, 4,9, 4,7, Total 47,5, 49,9, 52,7, S&P rating BBpi BBpi BBpi Japan Assets and Free Reserves 25, 2, 15, 1, 5, 94/95 95/96 96/97 97/98 98/99 Net Assets (Market) Free Reserves 99/ /1 1/2 5.6% rise in total entered tonnage 2.8% rise in premiums Net paid claims relatively stable 4.5% reduction in Net Assets 5.4% reduction in Free Reserves Willis Marine P&I Review, December 22 29

32 Liverpool & London Consolidated financial year summary (US$, s) 1999/ 2/1 21/2 Calls and Premiums 45,937 21,311 4,529 Reinsurance Premiums -6,229-2, Operating Expenses -8,874-3,745-2,952 Operating Income 3,834 15,139 2,352 Gross Paid Claims 48,833 43,38 37,183 Net Paid Claims 33,649 33,275 16,773 Operating Surplus (Deficit) -2,815-18,136-14,421 Investment Income 86 4,137 1,16 Surplus for Year (Deficit) -2,9-13,999-13,315 Net Assets 132,75 111,325 95,315 Outstanding Claims 15,521 17,482 81,45 Forecast Additional Calls 15, Free Reserves -2,652 3,843 14,27 (Including Forecast Supplementary Calls) US$ (,'s) 8, 7, 6, 5, 4, 3, 2, 1, Liverpool & London Underwriting Development 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 Calls and Premiums Gross Paid Claims Liverpool & London Underwriting Development Entered tonnage S&P rating n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a US$ (,'s) 25, 2, 15, 1, 5, -5, -1, -15, -2, 94/95 95/96 96/97 97/98 98/99 99/ Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) /1 1/2 Club in run-off Open years progressing well as at the publication of the most recent Report and Accounts Estimated free reserve just over US$14 million 15, 12, 9, 6, 3, -3, Liverpool & London Assets and Free Reserves 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 Net Assets Free Reserves (Including Forecast Supplementary Calls) 3 Willis Marine P&I Review, December 22

33 London London Underwriting Development Consolidated financial year summary (US$, s) US$ (,'s) 12, 1, 8, 6, 4, 2, 94/95 95/96 96/97 Calls and Premiums 35m 3m 25m 2m 15m 1m 5m 97/98 98/99 99/ /1 1/2 Gross Paid Claims Total tonnage (GT) 1999/ 2/1 21/2 Calls and Premiums 65,83 62,95 64,51 Reinsurance Premiums -8,149-9,27-1,165 Operating Expenses -16,858-16,745-15,99 Operating Income 4,796 36,998 39,246 Gross Paid Claims 72,316 8,948 83,58 Net Paid Claims 67,657 77,914 74,936 Operating Surplus (Deficit) -26,861-4,916-35,69 Investment Income 28,97-5,855-17,531 Surplus for Year (Deficit) 2,19-46,771-53,221 5, 4, 3, 2, 1, -1, -2, -3, -4, -5, -6, London Underwriting Development 94/95 95/96 96/97 97/98 98/99 99/ Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) /1 1/2 Net Assets 426,629 38,77 326,79 Net Outstanding Claims 3,66 279, ,363 Forecast Additional Calls 18,45 17,555 18,331 Free Reserves 144, ,17 8,677 (Including Forecast Supplementary Calls) Entered tonnage Owned / Mutual 26,26,186 28,974,179 27,444,166 Chartered / Fixed 1,184, ,18 862,936 Total 27,211,48 29,965,197 28,37,12 S&P rating APi APi BBBpi 5, 4, 3, 2, London Assets and Free Reserves 1, 94/95 95/96 Net Assets 96/97 97/98 98/99 99/ /1 1/2 Free Reserves (Including Forecast Supplementary Calls) 5% reduction in owned entered tonnage Nominal increases in Premiums and Gross Paid Claims Negative result on investment income exceeding US$17 million 14% reduction in Net Assets 32% reduction in Free Reserves Willis Marine P&I Review, December 22 31

