The Steamship Mutual Underwriting Association (Bermuda) Limited. Contents

Transcription

1 Annual Report and Accounts 2013

2 The Steamship Mutual Underwriting Association (Bermuda) Limited Contents 02 Notice of Meeting 03 Directors 04 Report of the Directors 10 Appendix I Policy Year Statement All Classes 12 Appendix II Policy Year Statement P&I Class 14 Consolidated Income and Expenditure Account 15 Consolidated Balance Sheet 16 Consolidated Cash Flow Statement 17 Notes on the Accounts 26 Report of the Independent Auditor

3 The Steamship Mutual Underwriting Association (Bermuda) Limited The Steamship Mutual Underwriting Association (Bermuda) Limited (Incorporated under the laws of Bermuda) and its subsidiary companies Managers Steamship Mutual Management (Bermuda) Limited Washington Mall 1, P.O. Box HM 447 Hamilton HM BX, Bermuda Telephone: (1441) Telefax: (1441) Managers representatives Steamship Insurance Management Services Limited Aquatical House, 39 Bell Lane, London E1 7LU Telephone: / Steamship Mutual Management (Hong Kong) Limited Room , Jubilee Centre 18 Fenwick Street, Wanchai, Hong Kong Telephone: (852) /(852) Telefax: (852) /(852) Representative office in Brazil Avenida Rio Branco, 151/ , Centro Rio de Janeiro, R.J. CEP Brazil Telephone: (55 21) /(55 21) Telefax: (55 21)

4 The Steamship Mutual Underwriting Association (Bermuda) Limited Notice of Meeting Notice is hereby given that the Thirty Ninth Annual General Meeting of the Members of the Association will be held at the Westin Athens Astir Palace Hotel, Vouliagmeni, Athens, Greece, on Tuesday, 22nd October 2013 at 09:05 hours for the following purposes: 1 The Secretary to confirm that Notice of the Meeting has been given. 2 To approve the Minutes of the last Meeting of the Members. 3 To receive the Directors Report and Accounts for the year ended 20th February To fix the number of Directors for the ensuing year. 5 To elect Directors retiring in rotation. Under the Bye-laws of the Company, one-third of the Directors are required to retire annually by rotation. The Directors retiring by rotation are Mr C. J. Ahrenkiel, Mr S-M. Edye, Ms D. M. Ho, Mr S. Mehta, Mr H. L. F. Schoeller, Mr K. Sheehan, Mr B. K. Sheth and Mr A. Tung. Being eligible all Directors offer themselves for re-election. 6 To elect Director retiring in compliance with Bye-law 47. The Director retiring is Mr S. Hajara and, being eligible, he offers himself for re-election. 7 To appoint Auditors and to authorise the Directors to agree their remuneration. 8 Confirmation of Acts. 9 To transact any other ordinary business of the Company. By Order of the Board S. Davis Secretary 14th May 2013 N.B. A Member who is entitled to attend and vote at the above Meeting is entitled to appoint a proxy to attend, speak and vote in his place. The instrument appointing a proxy may be in the form enclosed and must be deposited with the Secretary at Clarendon House, Church Street West, P.O. Box HM 666, Hamilton HM CX, Bermuda, not less than 48 hours before the time specified for the holding of the Meeting. 02

5 The Steamship Mutual Underwriting Association (Bermuda) Limited Directors Directors H. L. F. Schoeller, Columbia Shipmanagement Ltd. (Chairman) A. Abraha, Ethiopian Shipping Lines (retired 24th July 2012) C. J. Ahrenkiel, Ahrenkiel Consulting Services A. Marques de Almeida, Vale (appointed 8th May 2012) M. W. Bayley, Royal Caribbean International C. Bouch (appointed 21st January 2013) S-M. Edye, Sloman Neptun Schiffahrts AG. M. Frith, Conyers, Dill & Pearman (appointed 31st March 2013) I. Grimaldi, Grimaldi Holdings SpA. S. Hajara D. M. Ho, Magsaysay Maritime Corp. H. M. Juniel, Reederei. F. Laeisz GmbH. J. M. Macdonald, Conyers, Dill & Pearman (retired 31st March 2013) C. J. Madinabeitia, Tradewind Tankers SA. A. L. Marchisotto, Moran Holdings Inc. S. J. Martin, Steamship P&I Management LLP (appointed 29th January 2013) B. B. A. McAllister, McAllister Towing (resigned 22nd October 2012) S. A. Meenai, Pakistan National Shipping Corp. (retired 28th February 2013) S. Mehta, Essar Global C. K. Ong, U-Ming Marine Transport Corp. R. Otoni Andrade, Log-In Logistica Intermodal SA. A. Pohan, New York Waterway G. W. F. Rynsard, Steamship P&I Management LLP. (appointed 29th January 2013) K. Sheehan, Norwegian Cruise Line B. K. Sheth, The Great Eastern Shipping Co. Ltd. M. Sloan, Carnival Corporation & plc (appointed 23rd October 2012) A. Tung, Island Navigation Corp. International Ltd. M. Verde, Augustea Ship Management SrL. (retired 29th January 2013) Wang, Y-G., China Shipowners Mutual Assurance Association A. Zacchello, Seaarland Shipping Management BV. R. Zagari, Augustea Group (appointed 29th January 2013) Secretary S. Davis, Conyers, Dill & Pearman Managers Steamship Mutual Management (Bermuda) Ltd. Registered office Clarendon House 2 Church Street Hamilton HM 11 Bermuda Administrative office Washington Mall 1 P.O. Box HM 447 Hamilton HM BX Bermuda Telephone: (1441) Telefax: (1441)

6 The Steamship Mutual Underwriting Association (Bermuda) Limited Report of the Directors The Directors have pleasure in presenting their Report and the Accounts of the Association for the year ended 20th February Principal activities The principal activities of the Association were the insurance and reinsurance of Protection and Indemnity (P&I) risks, and of Freight, Demurrage and Defence (FD&D) risks on behalf of Members. The total entered tonnage as at 20th February 2013 stood at approximately million GT. The Association is a member of the International Group of Protection and Indemnity Clubs ( the Group ). Directors The Directors of the Association are as shown on page 3. In accordance with the Act of Incorporation, as amended on 18th April 1984, and the Bye-laws, the under mentioned Directors of the Association hold office until the Annual General Meeting to be held in Athens, on 22nd October 2013: Mr C. J. Ahrenkiel, Mr S-M. Edye, Ms D. M. Ho, Mr S. Hajara, Mr S. Mehta, Mr H. L. F. Schoeller, Mr K. Sheehan, Mr B. K. Sheth and Mr A. Tung. Being eligible all Directors offer themselves for re-election. Audit Committee The Committee acts on behalf of the Board in considering the Association s financial statements and its external and internal audit activities. In so doing the Committee liaises with the Managers and external auditors in monitoring the quality of all reporting which contains material financial information, assessing the Association s internal control systems, and advising the Board on the effectiveness and objectivity of the internal and external auditors. In discharging its responsibilities the Committee receives regular financial and management reports from the Managers including a quarterly report from the Compliance Manager and the internal auditor. The Committee establishes the scope of the reporting, both to itself and the Board, and continually assesses the quality and adequacy of this information. The Committee monitors the effectiveness of the Managers activities with respect to their regulatory, audit and control responsibilities with a specific focus on any issues of enhanced strategic importance or which present a significant risk to the Association. Within the past year the Committee s work has included reviewing the following matters: the development of claims in prior years, the effect of recent deterioration on IBNR profiles for some claims categories and the overall statistical confidence level of the reserves; internal audit reports on anti-bribery controls, IT controls, management of projects and out-sourced services, business continuity and disaster recovery procedures, claims controls and reinsurance placement; operational risk stress scenarios in which IT systems might become unavailable; the Own Risk and Solvency Assessment (ORSA) and level of standard increase required at the 2013 renewal to meet the Club s financial objectives; the case for appointing a non-executive Director independent of Club Members; the preparations for Solvency II and application for approval of an internal capital model; a terms of reference for a review of the internal control framework by the newly appointed Compliance Manager; and the level of administration expenses in relation to business volumes and overall operational efficiency. The Committee meets four times a year, prior to each meeting of the full Board and is currently comprised of the following Directors: Mr H. M. Juniel (Chairman), Mr C. J. Ahrenkiel, Mr M. W. Bayley, Mr C. Bouch, Mr C. J. Madinabeitia, Mr S. J. Martin, Mr A. Pohan, Mr G. W. F. Rynsard and Mr K. Sheehan, and attended by H. L. F. Schoeller. 04

7 The Steamship Mutual Underwriting Association (Bermuda) Limited Free reserves The balance on the Technical Account was a surplus of US$ 3.4 million for the financial year. The overall surplus for the financial year of US$ 3.8 million reflects a net investment gain of US$ 0.4 million. Free reserves increased from US$ million to US$ million. As at 20th February 2013, the combined free reserves of the Association and The Steamship Mutual Trust stood at US$ million. Discounting outstanding claims over a ten year period at a rate of 2.5% would increase combined free reserves to US$ million compared with US$ million last year. Underwriting During the year mutual and additional premium was levied as follows: for the year 2012/13 (Class 1 P&I) 100% mutual premium; for the year 2012/13 (Class 2 FD&D) 100% mutual premium. The 2009/10 year was closed in May Gross premium written totalled US$ million compared to US$ million last year. The Directors have set the release call for both Class 1 (P&I) and Class 2 (FD&D) at 20% of mutual premium for the 2012/13 policy year, 15% of mutual premium for the 2011/12 policy year, and 5% of mutual premium for the 2010/11 policy year. For the year under review, the Directors ordered a general increase of 5% in Class 1 premium. Tonnage The level of owned entered tonnage grew by 3.2 million GT during the year. The 2013 renewal resulted in no net increase in owned entered tonnage. However taking the year on year increase into account for both owned and chartered entries, the overall total entered tonnage rose to million GT. The Association s policy is to achieve diversity of vessel types and trades within its underwriting portfolio. Similarly, the Association seeks to keep a worldwide spread of owners. This policy of avoiding an over concentration in any one area minimises the adverse effects of market differences or economic difficulties in particular trades or regions. Analysis of gross tonnage by geographical area will be included within the Management Highlights to be published in June Pooling and reinsurance The Association s reinsurance programme for the 2012/13 policy year was arranged in conjunction with other members of the Group. The policy provided an ultimate limit of US$ 3,052 million in excess of US$ 8 million, except in relation to oil pollution claims, which were subject to an overall limit of US$ 1,000 million. Pooling For 2013/14, the individual Club retention, before Pooling with other Members of the Group, will increase by US$ 1 million to US$ 9 million, and the upper limit of the Pool will increase by US$ 10 million to US$ 70 million each event. This year, a Club bringing a claim to the Pool will bear a 10% retention within the layer of US$ 45million to US$ 60million and bear a 5% retention within the layer of US$ 60 million to US$ 70 million, with the balance being divided amongst all Clubs in the usual way. At the 2013 renewal the general increase was set at 7.5%. 05

8 The Steamship Mutual Underwriting Association (Bermuda) Limited Report of the Directors continued Pooling and reinsurance continued Hydra Insurance Company Limited ( Hydra ) With effect from 20th February 2013, the liabilities of the Association under the Group Pooling Agreement for the top layer of the Pool (from US$ 30 million to US$ 70 million each event) and for the Group s retention of 30% of the first US$ 500 million layer of the General Excess Loss contract will continue to be reinsured into Hydra. Hydra is a cell captive set up by the Group in Bermuda under the Segregated Account Companies Act Excess Loss cover The Group s Excess of Loss programme was renewed with the same structure as for the expiring year. The Group, via Hydra, retains a 30% co-insurance of the first layer of the contract, from US$ 70 million to US$ 570 million each event. The limit of the supplementary pooled cover for a restricted range of risks covered by the Bio-Chem exclusions in War Risk policies remains at US$ 30 million, any one event each vessel, for the 2012/13 policy year. US oil pollution The Group continues to levy special surcharges for vessels carrying persistent oil as cargo to the USA. The rates of surcharge for such voyages will reduce by 15% in 2013/14. Charterers cover The Association provides cover for P&I and other risks for charterers, reinsured outside the Pool. Limits up to US$ 500 million are provided for P&I and a variety of limits for other risks. The Steamship Mutual Trust At the beginning of the financial year, the Association arranged, through its wholly-owned subsidiary, The Steamship Mutual Underwriting Association (Reinsurance) Limited, to extend the existing reinsurance contract with The Steamship Mutual Underwriting Association Trustees (Bermuda) Limited as Corporate Trustee of The Steamship Mutual Trust ( the Trust ), a duly authorised insurer under the Insurance Act 1978 of Bermuda, to cover all its retained liabilities in respect of the 2012/13 policy year, on existing terms and conditions. The Chairman of the Association is an ex-officio Director of the Corporate Trustee which administers the Trust. The beneficiaries under the Trust are the Members of the Association. These arrangements performed satisfactorily during the year. Claims Gross claims and related expenses, including Pool claims, paid during the financial year, increased by 37.7% to US$ million in respect of all policy years, as compared to US$ million during the previous financial year. After recoveries from the Group Pool and Excess of Loss contract, claims paid for all years during the financial year amounted to US$ million, an increase of US$ 24.5 million (12.3%) over the previous year. Claims paid by the Association, net of reinsurance recoveries but including claims handling costs, increased by US$ 12.0 million to US$ 36.1 million during the year. Gross claims arising in respect of the policy year 2012/13, including IBNR, are projected to be US$ million, a decrease of 12.6% over 2011/12 (US$ million). Non-Poolable covers The Club continues to provide cover for a range of risks which are ancillary to Members core operations, reinsured outside the Pool with limits up to US$ 500 million. 06

