International Insurance and Reinsurance Brokers. The P&I Report 2016 OLYMPIC SPECIAL

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1 International Insurance and Reinsurance Brokers The P&I Report 2016 OLYMPIC SPECIAL

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3 Contents About Us 4 P&I Team Contacts 5 Dilemma 6-7 International Group 2016 Medal Table 8 Summary of 2015/16 Results 9 P&I Market Share 10 Standard & Poor s Ratings of P&I Clubs 11 Average Expense Ratios (AER) 12 General Increases 13 Supplementary Call Record 14 Freight, Demurrage and Defence Summary 15 Pooling and Reinsurance 16 Excess of Loss Reinsurance Rates 17 Estimated cost of notified Pool claims 17 Current International Group issues P&I Club Information American Steamship Owners Mutual Protection & Indemnity Association, Inc. 22 The Britannia Steam Ship Insurance Association Limited 23 Gard P&I (Bermuda) Limited 24 The Japan Ship Owners Mutual Protection & Indemnity Association 25 London Steamship Owners Mutual Insurance Association Ltd 26 The North of England P&I Association Limited 27 The Shipowners Mutual Protection & Indemnity Association (Luxembourg) 28 Assuranceforeningen Skuld 29 The Standard Club Ltd 30 The Steamship Mutual Underwriting Association (Bermuda) Ltd 31 The Swedish Club 32 The United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Limited 33 The West of England Shipowners Mutual Insurance Association (Luxembourg) 34 3

4 About Us Founded in 1820, Tysers is a leading independent international Lloyd s broker that is based at the heart of the world s premier insurance market in London. Tysers employs some 260 people; handles over $800 million of annual premiums and works with leading insurance markets worldwide to deliver risk solutions to a global client base. All our services management, broking, claims, technical, accounts and documentation are based on the same floor in the Beaufort House office, ensuring a seamless, professional service backed by expertise across a wide range of specialist insurance classes. Not surprisingly for a company that started life nearly two centuries ago and spawned a shipping line, Tysers Marine division is one of the oldest and most highly respected in the London market. All our people are client focused and combine to provide a fully integrated broking, administration and claims service. Key Strengths Areas of Expertise Global expertise With particular strength in the UK, Europe, Indian sub-continent, South East Asia, the Far East and South America. Established market presence Strong relationships with Market and P&I underwriters facilitate competitive pricing. We work with all 13 Clubs in the International Group. Extensive experience Our team has a unique blend of expertise to put at clients disposal, having worked previously for International Group P&I Clubs, leading insurers and other major brokers. Reinsurance expertise Our reinsurance clients range from the London Market to other major marine underwriting centres, P&I Clubs, fixed premium and overseas insurers. Proactive claims service Our integrated claims team is involved in all accounts from day one, before any loss occurrence. The broking and claims teams work in harmony to deliver a complete service. Protection and Indemnity, FDD, other Marine Liabilities including Contractual and Specialist Operations Charterers Covers Containers and Chassis Ship Agents Liabilities Ports and Terminals Loss of Hire/ Trade Disruption Hull & Machinery War Risks Piracy Kidnap and Ransom Reinsurance Builders Risks including Related Delay Covers and Contract Repudiation Mortgagees Interest 4