34 North of England Consolidated financial year summary (US$, s) North of England Underwriting Development 1999/ 2/1 21/2 Calls and Premiums 83,325 94,495 1,314 Reinsurance Premiums -16,776-16,827-19,373 Operating Expenses -12,519-14,335-13,37 Operating Income 54,3 63,333 67,94 Gross Paid Claims 82,191 92,652 79,914 Net Paid Claims 74,95 7,22 6,44 Operating Surplus (Deficit) -2,875-6,887 7,464 Investment Income -1,135 11,47-1,728 Surplus for Year (Deficit) -22,1 4,16 5,736 US$ (,'s) 12, 1, 8, 6, 4, 2, 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 Calls and Premiums Gross Paid Claims Total tonnage (GT) 5m 4m 3m 2m 1m Net Assets (market) 318, , ,52 Outstanding Claims 247, , ,62 Forecast Additional Calls 18,637 14,797 14,3 Free Reserves 89,325 84,427 86,993 (Including Forecast Supplementary Calls) Entered tonnage Owned / Mutual 25,667,118 27,789,422 33,, Chartered / Fixed 4,949,311 6,41,966 6,, Total 3,616,429 34,2,388 39,, S&P rating BBBpi A-* A-* 4, 3, 2, 1, -1, -2, -3, North of England Underwriting Development 94/95 95/96 96/97 97/98 98/99 99/ Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) /1 1/2 North of England Assets and Free Reserves 14% rise in total entered tonnage 6% increase in paid premiums US$5.7 million overall surplus despite adverse investment performance 2% increase in Net Assets 3% increase in Free Reserves 35, 3, 25, 2, 15, 1, 5, 94/95 95/96 96/97 97/98 98/99 99/ /1 Net Assets (market) Free Reserves (Including Forecast Supplementary Calls) 1/2 32 Willis Marine P&I Review, December 22

35 Shipowners Club US$ (,'s) Shipowners Club Underwriting Development 6, 12m 5, 1m 4, 8m 3, 6m 2, 4m 1, 2m 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 Calls and Premiums Gross Paid Claims Total tonnage (GT) Consolidated financial year summary (US$, s) 1999/ 2/1 21/2 Calls and Premiums 53,425 53,363 59,779 Reinsurance Premiums -11,67-13,286-14,366 Operating Expenses -8,966-8,687-9,68 Operating Income 32,789 31,39 36,345 Gross Paid Claims 37,48 48,159 35,814 Net Paid Claims 29,325 35,295 31,133 Operating Surplus (Deficit) 3,464-3,95 5,212 Investment Income 7,955-11,288-9,755 Surplus for Year (Deficit) 11,419-15,193-4,543 Shipowners Club Underwriting Development Net Assets (Market) 151,77 136, ,971 Outstanding Claims 81,61 72,612 73,888 Forecast Additional Calls Free Reserves 7,646 63,92 58,83 2, 15, 1, 5, -5, -1, -15, -2, 94/95 95/96 96/97 97/98 98/99 99/ Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) /1 1/2 Entered tonnage Owned / Mutual 6,38,26 7,284,832 7,97,317 Chartered / Fixed 1,825,327 2,84,695 2,152,32 Total 8,25,587 9,369,527 1,59,349 S&P rating Api Api Api 2, 15, Shipowners Club Assets and Free Reserves 1, 5, 94/95 95/96 96/97 97/98 98/99 99/ Net Assets (Market) Free Reserves /1 1/2 12% rise in paid premiums 12% reduction is net paid claims Positive underwriting result offset by US$9.8 million investment deficit 3% reduction in Net Assets 9% reduction in Free Reserves Willis Marine P&I Review, December 22 33