9 The Steamship Mutual Underwriting Association (Bermuda) Limited During the policy year, the Managers have been closely involved in the development and implementation of reinsurance provision to enable certificates of financial responsibility to be issued to passenger vessels in order to satisfy the EU s Passenger Liability Regulations. Through the Association s membership of the International Group, the Managers have continued to monitor the development of China s pollution prevention regulations, issues relating to the use of dispersants in the United States, and the continuing discussions with the IOPC Fund regarding interim funding, the definition of a ship, and the winding up of the 1971 Fund. Sanctions developed in the USA and the EU have continued to be an issue; particularly in relation to Iran and Syria. The problem of piracy remained of great concern, both off Somalia and West Africa, and the loss prevention DVD commissioned by the Managers on the subject of piracy Piracy: the Menace at Sea won the 2012 Seatrade Safety at Sea award. The Association experienced two Pool claims during the policy year; one involved damage to a berth in Korea and the other involved damage to a berth in Brazil. programmes on MARPOL Annex V, and Engine Room Waste Management. Development work was undertaken on forthcoming programmes dealing with the Collision Regulations and International Buoyage, and Cargo Contamination on Tankers. Further information on the Association s loss prevention activities will be included in the Management Highlights. Policy year statements The figures in Appendices I and II to this Report are prepared under the accounting policies and in the format used within the financial statements providing a summary and breakdown by both class of business and underwriting year. No allowance has been made for the allocation of any future investment income. Investments The total level of cash and investments held by the Association decreased by 20.5% to US$ 89.8 million. The total gain on financial investments was US$ 1.0 million. The 20th issue of Sea Venture was published in December 2012 and throughout the year the Managers also published on the Association s website various circulars, Risk Alerts, articles and news bulletins on the issues described above and other matters of topical interest. The 2012/2013 edition of the Association s DVD guide to casualty investigation and claims handling, A Team Effort, incorporating Spanish, Chinese, Korean, Russian and Brazilian Portuguese versions, was distributed to Members and correspondents in June The second annual residential training course for Members was held in London and Southampton in June The Managers have continued to work with Videotel Marine International in the production of onboard safety training programmes. New programmes on Leadership and Team Working Skills, and Dangerous and Difficult Bulk Cargoes were completed. Revisions were made to existing 07

10 The Steamship Mutual Underwriting Association (Bermuda) Limited Report of the Directors continued Rules With the support of advice from the Association s lawyers, the Directors have approved Rule changes effective from 20th February 2013, to clarify and in some cases broaden the scope of existing cover, and to take account of legislative changes. Class 1 Protection and Indemnity Rule No. 2 Definitions Policy period a separate definition of policy period has been included to provide for policies which commence on a date other than 20th February. This definition is carried into Rule 14 Period of Cover in order to provide for service of notices of termination in respect of policies which do not span the standard 20th February to 20th February policy year. Seaman the existing definition in the Rules has been expanded to include a Seafarer as defined in the Maritime Labour Convention 2006 for the purposes of cover for repatriation expenses under that Convention. Rule No. 9 Joint Members and Assureds A new provision in Rule 9 i d clarifies the impact on entry of Joint Members as a whole where the entry of another Joint Member under the same entry ceases or is terminated. In conjunction with proposed changes under Rule 35 (ii) (see below), this amendment is considered desirable so as to avoid an automatic cessation of cover in relation to all assureds under a joint entry where the entry of one ceases. An additional amendment to Rules 9 i a and 9 v (Fleet Entries) clarifies that Joint Members are liable for premium and all other sums due to the Club in respect of that entry. Rule No. 14 Period of Cover See note above under Rule No. 2 Definitions Policy period. Rule No. 17 Recovery An amendment to enable Club cover, where agreed by the Managers, to respond directly for liabilities incurred by Members under the Maritime Labour Convention 2006 (which will come into effect from 1st August 2013) in respect of repatriation expenses of seafarers. Rule No. 25 Liabilities to Persons Covered Risks A new provision extending cover, where agreed by the Managers, to respond to liabilities in respect of seafarers for repatriation expenses pursuant to Guideline B 2.5 of Regulation 2.5 of the Maritime Labour Convention 2006 incurred in the case of abandonment of crew. This may arise, for example, upon the insolvency of an owner. Typically such expenses are likely to fall within the Club s individual retention and so liabilities arising will not be pooled. However in view of the possible aggregation risk arising upon the insolvency of an owner of a large entered fleet of highly staffed vessels, cover for this risk is subject to specific prior agreement by the Managers. Where provided, this cover, unless otherwise agreed by the Managers, will be subject to a US$ 3 million per vessel limit. Rule No. 25 xxii Deductibles An amendment to clarify that deductibles erode policy limits, i.e. that the policy limit is calculated from the ground up. Rule No. 35 Cessation of Membership The substance of the existing provisions in relation to cessation and termination of membership by reason of sanctions has not materially changed, but the provisions have been restated, amended and re-ordered to add clarity, specifically: Insurance by the Club shall cease where the Club is prohibited from insuring the Member, its ship or activity, by reason of sanctions. Termination of a Member s entry in accordance with Rule 35 shall not result in termination of the entry of all associated Joint Members unless the Managers so decide. The existing provision in Rule 35 vii provided for automatic termination of the entry in the event of employment of a ship by the Member in a sanctions offending voyage or activity. The amendment restates proviso d to existing Rule 35 vii and clarifies that cessation of entry shall relate to the period of the sanctions offending activity. Given that swift action may be necessary in order to protect the interests of the Club and the membership as a whole, the Managers are authorised to determine whether a sanctions risk or prohibition is operative, and to serve appropriate notices in writing terminating an entry and/or restricting the provision of cover. Rule No. 37 Non Payment of Premium An amendment to clarify that where an intermediary acting for the Member fails to forward premium to the Club, the Member remains liable for payment of premium. This reflects the position under English law and the 08

11 The Steamship Mutual Underwriting Association (Bermuda) Limited Marine Insurance Act 1906, (to which the Club Rules are subject) which provides that the provisions of the Act relating to premium (including Section 53) do not apply in the case of mutual insurance. In addition, a separate amendment makes clear that the rights set out in Rule 37 in relation to non-payment of premium are not exclusive and do not limit the other rights of the Managers set out elsewhere under the Rules, such as those relating to deduction and set-off. The Steamship Mutual Underwriting Association Limited ( SMUA ) Under an agreement made on 20th February 2003, the Association entered into a reinsurance contract with SMUA under which, in return for a percentage of written premium, the Association indemnified SMUA for a percentage of its net underlying liabilities in respect of each policy year. From 20th February 2009, the indemnity was in respect of 90% of the first US$ 50 million of SMUA s net underlying liabilities and 100% of any excess over US$ 50 million. From 20th February 2013 the indemnity is in respect of 90% of the first US$ 100 million of SMUA s net underlying liabilities and 100% of any excess over US$ 100 million. All Members of SMUA are automatically Members of the Association and thus beneficiaries of the Trust. Management Highlights The Management Highlights will be published in June Statement of Directors responsibilities The Directors have prepared financial statements for each financial year in accordance with European Commission Insurance Accounts Directive (91/674/EEC) as adopted in the United Kingdom through Section 396 of the Companies Act 2006 and Schedule 3 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and United Kingdom accounting principles applicable to insurers. In preparing those financial statements the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Association will continue in business. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Association. They are also responsible for the system of internal control, for safeguarding the assets of the Association and hence for taking reasonable steps to prevent and detect fraud and other irregularities. H. L. F. Schoeller Chairman Rome, Italy 14th May

12 The Steamship Mutual Underwriting Association (Bermuda) Limited Appendix I Policy Year Statement All Classes Open Policy Years All Classes 2012/13) 2011/12) 2010/11) Total) US$ 000) US$ 000) US$ 000) US$ 000) Gross premium 254,435) 288,813) 289,534) 832,782) Less: Group Excess Loss reinsurance premium (22,917) (20,447) (21,551) (64,915) Other reinsurance premium (1,600) (1,381) (1,553) (4,534) The Trust reinsurance premium (172,016) (209,592) (204,118) (585,726) Net premium 57,902) 57,393) 62,312) 177,607) Gross claims paid Own claims paid (22,790) (232,587) (101,878) (357,255) Group Pool claims (6,055) (25,099) (12,574) (43,728) Claims administration expenses (19,611) (17,286) (17,604) (54,501) (48,456) (274,972) (132,056) (455,484) Less: Group Excess Loss reinsurance recoveries ) 93,588) ) 93,588) Group Pool reinsurance recoveries ) 57,196) 1,048) 58,244) The Trust reinsurance recoveries 27,095) 93,726) 110,747) 231,568) Net claims paid (21,361) (30,462) (20,261) (72,084) Own claims outstanding including IBNR (319,039) (460,575) (82,987) (862,601) Group Pool claims outstanding including IBNR (44,030) (16,092) (15,753) (75,875) Future claims administration expenses (9,216) (3,167) (1,085) (13,468) Less: Group Excess Loss reinsurance recoveries ) 185,815) ) 185,815) Group Pool reinsurance recoveries 145,931) 154,157) 7,123) 307,211) The Trust recoveries 197,901) 136,276) 86,594) 420,771) Net provision for claims outstanding (28,453) (3,586) (6,108) (38,147) Brokerage (7,533) (7,348) (12,355) (27,236) Underwriting administration expenses (2,483) (1,657) (5,316) (9,456) Other expenses (7,498) (6,548) (7,368) (21,414) Balance on the technical account (9,426) 7,792) 10,904) 9,270) Net investment income (including realised 959) 4,219) 1,577) 6,755) and unrealised) Non-technical account administration expenses (583) (596) (722) (1,901) Other income 39) 30) 100) 169) Taxation (1) (6) ) (7) Open policy years funds available (9,012) 11,439) 11,859) 14,286) 10

13 The Steamship Mutual Underwriting Association (Bermuda) Limited Closed Policy Years All Classes Total) US$ 000) Available balance as at 20th February ,703) Add: Balance of 2009/10 year as at 20th February ,767) Movements during financial year: Net premium 318) Net claims paid (1,102) Expenses (47) Other income ) Available balance as at 20th February ,639) Own claims outstanding including IBNR (274,909) Group Pool claims outstanding including IBNR (46,496) Future claims administration expenses (2,754) Less: Group Excess Loss reinsurance recoveries 4,597) Group Pool reinsurance recoveries 71,822) The Trust recoveries 239,197) Net provision for claims outstanding (8,543) Closed policy years funds available 93,096) Summary Open and closed years funds available 107,382) Reinsurance balance and statutory reserve 772) Total projected funds available 108,154) 11