5 P&I Team Contacts Martin Hubbard Direct line: +44 (0) Mobile: +44 (0) Over 40 years P&I experience, mainly as a Senior Underwriter and Director with the Steamship Mutual Underwriting Association Ltd. Joined Tysers in Simon Smart simon.smart@tysers.com Direct line: +44 (0) Mobile: +44 (0) Over 20 years a P&I broker, joined Tysers in Ian Harris ian.harris@tysers.com Direct line: +44 (0) Mobile: +44 (0) Ian joined Tysers from Willis in January 2014, and has over 40 years P&I and H&M experience, including ten years in claims. Chris Sydenham chris.sydenham@tysers.com Direct line: +44 (0) Mobile: +44 (0) Claims Director, responsible for all Marine claims. Over 30 years with Tysers. Piers O Hegarty piers.ohegarty@tysers.com Direct line: +44 (0) Mobile: +44 (0) Joined the Marine Division in 1999 having previously been with Sedgwicks and Aon. Julien Hubbard julien.hubbard@tysers.com Direct line: +44 (0) Mobile: +44 (0) A marine broker since Joined Tysers in 2004 from Miller Marine. Jason Crowhurst jason.crowhurst@tysers.com Direct line: +44(0) Mobile: +44(0) Marine Claims Manager. Joined Tysers in Simon Haycock simon.haycock@tysers.com Direct line: +44 (0) Mobile: +44 (0) Marine Claims Manager. Joined Tysers in

6 Dilemma For a third year running, a benign claims climate has seen the International Group combined free reserves rise yet again, such that we find ourselves with a serious dilemma. Year Owned GT Free Reserves Reserves per GT 2011/12 988,000,000 3,955,000,000 $ /13 1,036,000,000 4,086,000,000 $ /14 1,076,000,000 4,318,000,000 $ /15 1,104,000,000 4,623,000,000 $ /16 1,154,000,000 4,826,000,000 $4.18 Our ranking of Clubs has traditionally been based on financial strength (including the potential for unbudgeted calls), together with our inevitably subjective views of each Club s service level, flexibility and attitude. The problem we face today is that the vast majority of Clubs are now so cash-rich that we do not feel the continued increase in free reserves necessarily warrants a gold medal, especially with most shipowners continuing to struggle with depressed freight markets. We are happier now with those Clubs who have survived the difficult investment climate and come out with figures around the break-even level thanks to a solid underwriting performance. These include the London, Skuld, Standard, and UK Clubs. Where Clubs have again made substantial surpluses, we shall be looking at how the Clubs will use their excess funds to the benefit of their Membership. Gard will continue at the top as it has for seven consecutive years returned premium to members, with the return for each of the last four years being equivalent to 8% of the negotiated total annual premium. Skuld are now trying to emulate this to some degree, and we expect North and Steamship Mutual will return a good part of their substantial 2015 surpluses ($90 million and $64 million respectively) to their membership if they do not, serious questions will be asked. We also wonder whether Britannia and UK, post their failed merger talks, will offer some return to appease their confused membership; merger efficiencies would certainly have allowed them to do so!! We doubt any other Clubs yet feel they are strong enough compared to other Clubs to be generous to their members, although West of England may spring a surprise unless its greater concern is to obtain an A rating from S&P. We can, though, look forward to what should be the softest P&I renewal on record in Some Clubs may argue that their current strength is due to the release of prior-year reserves (a euphemism for over-reserving for claims) and this cannot continue indefinitely, others may point to the continued uncertainty in investment markets, and some will no doubt refer to underlying claims inflation and the need to avoid complacency. The answer to all these points and any effort to charge a general increase is a simple one you can afford a year of moderation, so do not even think about an increase. The big news in 2016 was the failure of the UK and Britannia Clubs to conclude their proposed merger. We were generally happy with the concept, as we could not find any down side to it. On the other hand, we are relieved in a way that the merger talks failed as it may open up alternative opportunities that could strengthen the Group more. There was something of a knee-jerk reaction from some Clubs following the initial UK/Britannia announcement, with a number of approaches being made and rebuffed. The major stumbling block to mergers may be that, in many cases, P&I management is too conservative, too close to retirement and too engrained in the traditional P&I system. Throw in a conservative Board of Directors and the obstacle is already a big one to overcome. We have for some time held the view that the market does not need 13 Clubs and the International Group would be stronger and better placed for the future if it reduced to around ten larger and diversified Clubs. Gard and Skuld are the Clubs which have most embraced the concept that the stand-alone P&I model has, long term, a limited shelf life and have successfully moved on to become marine insurers offering a variety of products. It is no coincidence that, in both cases, change was successfully achieved following the appointment of CEOs from outside the P&I world. It does seem that P&I managers of other Clubs who have done nothing other than P&I throughout their careers, simply lack 6