36 Skuld Consolidated financial year summary (US$, s) Skuld Underwriting Development 1999/ 2/1 21/2 Calls and Premiums 142,322 16,41 135,61 Reinsurance Premiums -24,745-22,516-2,475 Operating Expenses -26,111-24,884-22,887 Operating Income 91,466 58,641 91,699 Gross Paid Claims 113, ,43 155,783 Net Paid Claims 111,244 14, ,866 Operating Surplus (Deficit) -19,778-81,694-38,167 Investment Income 18,54 13,581 18,922 Surplus for Year (Deficit) -1,274-68,113-19,245 - Net Assets (market) 363, , ,244 Net Outstanding Claims 3, ,15 285,371 Forecast Additional Calls 34,187 13,374 - Free Reserves 97,522 8,783 77,873 (Including Forecast Supplementary Calls) US$ (,'s) 2, 15, 1, 5, 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 Calls and Premiums Gross Paid Claims Total tonnage (GT) Skuld Underwriting Development 7m 6m 5m 4m 3m 2m 1m Entered tonnage 4, 2, Owned / Mutual 39,6, 36,4, 33,285, Chartered / Fixed 25,5, 27,4, 28,118, Total 65,1, 63,8, 61,43, -2, -4, -6, -8, S&P rating -1, 94/95 95/96 96/97 97/98 98/99 99/ /1 1/ BBBpi BBpi BBpi Operating Surplus (Deficit) Surplus for Year (Deficit) Investment Income Skuld Assets and Free Reserves Total entered tonnage reduced by 4% 21/2 financial year premium includes US$39.7 million of unbudgeted supplementary calls Gross claims marginally increased, net paid claims reduced by 7.5% Assets increased by 6.4% Free Reserves reduced by nearly 4% 4, 35, 3, 25, 2, 15, 1, 5, 94/95 95/96 96/97 97/98 98/99 99/ /1 Net Assets (market) Free Reserves (Including Forecast Supplementary Calls) 1/2 34 Willis Marine P&I Review, December 22

37 Standard Bermuda US$ (,'s) 15, 12, 9, 6, 3, 4, 3, 2, 1, -1, -2, -3, -4, Standard Bermuda Underwriting Development 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 Calls and Premiums Gross Paid Claims Total tonnage (GT) Standard Bermuda Underwriting Development 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 6m 5m 4m 3m 2m 1m Tonnage (GT) Consolidated financial year summary (US$, s) 1999/ 2/1 21/2 Calls and Premiums 81,882 89,918 14,587 Reinsurance Premiums -15,716-14,113-2,63 Operating Expenses -13,861-14,62-15,977 Operating Income 52,35 61,185 68,7 Gross Paid Claims 94,518 12, ,529 Net Paid Claims 77,53 85,765 95,48 Operating Surplus (Deficit) - 25,198-24,58-27,41 Investment Income 24,429 5,975-7,165 Surplus for Year (Deficit) ,65-34,26 Net Assets 457, ,279 45,73 Outstanding Claims 276,24 276,14 277,826 Forecast Additional Calls Free Reserves 181,68 163, ,247 (Including Forecast Supplementary Calls) Entered tonnage S&P rating ,5, 43,, 43,, 5,5, 8,, 1,, 42,, 51,, 53,, Operating Surplus (Deficit) Surplus for Year (Deficit) Investment Income AA-* AA-* AA-* 5, 4, 3, 2, Standard Bermuda Assets and Free Reserves 1, 94/95 95/96 96/97 97/98 98/99 99/ /1 Net Assets (market) Free Reserves (Excluding Forecast Supplementary Calls) 1/2 16% rise in paid premiums 21% reduction is gross paid claims US$7 million loss on investment income 8% reduction in Net Assets 22% reduction in Free Reserves Willis Marine P&I Review, December 22 35