14 The Steamship Mutual Underwriting Association (Bermuda) Limited Appendix II Policy Year Statement P&I Class Open Policy Years P&I Class 2012/13) 2011/12) 2010/11) Total) US$ 000) US$ 000) US$ 000) US$ 000) Gross premium 225,703) 251,712) 250,873) 728,288) Less: Group Excess Loss reinsurance premium (22,917) (20,447) (21,551) (64,915) Other reinsurance premium (1,600) (1,381) (1,553) (4,534) The Trust reinsurance premium (148,128) (178,499) (173,527) (500,154) Net premium 53,058) 51,385) 54,242) 158,685) Gross claims paid Own claims paid (19,177) (212,432) (82,784) (314,393) Group Pool claims (6,055) (25,099) (12,574) (43,728) Claims administration expenses (16,326) (14,375) (13,685) (44,386) (41,558) (251,906) (109,043) (402,507) Less: Group Excess Loss reinsurance recoveries ) 93,588) ) 93,588) Group Pool reinsurance recoveries ) 57,196) 1,048) 58,244) The Trust reinsurance recoveries 23,482) 73,571) 91,653) 188,706) Net claims paid (18,076) (27,551) (16,342) (61,969) Own claims outstanding including IBNR (300,803) (441,734) (69,845) (812,382) Group Pool claims outstanding including IBNR (44,030) (16,092) (15,753) (75,875) Future claims administration expenses (8,471) (2,714) (927) (12,112) Less: Group Excess Loss reinsurance recoveries ) 185,815) ) 185,815) Group Pool reinsurance recoveries 145,931) 154,157) 7,123) 307,211) The Trust recoveries 179,665) 117,435) 73,452) 370,552) Net provision for claims outstanding (27,708) (3,133) (5,950) (36,791) Brokerage (6,740) (6,500) (10,179) (23,419) Underwriting administration expenses (2,172) (1,427) (4,335) (7,934) Other expenses (6,689) (5,813) (6,136) (18,638) Balance on the technical account (8,327) 6,961) 11,300) 9,934) Net investment income (including realised 859) 3,760) 1,323) 5,942) and unrealised) Non-technical account administration expenses (516) (524) (590) (1,630) Other income 39) 30) 100) 169) Taxation (1) (6) ) (7) Open policy years funds available (7,946) 10,221) 12,133) 14,408) 12

15 The Steamship Mutual Underwriting Association (Bermuda) Limited Closed Policy Years P&I Class Total) US$ 000) Available balance as at 20th February ,851) Add: Balance of 2009/10 year as at 20th February ,089) Movements during financial year: ) Net premium 335) Net claims paid (1,102) Expenses (49) Other income ) Available balance as at 20th February ,124) Own claims outstanding including IBNR (259,146) Group Pool claims outstanding including IBNR (46,496) Future claims administration expenses (2,623) Less: Group Excess Loss reinsurance recoveries 4,597) Group Pool reinsurance recoveries 71,822) The Trust recoveries 223,434) Net provision for claims outstanding (8,412) Closed policy years funds available 87,712) Summary All Classes FD&D Others P&I) Open and closed years funds available 107,382 (3,305) 8, ,120) Reinsurance balance and statutory reserve 772 Total projected funds available 108,154 13

16 The Steamship Mutual Underwriting Association (Bermuda) Limited Consolidated Income and Expenditure Account for the year ended 20th February 2013 Technical Account 2013) 2012) Note US$ 000) US$ 000) Earned premium, net of reinsurance Gross premium 2 258,092) 286,217) Outward reinsurance premium Group Excess Loss (24,208) (21,910) The Trust 3 (175,165) (208,080) Earned premium, net of reinsurance 58,719) 56,227) Claims incurred, net of reinsurance Claims paid Gross amount 4 383,510) 278,589) Reinsurers share: Group Pool and Excess Loss 4 (159,057) (78,634) The Trust 4 (188,310) (175,866) Net claims paid 36,143) 24,089) Change in the provision for claims Gross amount 5 340,054) 230,537) Reinsurers share: Group Pool and Excess Loss 5 (295,429) (148,547) The Trust 5 (43,075) (69,442) Change in the net provision for claims 1,550) 12,548) Claims incurred, net of reinsurance 37,693) 36,637) Net operating expenses 6 17,626) 18,428) Balance on the technical account for general business 3,400) 1,162) Non-Technical Account Balance on the general business technical account 3,400) 1,162) Investment income 7 905) 49) Unrealised gains on investments 8 55) 83) Investment management expenses (586) (609) Other income 9 39) 4,117) Taxation 10 (1) (6) Surplus for the financial year 3,812 4,796) The results for both years are in respect of continuing operations. There are no recognised gains or losses in either year other than the transactions reported in the above income and expenditure account. The accompanying notes to these accounts form an integral part of this income and expenditure account. 14

17 The Steamship Mutual Underwriting Association (Bermuda) Limited Consolidated Balance Sheet as at 20th February 2013 Assets Note US$ 000 US$ 000 Investments Land and buildings 11 10,997 10,997 Other financial investments 12 69,352 93,948 Reinsurers share of technical provisions Claims outstanding 5 1,229, ,911 Debtors Debtors arising out of direct insurance operations 10,186 11,459 Debtors arising out of reinsurance operations 13 72,434 29,974 Other debtors 14 5,642 7,988 Other assets Cash at bank and in hand 9,499 8,121 Prepayments and accrued income Deferred acquisition costs Other prepayments and accrued income 1, Total assets 1,408,683 1,054,142 Liabilities Capital and reserves Free reserves , ,342 Technical provisions Provision for unearned premium Claims outstanding 5 1,276, ,052 Provisions for other risks and charges Provision for taxation Creditors Creditors arising out of direct insurance operations 3,519 5,177 Creditors arising out of reinsurance operations 16 18,240 4,454 Other creditors 2,113 3,529 Total liabilities 1,408,683 1,054,142 The accompanying notes to these accounts form an integral part of this balance sheet. These financial statements were approved by the Board of Directors on 14th May H. L. F. Schoeller H. M. Juniel Managers: Chairman Director Steamship Mutual Management (Bermuda) Limited 15

18 The Steamship Mutual Underwriting Association (Bermuda) Limited Consolidated Cash Flow Statement for the year ended 20th February 2013 Surplus on ordinary activities before tax 2013) 2012) US$ 000) US$ 000) Operating surplus before taxation after interest 3,813) 4,802) Increase in general insurance technical provisions 1,515) 12,528) Unrealised gains on investments (55) (83) Unrealised gain on revaluation of property ) (4,087) Increase in debtors (39,255) (4,481) Increase/(decrease) in creditors 10,712) (399) (27,083) 3,478) Net cash (outflow)/inflow from operating activities (23,270) 8,280) Cash flow statement Net cash (outflow)/inflow from operating activities (23,270) 8,280) Taxation paid (3) (4) (23,273) 8,276) Cash flows were invested as follows: Increase in cash holdings 1,378) 266) Net portfolio investment Purchase of bonds and loans ) 6,300) Sale of money market instruments (18,998) (29,141) (Decrease)/increase in cash on short term deposit (5,653) 30,851) (24,651) 8,010) Net investment of cash flows (23,273) 8,276) Movement in opening and closing portfolio investments net of financing Net cash inflow for the period 1,378) 266) Portfolio investments (24,651) 8,010) Movement arising from cash flows (23,273) 8,276) Changes in market values and exchange rate effects 55) 83) Total movement in portfolio investments net of financing (23,218) 8,359) Portfolio investments net of financing at 20th February ,069) 93,710) Portfolio investments net of financing at 20th February ,851) 102,069) 16

19 The Steamship Mutual Underwriting Association (Bermuda) Limited Notes on the Accounts 1. Accounting policies (a) Accounting convention The consolidated accounts have been prepared in accordance with the European Commission Insurance Accounts Directive (91/674/EEC) as adopted in the United Kingdom through Section 396 of the Companies Act 2006 and Schedule 3 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and generally accepted United Kingdom accounting principles applicable to insurers. The Association has adopted all material recommendations of the Statement of Recommended Practice on Accounting for Insurance Business issued in December 2005 and amended in December 2006 by the Association of British Insurers ( ABI SORP ). After making enquiries, the Directors have a reasonable expectation that the Association has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts. (b) Basis of consolidation The Group accounts consolidate the accounts of The Steamship Mutual Underwriting Association (Bermuda) Limited and its subsidiary undertakings The Steamship Mutual Underwriting Association (Reinsurance) Limited, Steamship Mutual Property Holdings Limited and its share of Hydra Insurance Company Limited at 20th February (c) Calls and premiums written Calls and premiums, less returns, comprise the total premiums receivable for the whole period of cover provided by contracts incepting during the financial year. All premiums are shown gross of commission payable to intermediaries. (d) Unearned premiums The proportion of the premiums written relating to periods of cover after the year end is carried forward as a provision for unearned premiums. (e) Deferred acquisition costs Acquisition costs, comprising commission and other costs related to the acquisition of new business are deferred to the extent that they are attributable to premiums unearned at the balance sheet date. (f) Claims and related expenses Claims and related expenses are charged to the income and expenditure account when they have been settled. A provision is made on a claim by claim basis for the estimated cost of claims notified but not settled by the balance sheet date. A provision for claims incurred but not reported is established on a statistical basis having regard to past experience as to the number and magnitude of claims reported after previous balance sheet dates. (g) Reinsurance premiums and recoveries Payments made to and recoveries from other Associations under the Group Pooling arrangements are recognised in the income and expenditure account when debited or credited. Other reinsurance premiums are recognised on an accruals basis. (h) Land and buildings Land and buildings are revalued every three years and are held at the revalued amount. Any losses or reversal of losses arising upon revaluation are recognised in the income and expenditure account. (i) Other financial investments Quoted investments have been valued at their bid value as at the balance sheet date. Unquoted investments are held at cost less any provision for impairment in value. Unrealised gains and losses on the movement in the market value of investments, compared to their cost are included in the non-technical account. 17

20 The Steamship Mutual Underwriting Association (Bermuda) Limited Notes on the Accounts continued 1. Accounting policies continued (j) Debtors Receivables arising from insurance and reinsurance operations are reviewed for impairment throughout the financial year and as at the balance sheet date. (k) Foreign currencies Monetary assets and liabilities, other than unquoted investments, are converted to US dollars at the rate of exchange ruling at the balance sheet date. Unquoted investments are included at their original dollar cost. Income and expenditure items are translated to US dollars at the rate of exchange ruling at the relevant month end. All exchange differences are included in the income and expenditure account. Land and buildings have been translated at the historic rate of exchange prevailing on the date of revaluation. The rates of exchange ruling on the balance sheet date and used for the purpose of preparing the accounts were as follows: Canadian dollars C$ Euro UK sterling (l) Allocation to policy years and classes Mutual premium, additional premium, fixed premium, reinsurance premium payable, claims and reinsurance recoveries are allocated to the policy years and classes to which they relate. Administration expenses, investment income and exchange gains or losses are allocated to the current policy year in line with total premium income. 2013) 2012) 2. Gross premium US$ 000) US$ 000) Mutual and fixed premiums written 256,368) 285,275) Deferred premium and releases 1,730) 1,024) Additional premium (41) (102) Movement in unearned premiums 35) 20) 258,092) 286,217) Gross premium by destination Europe 75,510) 99,849) North America 68,338) 77,170) Far East 65,873) 60,038) Africa and Middle East 8,335) 12,300) Latin America 25,947) 24,356) Indian Sub-Continent 14,089) 12,504) 258,092) 286,217) Gross premium relates predominantly to one class of business: Protection and Indemnity. 18

21 The Steamship Mutual Underwriting Association (Bermuda) Limited 3. Reinsurance contracts (a) Under contracts dated 11th March 1983, the Association, through its subsidiary company, The Steamship Mutual Underwriting Association (Reinsurance) Limited (note 18), reinsured with The Steamship Mutual Underwriting Association Trustees (Bermuda) Limited all of its Protection and Indemnity risks and Freight, Demurrage and Defence risks for the period up to 20th February 1983 and subsequently further contracts for each of the policy years ended, respectively, 20th February 1984 through to 20th February (b) Under an agreement made on the 20th February 2003, the Association agreed to indemnify SMUA in respect of 95% of the first US$ 30 million of SMUA s net underlying liabilities and 100% of any such liabilities which exceed US$ 30 million for all policy years through to 2005/06; in respect of 90% of the first US$ 30 million of SMUA s net underlying liabilities and 100% of any such liabilities which exceed US$ 30 million for all policy years from 2006/07 through to 2008/09; in respect of 90% of the first US$ 50 million of SMUA s net underlying liabilities and 100% of any such liabilities which exceed US$ 50 million for all policy years from 2009/10 through to 2012/13, and in respect of 90% of the first US$ 100 million of SMUA s net underlying liabilities and 100% of any such liabilities which exceed US$ 100 million for the 2013/14 policy year ) 4. Claims paid gross amount US$ 000 US$ 000) Claims and related expenses 319, ,275) Group Pool claims 44,540 19,663) Claims administration expenses 19,647 20,651) 383, ,589) Less reinsurers share Group Pool 62,351 43,016) Group Excess Loss 96,706 35,618) The Trust 188, ,866) 347, ,500) Net claims paid 36,143 24,089) 19