7 the commercial acumen and ambition to recognise the need for change and drive it through. Life has just been too sheltered and comfortable within the International Group cartel. We tend to feel Clubs will look at the UK/Britannia experience and decide that, for the time being, mergers are too complicated so life should continue unchanged. As can be seen from the following table, following on from our comments last year release calls are slowly moving in the right direction, with five Clubs now at zero for the 2014 year. Release calls are still unjustifiably high given the remoteness of any Club needing an unbudgeted additional call, with the biggest anomaly being Gard how can it justify an extra 15% for 2015 when it has reduced the final call from 25% to 15%? But then, who is going to leave Gard? Release Calls as at September 2016 American Britannia Gard Japan London North Shipowners Skuld Standard SSM Swedish UK West of England * * * * Percentage of advance call. All other figures are percentage of total premium. 7

8 International Group SILVER GOLD BRONZE 8

9 Summary of 2015/16 Results Club U/W Profit/ Loss 2015/16 ($M) Net Combined Ratio 2015/16 Investment Income 2015/16 ($M) Surplus Feb 2016 ($M) Free Reserves Feb 2016 ($M) Total Owned GT Feb 2016 (M) Free Reserves Per Owned GT Feb 2016 American (2) 106.9% 0 (2) $4.00 Britannia* 0 100% (24) (25) $4.84 Gard** 96 87% (54) 48 1, $4.72 Japan 17 88% (19) (1) $2.03 London % (12) $3.62 North % $3.27 Shipowners % (24) (21) $11.34 Skuld 22 95% (9) $4.24 Standard 18 95% (8) $3.36 Steamship % (3) $5.66 Swedish 2 99% (5) (3) $4.19 UK 19 92% (17)*** $4.05 West % $3.84 Total 375 Average 91.36% Total (168) Total 211 Total 4,826 Total 1,154 Average $4.18 Figures in red are consolidated figures covering all lines of business rather than P&I alone. * Includes Boudicca ** GARD Net Combined Ratio and Surplus are net of $37m return on 2015 deferred call. On ETC basis the NCR is 83% and the surplus $85m. *** UK investment income is net of $7.5m interest paid on perpetual subordinated securities 9

10 P&I Market Share These comparisons show the relative size of P&I Clubs by owned gross tonnage, financial year income and free reserves as at 20 February P&I Club Owned GT % Accounting Year Premium $ % Free Reserves % Gard 215,200, ,941,000* ,016,697, UK 135,000, ,360, ,913, North of England 131,000, ,810, ,401, Standard 116,000, ,300, ,100, Britannia 105,900, ,722, ,696, Japan 92,200, ,258, ,130, Skuld 82,200, ,980, ,230, Steamship 77,800, ,329, ,321, West of England 72,100, ,614, ,661, London 44,400, ,072, ,707, Swedish 43,650, ,958, ,074, Shipowners 24,630, ,293, ,378, American 14,100, ,504, ,410, Total 1,154,180,000 4,137,141,000 4,826,718,000 *All lines of business. P&I income $607,260,000 10

11 Standard & Poor s Ratings of P&I Clubs Insurance Year Gard A A+ A+ A+ A+ Britannia A A A A A North of England A A A A A Standard A A A A A Skuld A A A A A UK Club A- A- A A A Steamship A- A- A- A- A Shipowners BBB A- A- A- A- Swedish Club BBB+ BBB+ BBB+ BBB+ BBB+ Japan Club BBB BBB+ BBB+ BBB+ BBB+ West of England BB BBB BBB BBB+ BBB+ London Club BBB BBB BBB BBB BBB American Club BB+ BB- BBB- BBB- BBB- 11