38 Steamship Consolidated financial year summary (US$, s) Steamship Underwriting Development 1999/ 2/1 21/2 Calls and Premiums 26, ,95 32,73 Reinsurance Premiums -46,95-58,167-42,844 Operating Expenses -11,757-9,871-9,662 Operating Income 147,762 12,57 25,224 Gross Paid Claims 269, , ,886 Net Paid Claims 187,63 199,554 25,579 Operating Surplus (Deficit) -39,841-79,497 44,645 Investment Income 61,283-18,5-14,881 Surplus for Year (Deficit) 21,442-97,547 29,764 US$ (,'s) 35, 3, 25, 2, 15, 1, 5, 7m 6m 5m 4m 3m 2m 1m 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 Calls and Premiums Gross Paid Claims Total Entered Tonnage Net Assets (Market) 592, ,632 41,186 Outstanding Claims 541, , ,498 Forecast Additional Calls 63,553 6, ,176 Free Reserves 113,747 83, ,864 (Including Forecast Supplementary Calls) Entered tonnage Owned / Mutual 48,6, 49,4, 49,5, Chartered / Fixed 15,4, 15,6, 15,5, Total 64,, 65,, 65,, S&P rating BBBpi BBBpi BBpi 8, 6, 4, 2, -2, -4, -6, -8, -1, Steamship Underwriting Development 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) 6, 5, 4, 3, Steamship Assets and Free Reserves Entered tonnage stable Premium increase almost entirely due to US$114 million of unbudgeted supplementary calls Continuing adverse investment result 17% reduction in Net Assets Free Reserves increased by US$65 million (including future supplementary calls) 2, 1, 94/95 95/96 96/97 97/98 98/99 99/ /1 Net Assets (Market) Free Reserves (Including Forecast Supplementary Calls) 1/2 36 Willis Marine P&I Review, December 22

39 Swedish The Swedish Club writes P&I, FD&D and Hull and Machinery Classes of business. The Club does not however publish separate financial statements for the P&I and FD&D Classes; therefore it is not possible to produce any meaningful financial comparisons with other P&I Clubs. Across all classes, the Club had a gross premium income of about US$61 million in 21/2. This was up from US$54 million the previous year. Free reserves however dropped by roughly 26 percent over the same period, from US$86 million to US$63 million The H&M Class of the Swedish Club increased its entered Gross Tonnage by roughly 28 percent between 21 and 22 (from 21 million GT in 21 to 27 million GT in 22). Over a similar period, despite a marginal reduction in the number of ships insured for P&I, the tonnage of the P&I Class remained fairly stable at just below 15 million gross tons. The Club has developed a much more international Membership over the last decade. Swedish tonnage now represents only 14 percent of their portfolio, compared with around 5 percent ten years ago. Entered tonnage Owned / Mutual 13,8, 14,9, 14,7, Chartered / Fixed 527,971 7, 1,1, Total 14,327,971 15,6, 15,8, S&P rating BBBpi BBBpi BBBpi Willis Marine P&I Review, December 22 37

40 UK Club Consolidated financial year summary (US$, s) 1999/ 2/1 21/2 Calls and Premiums 225, , ,35 Reinsurance Premiums -37,68-36,484-39,974 Operating Expenses -4,112-35,7-32,336 Operating Income 148,657 18, ,725 Gross Paid Claims 289, , ,433 Net Paid Claims 237, , ,449 Operating Surplus (Deficit) -88,82-37,51-11,724 Investment Income 77,56-6,469-26,239 Surplus for Year (Deficit) -11,26-43,97-127,963 US$ (,'s) 4, 35, 3, 25, 2, 15, 1, 5, UK Club Underwriting Development 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 14m 12m 1m 8m 6m 4m 2m Net Assets 1,127,123 1,83, ,19 Outstanding Claims 798, , ,468 Forecast Additional Calls 55, - - Free Reserves 383, ,911 21,722 (Including Forecast Supplementary Calls) Calls and Premiums Gross Paid Claims Total tonnage (GT) UK Club Underwriting Development Entered tonnage Owned / Mutual 89,5, 93,9, 92,8, Chartered / Fixed 25,6, 2,, 24,9, Total 115,1, 113,9, 117,7, S&P rating Api AA-* A+* 12, 9, 6, 3, -3, -6, -9, -12, -15, 94/95 95/96 96/97 97/98 98/99 99/ Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) /1 1/2 UK Club Assets and Free Reserves 1,2, 1,, 8, 3% rise in total entered tonnage 15% reduction in paid premiums, 12% rise in net paid claims Negative investment income contributing to US$128 million overall deficit 12% reduction in Net Assets 4% reduction in Free Reserves 6, 4, 2, 94/95 95/96 Net Assets 96/97 97/98 98/99 99/ /1 1/2 Free Reserves (Including Forecast Supplementary Calls) 38 Willis Marine P&I Review, December 22