22 The Steamship Mutual Underwriting Association (Bermuda) Limited Notes on the Accounts continued 2013) 2012) 5. Change in net provision for claims US$ 000) US$ 000) Gross outstanding claims Provision brought forward (936,052) (705,515) Provision carried forward 1,276,106) 936,052) 340,054) 230,537) Group Pool and Excess Loss reinsurers share of outstanding claims Provision brought forward 274,016) 125,469) Provision carried forward (569,445) (274,016) (295,429) (148,547) The Trust s share of outstanding claims Provision brought forward 616,895) 547,453) Provision carried forward (659,970) (616,895) (43,075) (69,442) Change in net provision for claims 1,550) 12,548) The estimates for known outstanding claims are based on the best estimates and judgement of the Managers of the final cost of individual cases based on current information. The individual estimates are reviewed regularly and include this Association s share of other Associations Pool claims. Provision is also made for claims incurred but not reported by the balance sheet date using detailed statistical analysis having regard to past experience as to the number and magnitude of claims reported after previous balance sheet dates. 20

23 The Steamship Mutual Underwriting Association (Bermuda) Limited 2013) 2012) 6. Net operating expenses US$ 000) US$ 000) Acquisition costs Brokerage 7,615) 7,948) Underwriting administration expenses 2,503) 2,715) 10,118) 10,663) Administrative expenses Other administration expenses 6,946) 7,180) Directors remuneration 428) 454) Auditor s remuneration audit fees 134) 131) 7,508) 7,765) 17,626) 18,428) Transactions with related parties Steamship Mutual Management (Bermuda) Limited ( SMM(B) ) provides management and administrative services to the Association. Under the terms of its management contract SMM(B) receives as remuneration for its services, a fee which is based in part on premiums payable by Members in each accounting year together with reimbursement of its office and administration expenses and those of its worldwide Representatives. For the financial year to 20th February 2013 these fees and expenses amounted to US$ 26.7 million (2012: US$ 28.4 million). US$ 3.3 million was prepaid at the year end (2012: US$ 5.4 million). Since 21st February 2000 the Association has provided SMM(B) with an unsecured, indefinite long term loan amounting to US$ 2.03 million. There were no other related parties transactions requiring disclosure under FRS ) 2012) 7. Investment income US$ 000) US$ 000) Dividends and interest 105) 137) Realised gains/(losses) Investments ) ) Exchange 800) (88) ) (88) 905) 49) 21

24 The Steamship Mutual Underwriting Association (Bermuda) Limited Notes on the Accounts continued 2013) 2012) 8. Unrealised gains on investments US$ 000) US$ 000) Investments 53) 88) Exchange 2) (5) 55) 83) 2013) 2012) 9. Other income US$ 000) US$ 000) Surplus on revaluation of property (see note 11) ) 4,087) Bail commission 39) 30) 39) 4,117) 10. Taxation The charge for the year consists of an estimated liability for the accounting year to 20th February 2013 of US$ 794 (2012: US$ 2,573 and an under-provision of US$ 3,697 in respect of the previous financial year) based upon negotiations with the United Kingdom HM Revenue & Customs and assessed on the investment income of the Association and SMUA for the year. At the present time, no income, profit, capital or capital gains taxes are levied in Bermuda. Accordingly no provision for such taxes has been recorded by the Association. In the event that such taxes are levied, the Association has received an undertaking from the Bermuda government exempting it from all such taxes until 31st March Land and buildings The freehold property consists of office premises in London E1. It is occupied under licence, free of rent, by the London Representatives of SMM(B). The property was valued by CB Richard Ellis Limited at 6,950,000 (US$ 10,996,835) reflecting the market value at 20th February This resulted in a revaluation surplus of US$ 4,086,964 since the last valuation at 20th February The original costs incurred when the property was purchased in 1987 amounted to US$ 16,952,

25 The Steamship Mutual Underwriting Association (Bermuda) Limited 2013) 2012) 12. Other financial investments US$ 000) US$ 000) Market value Bonds and loans 7,681) 7,629) Equities 148) 146) Money market instruments 28,487) 47,484) Deposits with credit institutions 33,036) 38,689) 69,352) 93,948) Cost Bonds and loans 7,466) 7,466) Equities 485) 485) Money market instruments 28,487) 47,484) Deposits with credit institutions 33,036) 38,689) 69,474) 94,124) Unquoted investments of US$ 148,398 (2012: US$ 146,307) are carried in the accounts at their original euro cost less a provision for a permanent diminution in value. 2013) 2012) 13. Debtors arising out of reinsurance operations US$ 000) US$ 000) Group Clubs and Excess Loss reinsurer 21,683) 589) The Trust 48,957) 22,726) SMUA )) 4,865) Other reinsurance debtors 1,794) 1,794) 72,434) 29,974) 2013) 2012) 14. Other debtors US$ 000) US$ 000) Balances with agents 327) 519) Other debtors 5,315) 7,469) 5,642) 7,988) 23

26 The Steamship Mutual Underwriting Association (Bermuda) Limited Notes on the Accounts continued 2013) 2012) 15. Free reserves US$ 000) US$ 000) Statutory reserve 240) 240) Accumulated fund brought forward 104,102) 99,306) Surplus for year 3,812) 4,796) 108,154) 104,342) The balance carried forward, of US$ 108,153,636 together with any additional premium to be ordered by the Board of Directors and recoveries under the reinsurance contracts, will be available to meet liabilities not yet passed or ascertained. The Members of the Association are liable for their rateable proportion of any deficiency arising from an excess of liabilities over premium. The Directors and Managers are of the opinion that the Association has adequate assets and contractual arrangements to meet known and anticipated liabilities. 2013) 2012) 16. Creditors arising out of reinsurance operations US$ 000) US$ 000) Group Clubs and Excess Loss reinsurers 4,373) 4,454) SMUA 13,867) )) 18,240) 4,454) 17. Contingent liabilities The Association provides guarantees to third parties on behalf of Members. For guarantees issued in respect of covered claims, provision is made within the claims outstanding technical provision. For uncovered claims, guarantees are issued when appropriate counter security is obtained. As at 20th February 2013 the total value of guarantees issued in respect of uncovered claims was US$ million. 24

27 The Steamship Mutual Underwriting Association (Bermuda) Limited 18. Wholly-owned subsidiary companies The Steamship Mutual Underwriting Association (Reinsurance) Limited is a wholly-owned subsidiary company which in turn holds 100% of the share capital of Steamship Mutual Property Holdings Limited. 19. Hydra Insurance Company Limited ( Hydra ) Hydra is a reinsurance captive created by the Members of the Group. Each Member has its own cell which is legally separate from the liabilities of the other cells. Under the provisions of FRS 5 this cell has been classified as a quasi-subsidiary and has been consolidated. 20. Security During the course of the year to 20th February 1997, the Directors authorised the setting up of a trust to secure the payment of recoveries to US resident Members of the Association in accordance with the standard terms of the US National Association of Insurance Commissioners. As at the balance sheet date assets with a total value of US$ 5.4 million (2012: US$ 5.4 million) had been allocated to the trust. For many years the Association has deposited funds with the Wells Fargo Bank, NA as trustee of the Trust Agreement dated 7th April 1966, between various Members of the Group and the US Federal Maritime Commission in connection with the provision of evidence of financial responsibility under Sections 2 and 3 of US Public Law As at the balance sheet date the funds deposited had a total value of US$ 1.4 million (2012: US$ 1.4 million). 25

28 The Steamship Mutual Underwriting Association (Bermuda) Limited Report of the Independent Auditor To the Members of The Steamship Mutual Underwriting Association (Bermuda) Limited We have audited the financial statements of The Steamship Mutual Underwriting Association (Bermuda) Limited for the year ended 20th February 2013, which comprise the consolidated income and expenditure account, the consolidated balance sheet, the consolidated cash flow statement and the related notes 1 to 20. These financial statements have been prepared under the accounting policies set out therein. These financial statements have been prepared for the purpose of Member and policy holder information. This report is made solely to the Company s Members in accordance with Section 90 of the Bermuda Companies Act Our audit work has been undertaken so that we might state to the Company s Members those matters we are required to state to them in an independent auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company s Members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and Auditor As described in the statement of Directors responsibilities, the Company s Directors are responsible for the preparation of the financial statements in accordance with the European Commission Insurance Accounts Directive (91/674/EEC) as adopted in the United Kingdom through Section 396 of the Companies Act 2006 and Schedule 3 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and generally accepted United Kingdom accounting principles applicable to insurers. Our responsibility is to audit the financial statements in accordance with International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the relevant financial reporting framework and whether the financial statements have been properly prepared in accordance with the Bermuda Companies Act We also report to you whether in our opinion the information given in the Directors Report is consistent with the financial statements. 26

29 The Steamship Mutual Underwriting Association (Bermuda) Limited Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material mis-statement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material mis-statements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the Company s affairs as at 20th February 2013 and of its surplus for the year then ended; have been properly prepared in accordance with the European Commission Insurance Accounts Directive (91/674/EEC) as adopted in the United Kingdom through S396 of the Companies Act 2006 and Schedule 3 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and generally accepted United Kingdom accounting principles applied to insurers; and have been properly prepared in accordance with the Bermuda Companies Act Opinion on other matter In our opinion the information given in the Directors Report is consistent with the financial statements. Deloitte LLP Chartered Accountants and Registered Auditor London 14th May

30 The Steamship Mutual Underwriting Association Limited Contents 02 Notice of Meeting 03 Directors 04 Report of the Directors 08 Appendix I Policy Year Statement All Classes 10 Appendix II Policy Year Statement P&I Class 12 Income and Expenditure Account 13 Balance Sheet 14 Cash Flow Statement 15 Notes on the Accounts 20 Report of the Independent Auditor

31 The Steamship Mutual Underwriting Association Limited The Steamship Mutual Underwriting Association Limited Managers Steamship P&I Management LLP Aquatical House, 39 Bell Lane London E1 7LU Telephone: /

32 The Steamship Mutual Underwriting Association Limited Notice of Meeting Notice is hereby given that the One Hundred and Fourth Annual General Meeting of the Members of the Company will be held at the Westin Athens Astir Palace Hotel, Vouliagmeni, Athens, Greece, on Tuesday, 22nd October 2013 at 09:10 hours for the following purposes: 1 To receive and if thought fit, to adopt the balance sheet and accounts for the year ended 20th February 2013, they having been recommended for adoption by the Board. 2 To elect Members of the Board. The Member of the Board retiring by rotation and in accordance with Article 11.2 of the Association is Mr C. J. Ahrenkiel. Being eligible, he offers himself for re-election. The Members of the Board appointed during the year who, in accordance with Article 11.9 of the Association, are obliged to retire at their first Annual General Meeting are Mr C. Bouch, Mr C. J. Madinabeitia, Mr S. J. Martin, Mr A. Pohan and Mr G. W. F. Rynsard. Being eligible they offer themselves for re-election. 3 To authorise the Managers to fix the remuneration of the Auditors. A Resolution proposing the appointment of Auditors to the Company will be put to the Meeting. 4 To transact any other ordinary business of the Company. By Order of the Board S. A. Ward Secretary 14th May 2013 N.B. A Member who is entitled to attend and vote at the above Meeting is entitled to appoint a proxy to attend, speak and vote in his place. The instrument appointing a proxy may be in the form enclosed and must be deposited with the Secretary at Aquatical House, 39 Bell Lane, London E1 7LU, United Kingdom, not less than 48 hours before the time specified for the holding of the Meeting. 02

33 The Steamship Mutual Underwriting Association Limited Directors Directors A. L. Marchisotto, Moran Holdings Inc. C. J. Ahrenkiel, Ahrenkiel Consulting Services C. Bouch (appointed 21st January 2013) I. Grimaldi, Grimaldi Holdings SpA. H. M. Juniel, Reederei F. Laeisz GmbH. C. J. Madinabeitia, Tradewind Tankers S.A. (appointed 23rd October 2012) S. J. Martin, Steamship P&I Management LLP (appointed 29th January 2013) A. Pohan, New York Waterway (appointed 23rd October 2012) G. W. F. Rynsard, Steamship P&I Management LLP (appointed 29th January 2013) Secretary S. A. Ward, Steamship P&I Management LLP Managers Steamship P&I Management LLP Registered office Aquatical House 39 Bell Lane London E1 7LU Telephone: / Registered number

34 The Steamship Mutual Underwriting Association Limited Report of the Directors Company registration number The Directors have pleasure in presenting their Report and the Accounts of the Association for the year ended 20th February Principal activities The Association is a company limited by guarantee incorporated in the United Kingdom. The principal activities of the Association were the insurance and reinsurance of Protection and Indemnity risks (P&I), and of Freight, Demurrage and Defence (FD&D) risks on behalf of Members. The Association is a member of the International Group of Protection and Indemnity Clubs ( the Group ) and is reinsured by The Steamship Mutual Underwriting Association (Bermuda) Limited ( SSM Bermuda ). Directors The Directors of the Association are as shown on page 3. In accordance with Article 11.2 of the Articles of Association, one-third of the Directors retire from office at each Annual General Meeting. The Director retiring by rotation is Mr C. J. Ahrenkiel. Being eligible, he offers himself for re-election. In accordance with Article 11.9 of the Association, new Members of the Board appointed during the year are obliged to retire at their first Annual General Meeting. Directors retiring in accordance with this Article are Mr C. Bouch, Mr C. J. Madinabeitia, Mr S. J. Martin, Mr A. Pohan and Mr G. W. F. Rynsard and, being eligible they offer themselves for re-election. Audit Committee The Committee was established in October 2011 and acts on behalf of the Board in considering the Association s financial statements and its external and internal audit activities. In so doing the Committee liaises with the Managers and external auditors in monitoring the quality of all reporting which contains material financial information, assessing the Association s internal control systems, and advising the Board on the effectiveness and objectivity of the internal and external auditors. The Committee meets four times a year, prior to each meeting of the full Board and is currently comprised of the following Directors: Mr H. M. Juniel (Chairman), Mr C. J. Ahrenkiel, Mr C. Bouch, Mr C. J. Madinabeitia, Mr S. J. Martin, Mr A. Pohan and Mr G. W. F. Rynsard. In discharging its responsibilities the Committee receives regular financial and management reports from the Managers including a quarterly report from the Compliance Manager and the internal auditor. The Committee establishes the scope of the reporting, both to itself and the Board, and continually assesses the quality and adequacy of this information. The Committee monitors the effectiveness of the Managers activities with respect to their regulatory, audit and control responsibilities with a specific focus on any issues of enhanced strategic importance or which present a significant risk to the Association. Within the past year the Committee s work has included reviewing the following matters: the development of claims in prior years, the effect of recent deterioration on IBNR profiles for some claims categories and the overall statistical confidence level of the reserves; internal audit reports on anti-bribery controls, IT controls, management of projects and out-sourced services, business continuity and disaster recovery procedures, claims controls and reinsurance placement; operational risk stress scenarios in which IT systems might become unavailable; the Own Risk and Solvency Assessment (ORSA) and level of standard increase required at the 2013 renewal to meet the Club s financial objectives; the case for appointing a non-executive Director independent of Club Members; the preparations for Solvency II and application for approval of an internal capital model; a terms of reference for a review of the internal control framework by the newly appointed Compliance Manager; and the level of administration expenses in relation to business volumes and overall operational efficiency. Free reserves The balance on the technical account for general business was a surplus of US$ million for the financial year. The overall surplus of US$ million reflects investment losses of US$ 0.63 million. Free reserves increased from US$ million to US$ million. The Association s exposure to liquidity or cash flow risk is minimal given the support of its reinsurer and that it holds all investments in cash and money market instruments. The Association does not engage in hedging or any other type of derivative activity. 04

35 The Steamship Mutual Underwriting Association Limited Underwriting During the year mutual premium was levied as follows: for the year 2012/13 (Class 1 P&I) 100% mutual premium; for the year 2012/13 (Class 2 FD&D) 100% mutual premium. The 2009/10 year was closed in May Gross premium written totalled US$ million compared to US$ million last year, a 6.7% decrease. The combined ratio, a key financial performance indicator, fell from 82.5% to 51.4%. The reduction in the combined ratio and consequent increase in free reserves was due to a change in the terms of the reinsurance contract with SSM Bermuda reducing the percentage of written premium required to be ceded to the reinsurer for the 2012/13 policy year. The terms of the contract for the 2013/14 and future years have reverted to the previous percentage. The Directors have set the release call for both Class 1 (P&I) and Class 2 (FD&D) at 20% of mutual premium for the 2012/13 policy year, 15% of mutual premium for the 2011/12 policy year, and 5% of mutual premium for the 2010/11 policy year. For the year under review, the Directors ordered a general increase of 5% in Class 1 premium. At the 2013 renewal the Directors ordered a general increase of 7.5%. Tonnage The level of entered tonnage fell during the year from 46.0 million to approximately 39.6 million gross tons. Pooling and reinsurance The Association s reinsurance programme for the 2012/13 policy year was arranged in conjunction with other members of the Group. The policy provided an ultimate limit of US$ 3,052 million in excess of US$ 8 million, except in relation to oil pollution claims, which were subject to an overall limit of US$ 1,000 million. layer of US$ 45 million to US$ 60 million and a 5% retention within the layer of US$ 60 million to US$ 70 million, with the balance being divided amongst all Clubs in the usual way. Hydra Insurance Company Limited ( Hydra ) With effect from 20th February 2013, the liabilities of the Association under the Group Pooling Agreement for the top layer of the Pool (from US$ 30 million to US$ 70 million each event) and for the Group s retention of 30% of the first US$ 500 million layer of the General Excess Loss contract will continue to be reinsured into Hydra. Hydra is a cell captive set up by the Group in Bermuda under the Segregated Account Companies Act Excess Loss cover The Group s Excess of Loss programme was renewed with the same structure as for the expiring year. The Group, via Hydra, retains a 30% co-insurance of the first layer of the contract, from US$ 70 million to US$ 570 million each event. The limit of the supplementary pooled cover for a restricted range of risks covered by the Bio-Chem exclusions in War Risk policies remains at US$ 30 million, any one event each vessel, for the 2013/14 policy year. US oil pollution The Group continues to levy special surcharges for vessels carrying persistent oil as cargo to the USA. The rates of surcharge for such voyages will reduce by 15% in 2013/14. Charterers cover The Association provides cover for P&I and other risks for charterers, reinsured outside the Pool. Limits up to US$ 500 million are provided for P&I and a variety of limits for other risks. Non-Poolable covers The Club continues to provide cover for a range of risks which are ancillary to Members core operations, reinsured outside the Pool with limits up to US$ 500 million. Pooling For 2013/14, the individual Club retention, before Pooling with other members of the International Group, will increase by US$ 1 million to US$ 9 million and the upper limit of the Pool will increase by US$ 10 million to US$ 70 million each event. This year, a Club bringing a claim to the Pool will bear a 10% retention within the 05

36 The Steamship Mutual Underwriting Association Limited Report of the Directors continued The Steamship Mutual Underwriting Association (Bermuda) Limited ( SSM Bermuda ) Under an agreement made on 20th February 2003, the Association entered into a reinsurance contract with SSM Bermuda under which, in return for a percentage of written premium ceded to SSM Bermuda, the Association is indemnified for a percentage of its net underlying liabilities in respect of each policy year. From 20th February 2009 the indemnity was in respect of 90% of the first US$ 50 million of the Association s net underlying liabilities and 100% of any excess over US$ 50 million. From 20th February 2013 the indemnity is in respect of 90% of the first US$ 100 million of the Association s net underlying liabilities and 100% of any excess over US$ 100 million. All Members of the Association are automatically Members of SSM Bermuda and thus beneficiaries of The Steamship Mutual Trust. Policy year statements The figures in Appendices I and II to this Report are prepared under the accounting policies and in the format used within the financial statements providing a summary and breakdown by both class of business and underwriting year. No allowance has been made for the allocation of any future investment income. Rules With the support of advice from the Association s lawyers, the Directors have approved Rule changes effective from 20th February 2013, to clarify and in some cases broaden the scope of existing cover, and to take account of legislative changes. Class 1 Protection and Indemnity Rule No. 2 Definitions Policy period a separate definition of policy period has been included to provide for policies which commence on a date other than 20th February. This definition is carried into Rule 14 Period of Cover in order to provide for service of notices of termination in respect of policies which do not span the standard 20th February to 20th February policy year. Seaman the existing definition in the Rules has been expanded to include a Seafarer as defined in the Maritime Labour Convention 2006 for the purposes of cover for repatriation expenses under that Convention. Rule No. 9 Joint Members and Assureds A new provision in Rule 9 i d clarifies the impact on entry of Joint Members as a whole where the entry of another Joint Member under the same entry ceases or is terminated. In conjunction with proposed changes under Rule 35 (ii) (see below), this amendment is considered desirable so as to avoid an automatic cessation of cover in relation to all assureds under a joint entry where the entry of one ceases. An additional amendment to Rules 9 i a and 9 v (Fleet Entries) clarifies that Joint Members are liable for premium and all other sums due to the Club in respect of that entry. Rule No. 14 Period of Cover See note above under Rule No. 2 Definitions Policy period. Rule No. 17 Recovery An amendment to enable Club cover, where agreed by the Managers, to respond directly for liabilities incurred by Members under the Maritime Labour Convention 2006 (which will come into effect from 1st August 2013) in respect of repatriation expenses of seafarers. Rule No. 25 Liabilities to Persons Covered Risks A new provision extending cover, where agreed by the Managers, to respond to liabilities in respect of seafarers for repatriation expenses pursuant to Guideline B 2.5 of Regulation 2.5 of the Maritime Labour Convention 2006 ( MLC ) incurred in the case of abandonment of crew. This may arise, for example, upon the insolvency of an owner. Typically such expenses are likely to fall within the Club s individual retention and so liabilities arising will not be pooled. However in view of the possible aggregation risk arising upon the insolvency of an owner of a large entered fleet of highly staffed vessels, cover for this risk is subject to specific prior agreement by the Managers. Where provided, this cover, unless otherwise agreed by the Managers, will be subject to a US$ 3 million per vessel limit. Rule No. 25 xxii Deductibles An amendment to clarify that deductibles erode policy limits, i.e. that the policy limit is calculated from the ground up. Rule No. 35 Cessation of Membership The substance of the existing provisions in relation to cessation and termination of membership by reason of sanctions has not materially changed, but the provisions have been restated, amended and re-ordered to add clarity, specifically: Insurance by the Club shall cease where the Club is prohibited from insuring the Member, its ship or activity, by reason of sanctions. 06

37 The Steamship Mutual Underwriting Association Limited Termination of a Member s entry in accordance with Rule 35 shall not result in termination of the entry of all associated Joint Members unless the Managers so decide. The existing provision in Rule 35 vii provided for automatic termination of the entry in the event of employment of a ship by the Member in a sanctions offending voyage or activity. The amendment restates proviso d to existing Rule 35 vii and clarifies that cessation of entry shall relate to the period of the sanctions offending activity. Given that swift action may be necessary in order to protect the interests of the Club and the membership as a whole, the Managers are authorised to determine whether a sanctions risk or prohibition is operative, and to serve appropriate notices in writing terminating an entry and/or restricting the provision of cover. Rule No. 37 Non Payment of Premium An amendment to clarify that where an intermediary acting for the Member fails to forward premium to the Club, the Member remains liable for payment of premium. This reflects the position under English law and the Marine Insurance Act 1906, (to which the Club Rules are subject) which provides that the provisions of the Act relating to premium (including Section 53) do not apply in the case of mutual insurance. In addition, a separate amendment makes clear that the rights set out in Rule 37 in relation to non-payment of premium are not exclusive and do not limit the other rights of the Managers set out elsewhere under the Rules, such as those relating to deduction and set-off. Statement of Directors responsibilities United Kingdom company law requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Association as at the end of the financial year and of the surplus or deficit of the Association, for that period. In preparing those financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Association will continue in business. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Association and to enable them to ensure that the financial statements comply with the Companies Act They are also responsible for the system of internal control, for safeguarding the assets of the Association and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Association s Directors are responsible for the preparation of the financial statements in accordance with applicable United Kingdom law and accounting standards. Disclosure of information to the auditor Each of the persons who is a Director at the date of approval of this report confirms that: so far as the Director is aware, there is no relevant audit information of which the Association s auditor is unaware; and the Director has taken all steps that they ought to have taken as a Director in order to make themself aware of any relevant audit information and to establish that the Association s auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act A. L. Marchisotto Chairman Managers Steamship P&I Management LLP Rome, Italy 14th May

38 The Steamship Mutual Underwriting Association Limited Appendix I Policy Year Statement All Classes Open Policy Years All Classes 2012/13) 2011/12) 2010/11) Total) US$ 000) US$ 000) US$ 000) US$ 000) Gross premium 203,355) 223,819) 136,416) 563,590) Less: SSM Bermuda reinsurance premium (146,526) (180,089) (115,253) (441,868) Net premium 56,829) 43,730) 21,163) 121,722) Gross claims paid Own claims paid (16,487) (213,733) (54,657) (284,877) Claims administration expenses (3,908) (4,443) (2,360) (10,711) (20,395) (218,176) (57,017) (295,588) Less: SSM Bermuda reinsurance recoveries 14,839) 208,733) 49,657) 273,229) Net claims paid (5,556) (9,443) (7,360) (22,359) Claims outstanding including IBNR (188,439) (412,197) (41,778) (642,414) Less: SSM Bermuda reinsurance recoveries 185,068) 412,197) 41,778) 639,043) Net provision for claims outstanding (3,371) ) ) (3,371) Brokerage (14,077) (16,471) (10,818) (41,366) Underwriting administration expenses (5,002) (5,457) (1,489) (11,948) Other expenses (1,608) (4,462) (1,815) (7,885) Balance on the technical account 27,215) 7,897) (319) 34,793) Investment income (including realised and unrealised) (644) (247) (327) (1,218) Other income 14) 25) ) 39) Taxation (1) ) ) (1) Open policy years funds available 26,584) 7,675 (646) 33,613) 08