41 West of England US$ (,'s) West of England Underwriting Development 2, 6m 5m 15, 4m 1, 3m 2m 5, 1m 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 Calls and Premiums Gross Paid Claims Total tonnage (GT) West of England Underwriting Development 8, 6, 4, 2, -2, -4, -6, 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) Consolidated financial year summary (US$, s) 1999/ 2/1 21/2 Calls and Premiums 131,53 123, ,956 Reinsurance Premiums -16,45-16,62-17,716 Operating Expenses -19,539-22,336-21,792 Operating Income 95,64 84,774 87,448 Gross Paid Claims 16, , ,559 Net Paid Claims 13,14 129, ,827 Operating Surplus (Deficit) -34,95-44,882-39,379 Investment Income 6,544 16,833 1,421 Surplus for Year (Deficit) -28,46-28,49-28,958 Net Assets (Market) 536, ,19 482,418 Outstanding Claims 49, , ,736 Forecast Additional Calls 32,888 3,385 3,1 Free Reserves 16, , ,782 (Including Forecast Supplementary Calls) Entered tonnage Owned / Mutual 37,, 38,, 42,, Chartered / Fixed 11,3, 11,75, 14,, Total 48,3, 49,75, 56,, S&P rating BBBpi BBBpi BBBpi West of England Assets and Free Reserves 6, 5, 4, 3, 2, 1, 94/95 95/96 96/97 97/98 98/99 99/ /1 1/2 Net Assets (Market) Free Reserves (Including Forecast Supplementary Calls) 1% rise in owned entered tonnage Premiums and net paid claims relatively stable 12% improvement in the operating result US$29 million overall deficit leading to 6% reduction in Net Assets 11% reduction in Free Reserves Willis Marine P&I Review, December 22 39

42 Supplementary Call History The following pages provide comparative information on the supplementary call history of the market. The analysis is broken down as follows: Table with Basic Data The main reference table. It shows in actual figures the original and final/current estimates for the supplementary calls of all the Clubs from 1989/9 to 22/3. Graphical Depiction of Individual Clubs' Results The raw data from the main reference table is displayed graphically. The graphs show the original estimated supplementary call and the actual call for each Club over the period 1991 to 22. The intention of showing the graphs together is to allow easy comparison of individual Club supplementary call trends. Direct Graphical Comparisons of Individual Club Results (Percentage Variation from original Estimated Total Call) Pages 46 to 49 provide a more direct comparison of all the Clubs' supplementary call results. Each graph shows the percentage variation from original estimated total call for each Club over the period 1991 to 22. The graphs are on the same scale and provide direct comparison of the individual Clubs' supplementary call performance and trends over the period. NB: Percentage Variation from original Estimated Total Call This is a direct comparative measure of the Clubs' supplementary call performance. It is necessary for easy, direct comparison as individual Clubs use a wide range original estimated supplementary calls. Table with Basic Data Policy Year 1989 / / / / / / / 1996 Supplementary Call Estimate: Original Final Original Final Original Final Original Final Original Final Original Final Original Current American Club Britannia British Marine Mutual Gard Japan Club Liverpool & London London Steamship Newcastle North of England Ocean Marine Shipowners Skuld Standard (Bermuda) Standard (London) Steamship Swedish UK West of England Where Clubs charge on an Estimated Mutual Basis. 'Supplementary Call' figure provided refers to the percentage charged after expiry of the policy period (relative to the premium charged during the policy year). 4 Willis Marine P&I Review, December 22