39 The Steamship Mutual Underwriting Association Limited Closed Policy Years All Classes Total) US$ 000) Available balance as at 20th February ,384) Add: Balance of 2009/10 year as at 20th February ,060) Movements during financial year: Net premium (9) Net claims paid (1,607) Expenses 2) Available balance as at 20th February ,830) Claims outstanding (55,510) Less: Group Pool recoveries ) SSM Bermuda reinsurance recoveries 53,294) Net provision for claims outstanding (2,216) Closed policy years funds available 18,614) Summary Open and closed years funds available 52,227) Reinsurance balance 253) Total projected funds available 52,480) 09

40 The Steamship Mutual Underwriting Association Limited Appendix II Policy Year Statement P&I Class Open Policy Years P&I Class 2012/13) 2011/12) 2010/11) Total ) US$ 000) US$ 000) US$ 000) US$ 000) Gross premium 180,128) 192,955) 125,242) 498,325) Less: SSM Bermuda reinsurance premium (129,617) (155,285) (105,570) (390,472) Net premium 50,511) 37,670) 19,672) 107,853) Gross claims paid Own claims paid (13,753) (196,650) (47,959) (258,362) Claims administration expenses (3,300) (3,576) (2,069) (8,945) (17,053) (200,226) (50,028) (267,307) Less: SSM Bermuda reinsurance recoveries 12,378) 191,984) 43,492) 247,854) Net claims paid (4,675) (8,242) (6,536) (19,453) Claims outstanding including IBNR (172,813) (396,622) (33,365) (602,800) Less: SSM Bermuda reinsurance recoveries 169,722) 396,622) 33,365) 599,709) Net provision for claims outstanding (3,091) ) ) (3,091) Brokerage (12,914) (14,528) (10,315) (37,757) Underwriting administration expenses (4,352) (4,578) (1,305) (10,235) Other expenses (1,378) (3,786) (1,647) (6,811) Balance on the technical account 24,101) 6,536) (131) 30,506) ) Investment income (including realised and unrealised) (573) (214) (301) (1,088) Other income 14) 25) ) 39) Taxation (1) ) ) (1) Open policy years funds available 23,541) 6,347) (432) 29,456) 10

41 The Steamship Mutual Underwriting Association Limited Closed Policy Years P&I Class Total) US$ 000) Available balance as at 20th February ,722) Add: Balance of 2009/10 year as at 20th February ,105) Movements during financial year: Net premium (1) Net claims paid (1,484) Expenses 1) Available balance as at 20th February ,343) Claims outstanding including IBNR (52,547) Less: Group Pool recoveries ) SSM Bermuda reinsurance recoveries 50,463) Net provision for claims outstanding (2,084) Closed policy years funds available 18,259) Summary All Classes FD&D Others P&I Open and closed years funds available 52,227 1,449 3,063 47,715 Reinsurance balance 253 Total projected funds available 52,480 11

42 The Steamship Mutual Underwriting Association Limited Income and Expenditure Account for the year ended 20th February 2013 Technical Account 2013) 2012) Note US$ 000) US$ 000) Earned premium, net of reinsurance Gross premium 2 205,821) 220,498) Outward reinsurance premium 3 (148,648) (177,069) Earned premium, net of reinsurance 57,173) 43,429) Claims incurred, net of reinsurance Claims paid Gross amount 4 249,261) 71,791) Reinsurers share (237,990) (61,129) Net claims paid 11,271) 10,662) Change in the provision for claims Gross amount 277,963) 252,500) Reinsurers share (280,547) (253,776) Change in the net provision for claims (2,584) (1,276) Claims incurred, net of reinsurance 8,687) 9,386) Net operating expenses 5 20,714) 26,435) Balance on the technical account for general business 27,772) 7,608) Non-Technical Account Balance on the general business technical account 27,772) 7,608) Investment income (645) (247) Other income 14) 25) Surplus on ordinary activities before taxation 27,141) 7,386) Taxation 6 1) ) Surplus for the financial year 27,140) 7,386) Free reserves brought forward 25,340) 17,954) Free reserves 52,480) 25,340) The results for both years are in respect of continuing operations. There are no recognised gains or losses in either year other than the transactions reported in the above income and expenditure account. The accompanying notes to these accounts form an integral part of this income and expenditure account. 12

43 The Steamship Mutual Underwriting Association Limited Balance Sheet as at 20th February 2013 Assets 2013) 2012) Note US$ 000) US$ 000) Investments Other financial investments 7 39,505 30,055) Reinsurers share of technical provisions Claims outstanding 692, ,791) Debtors Debtors arising out of direct insurance operations 11,162 12,543) Debtors arising out of reinsurance operations 13,867 ) Other debtors ) Other assets Cash at bank and in hand 6,877 4,615) Prepayments and accrued income Deferred acquisition costs ) Other prepayments and accrued income 6 ) Total assets 764, ,051) Liabilities Capital and reserves Free reserves 8 52,480 25,340) Technical provisions Provision for unearned premium 1,510 3,382) Claims outstanding 697, ,961) Provisions for other risks and charges Provision for taxation 1 ) Creditors Creditors arising out of direct insurance operations 11,406 1,367) Creditors arising out of reinsurance operations 4,865) Other creditors including taxation and social security 1,405 5,136) Total liabilities 764, ,051) The accompanying notes to these accounts form an integral part of this balance sheet. These financial statements were approved by the Board of Directors on 14th May A. L. Marchisotto H. M. Juniel Managers: Chairman Director Steamship P&I Management LLP 13

44 The Steamship Mutual Underwriting Association Limited Cash Flow Statement for the year ended 20th February 2013 Surplus on ordinary activities before tax 2013) 2012) US$ 000) US$ 000) Operating surplus before taxation after interest 27,141) 7,386) (Decrease)/increase in general insurance technical provisions (4,456) 1,116) Increase in debtors (12,416) (6,368) Increase in creditors 1,443) 7,607) (15,429) 2,355) Net cash inflow from operating activities 11,712) 9,741) Cash flow statement Net cash inflow from operating activities 11,712) 9,741) Taxation paid ) ) 11,712) 9,741) Cash flows were invested as follows: Increase/(decrease) in cash holdings 2,262) (2,509) Net portfolio investment Purchase of money market instruments 9,450) 12,250) Net investment of cash flows 11,712) 9,741) Movement in opening and closing portfolio investments net of financing Net cash inflow/(outflow) for the period 2,262) (2,509) Portfolio investments 9,450) 12,250) Total movement in portfolio investments net of financing 11,712) 9,741) Portfolio investments net of financing at 20th February ,670) 24,929) Portfolio investments net of financing at 20th February ,382) 34,670) 14

45 The Steamship Mutual Underwriting Association Limited Notes on the Accounts 1. Accounting policies (a) Accounting convention The accounts have been prepared in accordance with the European Commission Insurance Accounts Directive (91/674/EEC) as adopted in the United Kingdom per Section 396 of the Companies Act 2006 and Schedule 3 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, and applicable United Kingdom accounting standards. The Association has adopted all material recommendations of the Statement of Recommended Practice on Accounting for Insurance Business issued in December 2005, and amended in December 2006 by the Association of British Insurers ( ABI SORP ). After making enquiries, the Directors have a reasonable expectation that the Association has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts. (b) Premium written Premium, less returns, comprise the total premium receivable for the whole period of cover provided by contracts incepting during the financial year. All premium is shown gross of commission payable to intermediaries. (c) Unearned premium The proportion of the premium written relating to periods of cover after the year end is carried forward as a provision for unearned premium. (d) Deferred acquisition costs Acquisition costs, comprising commission and other costs related to the acquisition of new business, are deferred to the extent that they are attributable to premium unearned at the balance sheet date. (e) Claims and related expenses Claims and related expenses are charged to the income and expenditure account when they have been settled. A provision is made on a claim by claim basis for the estimated cost of claims notified but not settled by the balance sheet date. A provision for claims incurred but not reported is established on a statistical basis having regard to past experience as to the number and magnitude of claims reported after previous balance sheet dates. (f) Reinsurance premium and recoveries Reinsurance premium and recoveries are recognised in the income and expenditure account on an accruals basis. (g) Investments Quoted investments have been valued at their bid-value as at the balance sheet date. Bond income is accounted for on an accruals basis. Unrealised gains and losses on the movement in the market value of investments, compared to their cost are included in the non-technical account. (h) Allocation to policy years and classes Mutual premium, fixed premium, additional premium, reinsurance premium payable, claims and reinsurance recoveries are allocated to the policy years and classes to which they relate. Administration expenses, investment income and exchange gains or losses are allocated to the current policy year in line with total calls and premium income. 15

46 The Steamship Mutual Underwriting Association Limited Notes on the Accounts continued 1. Accounting policies continued (i) Foreign currencies The functional currency is US dollars. Monetary assets and liabilities are converted at the rate of exchange ruling at the balance sheet date. Income and expenditure items are translated at the rate of exchange ruling at the relevant month end. All exchange differences are included in the income and expenditure account. The rates of exchange ruling on the balance sheet date and used for the purpose of preparing the accounts were as follows: 2013) 2012) Euro 0.749) 0.760) UK sterling 0.648) 0.632) 2. Gross premium 2013) 2012) US$ 000) US$ 000) Mutual and fixed premium written 202,631) 222,446) Deferred premium and releases 1,319) 567) Additional premium (1) (123) Movement in unearned premium 1,872) (2,392) 205,821) 220,498) Gross premium by class of business Protection and Indemnity 181,824) 191,514) Freight, Demurrage and Defence 6,773) 6,520) Other 17,224) 22,464) 205,821) 220,498) Gross premium by destination United States of America 88,285) 90,750) Germany 23,805) 25,475) Netherlands 18,745) 19,956) Brazil 14,704) 10,961) Cyprus 13,988) 22,593) United Kingdom 10,431) 9,620) Italy 7,617) 8,333) France 7,145) 12,266) Greece 3,880) 3,794) Spain 2,391) 2,269) Mexico 2,208) 2,253) Other countries 12,622) 12,228) 205,821) 220,498) The Association s activities relate predominantly to one class of business: Protection and Indemnity. 16

47 The Steamship Mutual Underwriting Association Limited 3. Reinsurance contracts The Association has the following reinsurance arrangement: Under an agreement made on the 20th February 2003, SSM Bermuda agreed to indemnify the Association in respect of 95% of the first US$ 30 million of the Association s net underlying liabilities and 100% of any such liabilities which exceed US$ 30 million in respect of all policy years through to 2005/06; in respect of 90% of the first US$ 30 million of the Association s net underlying liabilities and 100% of any such liabilities which exceed US$ 30 million for all policy years from 2006/07 through to 2008/09; in respect of 90% of the first US$ 50 million of the Association s net underlying liabilities and 100% of any such liabilities which exceed US$ 50 million for all policy years from 2009/10 through to 2012/13, and in respect of 90% of the first US$ 100 million of the Association s net underlying liabilities and 100% of any such liabilities which exceed US$ 100 million for the 2013/14 policy year. 2013) Claims paid gross amount US$ 000 US$ 000 Claims and related expenses 245,299 67,545 Claims administration expenses 3,962 4, ,261 71, ) Net operating expenses US$ 000 US$ 000 Acquisition costs Brokerage 14,057 16,684 Underwriting administration expenses 5,033 5,347 19,090 22,031 Administrative Expenses Other administration expenses 1,416 4,233 Regulatory fees Directors remuneration 7 3 Auditor s remuneration audit fees ,624 4,404 20,714 26,435 The Association had no employees in either financial year. Transactions with related parties Steamship P&I Management LLP ( SPIM ) provides management and administrative services to the Association. Under the terms of its management contract SPIM receives, as remuneration for its services, a fee which is based in part on premiums payable by Members in each accounting year together with reimbursement of its office and administration expenses. For the financial year to 20th February 2013, these fees amounted to US$ million (2012: US$ million). US$ million was prepaid at the year end (2012: US$ million). 17

48 The Steamship Mutual Underwriting Association Limited Notes on the Accounts continued 6. Taxation The charge represents the estimated liability for the accounting year to 20th February 2013, of US$ 1,343 (2012: US$ 91) based upon negotiations with the United Kingdom tax authorities, assessed on the investment income of the Association for the year. 2013) 2012) US$ 000) US$ 000) Analysis of tax charge on ordinary activities United Kingdom corporation tax at 20% (2012: 20%) based on the surplus for the financial year 1) ) Adjustment in respect of prior years ) ) 1) ) Factors affecting tax charge for the current period The tax assessed for the financial year is lower than that resulting from applying the standard rate of corporation tax in the United Kingdom. The differences are explained below. Surplus on ordinary activities before tax 27,140) 7,386) Tax at 20% (2012: 20%) thereon 5,428) 1,477) Effect of income not subject to corporation tax (5,427) (1,477) Prior period adjustments ) ) Current tax charge for period 1) ) 2013) 2012) 7. Other financial investments US$ 000) US$ 000) Market value Money market instruments 39,505) 30,055) Cost Money market instruments 39,505) 30,055) All investments are listed. 18

49 The Steamship Mutual Underwriting Association Limited 2013) 2012) 8. Free reserves US$ 000) US$ 000) Free reserves brought forward 25,340) 17,954) Surplus for year 27,140) 7,386) 52,480) 25,340) The balance carried forward of US$ 52,480,269 together with any further additional premium to be ordered by the Board of Directors and recoveries under the reinsurance contracts, will be available to meet liabilities not yet passed or ascertained. The Members of the Association are liable for their rateable proportion of any deficiency arising from an excess of liabilities over premium. The Directors and Managers are of the opinion that the Association has adequate assets and contractual arrangements to meet known and anticipated liabilities. 9. Contingent liabilities The Association provides guarantees to third parties on behalf of Members. For guarantees issued in respect of covered claims, provision is made within the claims outstanding technical provision. For uncovered claims, guarantees are issued when appropriate counter security is obtained. As at 20th February 2013 the total value of guarantees issued in respect of uncovered claims was US$ 3.24 million. 19

50 The Steamship Mutual Underwriting Association Limited Report of the Independent Auditor Independent Auditor s Report to the Members of The Steamship Mutual Underwriting Association Limited We have audited the financial statements of The Steamship Mutual Underwriting Association Limited for the year ended 20th February 2013, which comprise the income and expenditure account, the balance sheet, the cash flow statement and the related notes 1 to 9. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the Company s Members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act Our audit work has been undertaken so that we might state to the Company s Members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company s Members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and Auditor As explained more fully in the Directors Responsibilities Statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s (APB s) Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements, sufficient to give reasonable assurance that the financial statements are free from material mis-statement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material mis-statements or inconsistencies we consider the implications for our report. 20

51 The Steamship Mutual Underwriting Association Limited Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the Company s affairs as at 20th February 2013 and of its surplus for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or certain disclosures of Directors remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. David Rush ACA (Senior Statutory Auditor) For and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor London 14th May

52 The Steamship Mutual Trust Contents 01 Directors of the Corporate Trustee 02 Report of the Corporate Trustee 04 Appendix I Policy Year Statement All Classes 06 Appendix II Policy Year Statement P&I Class 08 Income and Expenditure Account 09 Balance Sheet 10 Cash Flow Statement 11 Notes on the Accounts 16 Report of the Independent Auditor

53 The Steamship Mutual Trust The Steamship Mutual Trust Directors of the Corporate Trustee The Steamship Mutual Underwriting Association Trustees (Bermuda) Limited H. S. Frank, Carnival Corporation & plc (Chairman) S. von Appen, Sociedad Naviera Ultragas Ltda. (retired 23rd July 2012) J. G. Conyers A. E. Exel, ISIS (Asia Pacific) Pty. Ltd. B. B. A. McAllister, McAllister Towing (appointed 22nd October 2012) H. L. F. Schoeller, Columbia Shipmanagement Ltd. C. C. Tung, Orient Overseas (International) Ltd. Secretary of the Corporate Trustee A. R. Anderson, Conyers, Dill & Pearman Manager of the Corporate Trustee Hamilton Investment Management Ltd. Registered office of the Corporate Trustee Clarendon House 2 Church Street Hamilton HM 11 Bermuda Administrative offices of the Corporate Trustee Washington Mall 1 P.O. Box HM 447 Hamilton HM BX Bermuda Telephone: (1441) Telefax: (1441)

54 The Steamship Mutual Trust Report of the Corporate Trustee The Steamship Mutual Underwriting Association Trustees (Bermuda) Limited has pleasure in presenting its Report and the Accounts of The Steamship Mutual Trust ( the Trust ) for the year ended 20th February Principal activities The Trust s principal activity during the year was the reinsurance of Protection and Indemnity (P&I) and Freight, Demurrage and Defence (FD&D) risks. At the beginning of the accounting period, the Corporate Trustee extended its current year contract, entered into on behalf of the Trust, with The Steamship Mutual Underwriting Association (Reinsurance) Limited, to cover the period from 20th February 2012 to 20th February 2013 on existing terms and conditions. The total premium receivable by the Trust in respect of all its reinsurance contracts during the accounting period amounted to US$ million. Accounts The surplus of funds available to meet outstanding claims as at 20th February 2013 decreased by US$ 40.6 million to US$ million before taking into account anticipated future investment income. No transfers to the capital reserve of the Trust were made during the year. The total assets of the Trust at the balance sheet date amounted to US$ million, an increase of US$ 57.0 million on the previous year. Policy year statements The figures in Appendices I and II to this Report are prepared under the accounting policies and in the format used within the financial statements, providing a summary and breakdown by both class of business and underwriting year. No allowance has been made for the allocation of any future investment income. Markets Overall 2012 was a more positive year for investment markets. Politicians in the Eurozone and the US avoided several crises of confidence stemming from the solvency problems of heavily indebted countries. However the statements which underpinned central and international bank support for markets often came very late in the day. Although fiscal austerity measures have been implemented by some governments, the absence of meaningful economic growth and an under capitalised banking sector has meant there has been little improvement in the fundamental factors behind sovereign deficits in most countries. US equity markets posted double digit returns for the financial year with European equities not far behind in US dollar terms. Most bond indices registered low single digit returns while gold fell by 6.8% reflecting the return of investor risk appetite. The level of sovereign debt in developed countries will continue to be a concern but there is now more optimism that a modest level of global economic growth can be achieved over the next few years. The supportive monetary policy being pursued by a growing number of central banks should lead to a gradual improvement in financial conditions with intermittent periods of risk aversion along the way. The US and Chinese economies are likely to respond more quickly to these conditions, followed by developing countries with the Eurozone lagging behind. The price to be paid for the supportive policy will be inflation substantially reducing real returns for investors. Investment performance The Trust s overall investment return of 3.5% was made up of a 2.9% return on fixed income investments, a 7.8% return on hedge funds of funds and a 7.5% return on equities. The 4.6% return last year was dominated by unrealised gains on bonds, partly reduced by losses on revaluing euro and UK sterling denominated bonds. This year the return was more balanced and included a small gain on revaluing euro and UK sterling bonds. Corporate bond and hedge fund of fund managers exceeded benchmark performance by a considerable margin while the relatively new emerging market managers, while generating positive returns, fell short of their benchmarks. 02

55 The Steamship Mutual Trust Risk management and asset allocation Risk in the combined portfolio was steady through the year and remained at the lower end of the approved budget range. A number of stress scenarios were reviewed during the year. Estimated losses, likelihood of occurrence and actions that could be taken to reduce the impact of the scenarios were reviewed by the Board. The objective of the matching portfolio is to provide security and liquidity for the settlement of claims liabilities arising from the reinsurance contract, taking into account the cash flow and currency profile of those liabilities. During the year the Board put in place a collateral agreement which provides for assets in the matching portfolio to be pledged to the reinsured as security for amounts recoverable. This agreement is a natural use of the already segregated matching portfolio and mitigates the credit risk arising in the reinsured. The very low yields on developed country government bonds and concentration in US Treasuries lead the Board to diversify the asset allocation in the matching portfolio during the year, moving a total of US$ 105 million to high grade US mortgage backed and global corporate bond mandates with existing investment managers. The incremental credit risk associated with these investments was managed within the overall risk budget. The Corporate Trustee has continued to consult regularly with the Board of The Steamship Mutual Underwriting Association (Bermuda) Limited, which is the ultimate reinsured and whose Members are the beneficiaries of the Trust. That Board receives regular presentations on the utilisation of the agreed risk budget, investment performance and asset allocation. Claims Net claims and related expenses paid increased by 13.9% year on year to US$ million. During the year the Corporate Trustee reviewed with the ultimate reassured the development of prior year claims and the terms of its inward reinsurance contract. The Corporate Trustee remains satisfied that the reassured is taking appropriate steps to ensure that a prudent underwriting policy is maintained. Statement of Corporate Trustee s responsibilities The Corporate Trustee has prepared financial statements for each financial year in accordance with European Commission Insurance Accounts Directive (91/674/EEC) as adopted in the United Kingdom through Section 396 of the Companies Act 2006 and Schedule 3 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and United Kingdom accounting principles applicable to insurers. In preparing those financial statements the Corporate Trustee is required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Trust will continue in business. The Corporate Trustee is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Trust. It is responsible for the system of internal control, for safeguarding the assets of the Trust and hence for taking reasonable steps to prevent and detect fraud and other irregularities. H. S. Frank Chairman The Steamship Mutual Underwriting Association Trustees (Bermuda) Limited Rome, Italy 13th May

56 The Steamship Mutual Trust Appendix I Policy Year Statement All Classes Open Policy Years All Classes 2012/13) 2011/12) 2010/11) Total) US$ 000) US$ 000) US$ 000) US$ 000) Gross premium 172,016) 209,592) 204,117) 585,725) Less: Reinsurance premium (22,250) (29,317) (24,417) (75,984) Net premium 149,766) 180,275) 179,700) 509,741) Gross claims paid Own claims and related expenses (27,095) (93,726) (110,747) (231,568) Less: Reinsurance recoveries 73) 4,542) 5,087) 9,702) Net claims paid (27,022) (89,184) (105,660) (221,866) Claims outstanding including IBNR (197,901) (136,276) (86,594) (420,771) Less: Other reinsurance recoveries 3,152) 15,787) 6,343) 25,282) Net provision for claims outstanding (194,749) (120,489) (80,251) (395,489) Administration expenses (116) (58) (84) (258) Balance on the technical account (72,121) (29,456) (6,295) (107,872) Allocated net investment income 74,626) 33,132) 11,586) 119,344) Non-technical account administration expenses (2,332) (1,993) (1,762) (6,087) Open policy years funds available 173) 1,683) 3,529) 5,385) 04

57 The Steamship Mutual Trust Closed Policy Years All Classes Total) US$ 000) Available balance as at 20th February ,325) Add: Balance of 2009/10 year as at 20th February ,975) Movements during financial year: Other net premium (41) Net claims paid (67,331) Movement in allocated Trust investment income (25,116) Available balance as at 20th February ,812) Claims outstanding including IBNR (239,197) Less: Other reinsurance recoveries 31,754) ) Net provision for claims outstanding (207,443) Closed policy years funds available 5,369) Summary Open and closed years funds available 10,754) Investment income available for allocation 114,535) Reinsurance balance 285) Total projected funds available 125,574) 05

58 The Steamship Mutual Trust Appendix II Policy Year Statement P&I Class Open Policy Years P&I Class 2012/13) 2011/12) 2010/11) Total) US$ 000) US$ 000) US$ 000) US$ 000) Gross premium 148,127) 178,500) 173,527) 500,154) Less: Reinsurance premium (14,350) (19,536) (18,286) (52,172) Net premium 133,777) 158,964) 155,241) 447,982) Gross claims paid (23,482) (73,571) (91,653) (188,706) Own claims paid and related expenses Less: Reinsurance recoveries ) ) 380) 380) Net claims paid (23,482) (73,571) (91,273) (188,326) Claims outstanding including IBNR (179,665) (117,435) (73,452) (370,552) Less: Other reinsurance recoveries 2,219) 14,248) 497) 16,964) Net provision for claims outstanding (177,446) (103,187) (72,955) (353,588) Administration expenses (103) (51) (73) (227) Balance on the technical account (67,254) (17,845) (9,060) (94,159) Allocated net investment income 69,332) 19,589) 10,603) 99,524) Non-technical account administration expenses (2,078) (1,744) (1,543) (5,365) Open policy years funds available ) ) ) ) 06

59 The Steamship Mutual Trust Closed Policy Years P&I Class Total) US$ 000) Available balance as at 20th February ,992) Add: Balance of 2009/10 year as at 20th February ,733) Movements during financial year: Other net premium 55) Net claims paid (61,588) Movement in allocated Trust investment income (21,064) Available balance as at 20th February ,128) Claims outstanding including IBNR (223,434) Less: Other reinsurance recoveries 31,306) Net provision for claims outstanding (192,128) Closed policy years funds available ) Summary All Classes FD&D Others P&I Open and closed years funds available 10,754 5,385 5,369 ) Investment income available for allocation 114,535 Reinsurance balance 285 Total projected funds available 125,574 07