43 A zero percentage variance from estimated total calls signifies that the Club has charged exactly what it estimated for that year. A negative percentage variance shows that the Club charged less than it originally estimated for the year in question. A positive variance highlights that the Club actually charged more than was originally estimated for the year. Comparison of the Average Variances over Five and Ten Years The two graphs on page 5 summarise the average supplementary call performance of all the Clubs together. They provide a snapshot of the average call variance of all of the Clubs, over the last decade. The first graph shows the average percentage variance from estimated total call for all the Clubs over the period 1991 to 21. The second graph makes the same comparison but takes the average over only the five most recent years. The best performing Clubs are shown to the left of the graphs, with those over-budget towards the right of the graphs / / / / 2 2 / 21 21/22 22/23 Original Current Original Current Original Current Original Current Original Current Original Current Original Current Supplementary Call Estimate American Club Britannia fixed fixed fixed fixed fixed fixed British Marine Mutual Gard Japan Club n/a n/a n/a n/a n/a n/a Liverpool & London London Steamship n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Newcastle North of England n/a n/a n/a n/a n/a n/a n/a n/a Ocean Marine Shipowners Skuld Standard (Bermuda) Standard (London) Steamship Swedish UK West of England Willis Marine P&I Review, December 22 41

44 Comparison of original and actual supplementary calls American Britannia 14% 12% 1% 8% 6% 4% 2% % 12% 1% 8% 6% 4% 2% -2% -4% Original Supplementary Call Estimate Actual Supplementary Call Original Supplementary Call Estimate Actual Supplementary Call Gard Japan 14% 12% 1% 14% 12% 1% 8% 8% 6% 6% 4% 4% 2% 2% Original Supplementary Call Estimate Actual Supplementary Call Original Supplementary Call Estimate Actual Supplementary Call 42 Willis Marine P&I Review, December 22

45 Liverpool & London London 2% 14% 175% 15% 125% 1% 75% 5% 25% 12% 1% 8% 6% 4% 2% Original Supplementary Call Estimate Actual Supplementary Call Original Supplementary Call Estimate Actual Supplementary Call Newcastle North of England 18% 16% 14% 12% 1% 8% 6% 4% 2% % 12% 1% 8% 6% 4% 2% Original Supplementary Call Estimate Actual Supplementary Call Original Supplementary Call Estimate Actual Supplementary Call Willis Marine P&I Review, December 22 43

46 Comparison of original and actual supplementary calls Ocean Marine Shipowners Club 2% 175% 15% 125% 1% 75% 5% 25% 14% 12% 1% 8% 6% 4% 2% Original Supplementary Call Estimate Actual Supplementary Call Original Supplementary Call Estimate Actual Supplementary Call Skuld 14% 12% 1% 8% 6% 4% 2% Standard Bermuda 14% 12% 1% 8% 6% 4% 2% Original Supplementary Call Estimate Actual Supplementary Call Original Supplementary Call Estimate Actual Supplementary Call 44 Willis Marine P&I Review, December 22

47 Steamship 14% 12% 1% 8% 6% 4% 2% UK Club 14% 12% 1% 8% 6% 4% 2% Original Supplementary Call Estimate Actual Supplementary Call Original Supplementary Call Estimate Actual Supplementary Call West of England Swedish 14% 14% 12% 12% 1% 1% 8% 8% 6% 6% 4% 4% 2% 2% Original Supplementary Call Estimate Actual Supplementary Call Original Supplementary Call Estimate Actual Supplementary Call Willis Marine P&I Review, December 22 45