60 The Steamship Mutual Trust Income and Expenditure Account for the year ended 20th February 2013 Technical Account 2013) 2012) Note US$ 000) US$ 000) Earned premium, net of reinsurance Gross premium written 3 175,165) 208,080) Outward reinsurance premium (20,115) (29,560) 155,050) 178,520) Claims incurred, net of reinsurance Claims paid Gross amount 4 188,310) 175,866) Reinsurers share (8,529) (18,010) Net claims paid 179,781) 157,856) Change in the provision for claims Gross amount 43,075) 69,442) Reinsurers share (2,975) 874) Change in the net provision for claims 5 40,100) 70,316) Claims incurred, net of reinsurance 219,881) 228,172) Net operating expenses 6 116) 58) Balance on the technical account for general business (64,947) (49,710) Non-Technical Account Balance on the technical account for general business (64,947) (49,710) Investment income 7 19,430) 18,651) Unrealised gains on investments 8 7,266) 13,401) Investment management expenses (2,331) (1,993) Deficit for the financial year (40,582) (19,651) The results for both years are in respect of continuing operations. There are no recognised gains or losses in either year other than the transactions reported in the above income and expenditure account. The accompanying notes to these accounts form an integral part of this income and expenditure account. 08

61 The Steamship Mutual Trust Balance Sheet as at 20th February 2013 Assets 2013) 2012) Note US$ 000) US$ 000) Investments Other financial investments 9 808, ,606) Reinsurers share of technical provisions Claims outstanding 5 57,036 54,061) Debtors Debtors arising out of reinsurance operations 11 5,600 9,271) Prepayments and accrued income Accrued interest 4,578 4,768) Total assets 875, ,706) Liabilities Capital and reserves Free reserves , ,156) Technical provisions Claims outstanding 5 659, ,895) Creditors Creditors arising out of reinsurance operations 13 56,192 35,132) Other creditors 14 33, ) Total liabilities 875, ,706) The accompanying notes to these accounts form an integral part of this balance sheet. These financial statements were approved by the Corporate Trustee on 13th May The Steamship Mutual Underwriting Association Trustees (Bermuda) Limited 09

62 The Steamship Mutual Trust Cash Flow Statement for the year ended 20th February 2013 Deficit on ordinary activities before tax 2013) 2012) US$ 000) US$ 000) Operating deficit before taxation after interest (40,582) (19,651) Increase in general insurance technical provisions 40,100) 70,316) Unrealised gains on investments (7,266) (13,401) Decrease/(increase) in debtors 3,861) (712) Increase in creditors 54,475) 2,036) 91,170) 58,239) Net cash inflow from operating activities 50,588) 38,588) Cash flow statement Net cash inflow from operating activities 50,588) 38,588) Cash flows were invested as follows: Movement in cash holdings ) ) Net portfolio investment Net purchase of bonds and loans 50,246) 110,934) Net purchase of equities 36) 10,050) Net purchase/(sale) of alternative investments 2,498) (2,750) Decrease in money market instruments (2,192) (79,646) 50,588) 38,588) Net investment of cash flows 50,588) 38,588) Movement in opening and closing portfolio investments net of financing Net cash inflow for the period ) ) Portfolio investments 50,588) 38,588) Movement arising from cash flows 50,588) 38,588) Changes in market values and exchange rate effects 7,266) 13,401) Total movement in portfolio investments net of financing 57,854) 51,989) Portfolio investments net of financing at 20th February ,606) 698,617) Portfolio investments net of financing at 20th February ,460) 750,606) 10

63 The Steamship Mutual Trust Notes on the Accounts 1. Constitution The Trust was created by a settlement under Bermudian law. The Corporate Trustee is The Steamship Mutual Underwriting Association Trustees (Bermuda) Limited, a company incorporated under the laws of Bermuda and registered as an insurer under the Bermuda Insurance Act 1978, so enabling the Trust to undertake reinsurance business. 2. Accounting policies (a) Accounting convention The accounts have been prepared in accordance with the European Commission Insurance Accounts Directive (91/674/EEC) as adopted in the United Kingdom through Section 396 of the Companies Act 2006 and Schedule 3 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and generally accepted United Kingdom accounting principles applicable to insurers. The Trust has adopted all material recommendations of the Statement of Recommended Practice on Accounting for Insurance Business issued in December 2005, and amended in December 2006 by the Association of British Insurers ( ABI SORP ). After making enquiries, the Trustees have a reasonable expectation that the Trust has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts. (b) Premium written Premium comprises the total premium receivable for the whole period of cover provided by contracts incepting during the financial year. All business is ceded from The Steamship Mutual Underwriting Association (Reinsurance) Limited, a company incorporated in Bermuda. (c) Claims and related expenses Full provision is made on a claim by claim basis for the estimated cost of claims notified but not settled by the balance sheet date. A provision for claims incurred but not reported is established on a statistical basis having regard to past experience as to the number and magnitude of claims reported after previous balance sheet dates. (d) Reinsurance premium and recoveries Reinsurance premium and recoveries are recognised in the income and expenditure account on an accruals basis. (e) Foreign currencies Assets and liabilities including investments and bank balances have been converted to US dollars at the rate of exchange ruling at the balance sheet date. Income and expenditure items including foreign exchange transactions are converted to US dollars at the rate of exchange ruling at the date of the transaction. All exchange differences are included in the income and expenditure account. (f) Other financial investments Investments and cash balances have been valued at their bid value as at the balance sheet date. Bond income is accounted for on an accruals basis. Equity income is accounted for on an ex-dividend basis. Forward exchange contracts are valued at the exchange rate prevailing at the year end. Unrealised gains and losses on the movement in the market value of investments compared to their cost are included within the non-technical account. 11

64 The Steamship Mutual Trust Notes on the Accounts continued 2013) 2012) 3. Gross premium written US$ 000) US$ 000) Premium receivable under reinsurance contracts 175,165) 208,080) Under contracts dated 11th March 1983, as amended, the Corporate Trustee, on behalf of the Trust, accepted reinsurance business in respect of all the Protection and Indemnity risks and Freight, Demurrage and Defence risks of The Steamship Mutual Underwriting Association (Reinsurance) Limited for the period up to 20th February 1983 and subsequently further contracts for each of the policy years ended, respectively, 20th February 1984 through to 20th February ) 2012) 4. Claims paid gross amount US$ 000) US$ 000) Claims paid 188,304) 175,864) Claims handling charge 6) 2) 188,310) 175,866) 2013) 2012) 5. Change in the net provision for claims US$ 000) US$ 000) Gross outstanding claims Provision brought forward (616,895) (547,453) Provision carried forward 659,970) 616,895) 43,075) 69,442) Reinsurers share Provision brought forward 54,061) 54,935) Provision carried forward (57,036) (54,061) (2,975) 874) Change in the net provision for claims 40,100) 70,316) A favourable net run-off deviation of US$ 2.7 million was experienced during the year (2012: US$ 13.2 million adverse net run-off deviation). The estimates for known outstanding claims are based on the best estimates and judgement of the Managers of The Steamship Mutual Underwriting Association (Reinsurance) Limited of the final cost of individual cases based on current information. Provision is also made for claims incurred but not reported by the balance sheet date using detailed statistical analysis having regard to past experience as to the number and magnitude of claims reported after previous balance sheet dates. 12

65 The Steamship Mutual Trust 2013) 2012) 6. Net operating expenses US$ 000) US$ 000) Administrative expenses Non-investment management expenses payable to Corporate Trustee 71) 13) Auditor s remuneration audit fees 45) 45) 116) 58) 2013) 2012) 7. Investment income US$ 000) US$ 000) Dividends and interest 18,305) 17,535) Realised gains/(losses) Investments 3,558) 1,183) Exchange (2,433) (67) 1,125) 1,116) 19,430) 18,651) 2013) 2012) 8. Unrealised gains on investments US$ 000) US$ 000) Investments 5,191) 16,244) Exchange 2,075) (2,843) 7,266) 13,401) 13

66 The Steamship Mutual Trust Notes on the Accounts continued 2013) 2012) 9. Other financial investments US$ 000) US$ 000) Market value Equities 32,554) 30,286) Alternative investments 70,727) 65,416) Bonds and loans 690,585) 638,042) Money market instruments 7,538) 9,838) Cash accounts 7,529) 7,442) Open forward exchange contracts (473) (418) 808,460) 750,606) Cost Equities 25,086) 25,050) Alternative investments 65,319) 62,821) Bonds and loans 682,208) 631,962) Money market instruments 7,538) 9,838) Cash accounts 7,520) 7,412) 787,671) 737,083) 10. Rates of exchange The rates of exchange ruling at the accounting dates were as follows: 2013) 2012) UK sterling 0.648) 0.632) Euro 0.749) 0.760) 2013) 2012) 11. Debtors arising out of reinsurance operations US$ 000) US$ 000) The Steamship Mutual Underwriting Association (Reinsurance) Limited ) ) Other reinsurance debtors 5,600) 9,271) 5,600) 9,271) 14

67 The Steamship Mutual Trust 2013) 2012) 12. Free reserves US$ 000) US$ 000) Capital reserve 33,827) 33,827) Accumulated fund brought forward 132,329) 151,980) Deficit for year (40,582) (19,651) 125,574) 166,156) 2013) 2012) 13. Creditors arising out of reinsurance operations US$ 000) US$ 000) The Steamship Mutual Underwriting Association (Reinsurance) Limited 48,957) 22,726) Other reinsurance creditors 7,235) 12,406) 56,192) 35,132) 2013) 2012) 14. Other creditors US$ 000) US$ 000) Unsettled investment transactions 33,475) 37) Other creditors 463) 486) 33,938) 523) 15. Taxation At the present time, no income, profit, capital or capital gains taxes are levied in Bermuda. Accordingly no provision for such taxes has been recorded by the Trust. In the event that such taxes are levied the Trust has received an undertaking from the Bermuda government exempting it from all such taxes until 31st March Transactions with related parties The Steamship Mutual Underwriting Association Trustees (Bermuda) Limited is the Corporate Trustee of the Trust. It receives a fee for investment management costs and related expenses. For the financial year to 20th February 2013 this fee amounted to US$ 2.4 million (2012: US$ 2.1 million) of which US$ 0.4 million (2012: US$ 0.4 million) was outstanding at the balance sheet date. 15

68 The Steamship Mutual Trust Report of the Independent Auditor To the Corporate Trustee of The Steamship Mutual Trust We have audited the financial statements of The Steamship Mutual Trust for the year ended 20th February 2013, which comprise the income and expenditure account, the balance sheet, the cash flow statement and the related notes 1 to 16. These financial statements have been prepared under the accounting policies set out therein. These financial statements have been prepared for the purpose of Member and policy holder information. This report is made solely to the Corporate Trustee in accordance with Section 90 of the Bermuda Companies Act Our audit work has been undertaken so that we might state to the Corporate Trustee those matters we are required to state to them in an independent auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Trust and the Corporate Trustee as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Trustees and Auditors As stated in the Statement of Trustee s Responsibilities, the Corporate Trustee is responsible for the preparation of the financial statements in accordance with the European Commission Insurance Accounts Directive (91/674/EEC) as adopted in the United Kingdom through Section 396 of the Companies Act 2006 and Schedule 3 of The Large and Medium-sized Companies and Group (Accounts and Reports) Regulations 2008 and generally accepted United Kingdom accounting principles applicable to insurers. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law in Bermuda and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the relevant financial reporting framework and whether the financial statements have been properly prepared in accordance with the Bermuda Companies Act We also report to you whether, in our opinion, the information given in the Report of the Corporate Trustee is consistent with the financial statements. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material mis-statement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material mis-statements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the Trust s affairs as at 20th February 2013 and of its deficit for the year then ended; have been properly prepared in accordance with the European Commission Insurance Accounts Directive (91/674/EEC) as adopted in the United Kingdom through Section 396 of the Companies Act 2006 and Schedule 3 of The Large and Medium-sized Companies and Group (Accounts and Reports) Regulations 2008 and generally accepted United Kingdom accounting principles applicable to insurers; and have been properly prepared in accordance with the Bermuda Companies Act Opinion on other matter In our opinion the information given in the Report of the Corporate Trustee is consistent with the financial statements. Deloitte LLP Chartered Accountants and Registered Auditor London 13th May

69 The Steamship Mutual Trust Notes 17

70 The Steamship Mutual Trust Notes 18

71 Design and production: cogent-design.com

72