48 Percentage variation from initial estimated total call American Britannia 14% 12% 1% 8% 6% 4% 2% -2% -4% % 12% 1% 8% 6% 4% 2% -2% -4% Percentage Variation from Estimated Total Call Percentage Variation from Estimated Total Call Gard Japan 14% 12% 1% 8% 6% 4% 2% % -2% -4% % 12% 1% 8% 6% 4% 2% -2% -4% Percentage Variation from Estimated Total Call Percentage Variation from Estimated Total Call 46 Willis Marine P&I Review, December 22

49 Liverpool & London London 14% 12% 1% 8% 6% 4% 2% -2% -4% % 12% 1% 8% 6% 4% 2% -2% -4% Percentage Variation from Estimated Total Call Percentage Variation from Estimated Total Call Newcastle North of England 14% 12% 1% 8% 6% 4% 2% -2% -4% % 12% 1% 8% 6% 4% 2% % -2% -4% Percentage Variation from Estimated Total Call Percentage Variation from Estimated Total Call Willis Marine P&I Review, December 22 47

50 Percentage variation from initial estimated total call Ocean Marine Shipowners 175% 15% 125% 1% 75% 5% 25% -25% % 12% 1% 8% 6% 4% 2% -2% -4% Percentage Variation from Estimated Total Call Percentage Variation from Estimated Total Call Skuld Standard Bermuda 14% 12% 1% 8% 6% 4% 2% -2% -4% % 12% 1% 8% 6% 4% 2% -2% -4% Percentage Variation from Estimated Total Call Percentage Variation from Estimated Total Call 48 Willis Marine P&I Review, December 22

51 Steamship Swedish 14% 12% 1% 8% 6% 4% 2% -2% -4% % 12% 1% 8% 6% 4% 2% -2% -4% Percentage Variation from Estimated Total Call Percentage Variation from Estimated Total Call UK Club West of England 14% 12% 1% 8% 6% 4% 2% -2% -4% % 12% 1% 8% 6% 4% 2% -2% -4% Percentage Variation from Estimated Total Call Percentage Variation from Estimated Total Call Willis Marine P&I Review, December 22 49

52 Supplementary call history summary The divergence in the supplementary call performance of the Clubs is significant. Over the last ten years, roughly half of Clubs have on average charged over-budget calls. This is primarily as a result of the market wide problems, for four or five years until the early 199's. Consequently the ten-year average graph shows ten Clubs above budget and only 7 Clubs performing on or below budget Over the most recent five years a polarisation in the market is much more evident. The five-year average graph outlines this comparative performance very clearly. Over the more recent period only six Clubs have on average exceeded their original estimates. Of these six, three (Liverpool and London, Newcastle and Ocean Marine) have subsequently ceased active underwriting. The other three Clubs over budget on average over the last five years are the American Club, Skuld and Steamship Mutual. At the same time the majority of the market has performed within their original estimates, eight Clubs actually below their original estimates. As outlined earlier in this report we do not expect that the recent over-budget performance of a minority of Clubs will spread to the majority of the market as it did in the late 198's. We do expect further problems, but these are likely to be more specific instances rather than market wide difficulties. Average Percentage Variation from Estimated Total Call Years 1996 to 21 1% 8% 6% 4% 2% -2% -4% Shipowners Gard Standard (Bermuda) Britannia Japan United Kingdom London Swedish Club North of England Standard (London) West of England American Club Skuld Steamship Liverpool and London Newcastle Ocean Marine Average Percentage Variation from Estimated Total Call Years 1991 to 21 7% 6% 5% 4% 3% 2% 1% -1% -2% -3% Britannia Shipowners Japan Gard Standard (Bermuda) United Kingdom Standard (London) London North of England Swedish Club West of England Skuld American Club Steamship Newcastle Ocean Marine Liverpool and London 5 Willis Marine P&I Review, December 22

53 Intro header bgfnz Willis Marine P&I Review, December 22 51