12 Average Expense Ratios (AER) The AER was introduced in 1998 as a means of comparing the administration costs of the mutual P&I Associations under the terms of their exemption from the E.U. Competition Directive. The Clubs are only obliged to report their five-year AER and most do not show their annual expense ratio. The below figures are all five-year averages American Club 18.30% 19.30% 19.30% 21.60% 24.20% Shipowners 20.00% 20.00% 18.00% 20.00% 21.00% West of England 14.75% 15.43% 14.24% 14.86% 15.50% Swedish 13.00% 13.30% 12.10% 13.00% 13.30% Skuld 12.40% 12.30% 12.30% 12.90% 12.80% North of England 12.60% 13.10% 12.50% 12.40% 12.40% Standard 13.40% 13.20% 10.90% 11.40% 12.20% Steamship 12.30% 12.40% 11.30% 11.80% 12.10% Gard 13.00% 14.10% 11.30% 11.40% 11.83% UK Club 9.46% 9.47% 9.35% 9.66% 10.17% London Club 9.40% 9.63% 8.36% 8.78% 9.52% Britannia 8.49% 8.49% 8.03% 8.43% 9.12% Japan Club 6.18% 5.69% 5.73% 5.25% 5.18% Average 12.56% 12.80% 11.80% 12.42% 13.02% 12

13 General Increases Shipowners Gard Skuld Steamship Swedish West* American Britannia Standard UK North Japan London *** *** 5 8.5** *** Total 2010/ Average 139 * Applies to premium net of Group Excess Loss Reinsurance costs ** Estimated *** Includes the increase in Group Excess Loss Reinsurance costs The total shows the cumulative increase based on 2009 premium of

14 Supplementary Call Record (Original Estimate/Current Estimate) American* Britannia Gard Japan London North of England Shipowners Skuld Standard Steamship Swedish UK West of England /30 30/30 25/25 30/30 40/89 0/0 10/10 0/0 0/0 0/14 0/35 0/25 20/ /25 40/40 25/25 30/30 40/75 0/0 10/10 0/0 0/0 0/20 0/0 0/20 20/ /20 40/ /10 40/40 40/40 0/0 10/10 0/0 0/0 0/0 0/0 0/0 30/ /25 40/40 25/15 40/50 0/0 0/0 10/10 0/0 0/0 0/0 0/0 0/0 30/ /25 40/40 25/20 40/40 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/ / /0 40/40 25/15 40/40 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 30/ /0 45/45 25/15 40/40 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 35/ /0 45/ /15 40/40 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/ / /0 45/45 25/15 40/40 0/0 0/0 0/0 0/ /0 0/0 0/0 0/0 35/ /0 45/45 25/25 40/40 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 35/35 Called above Estimated Total Call Called below Estimated Total Call Called full Estimated Total Call 14

15 Freight, Demurrage and Defence Summary General Increases American Britannia Gard Japan London North of England Shipowners Skuld Standard Steamship Swedish UK Defence Club West of England Limits and Deductibles Club Standard Limit (US$) Standard Deductible American 2,000,000 $5,000, then 25% maximum $50,000 Britannia 10,000,000 (but 2m newbuilding/conversion disputes) One-third of all costs excess of $5,000 Gard 10,000,000 (but 2m newbuilding/conversion disputes) 25%, minimum $5,000 Japan Yen 1.5 billion (approx. $12,000,000) One-third of all costs excess of $1,000 London 7,500,000 25% all costs North None (but 250,000 building, purchase, sale disputes) 25%, minimum $10,000 maximum $150,000 Shipowners 5,000,000 First $750 of costs up to $3,000, then 25% maximum $30,000 Skuld 5,000,000 (but 300,000 building, purchase, sale disputes) 25%, minimum $10,000 Standard 5,000,000 25%, minimum $10,000 Steamship 10,000,000 $5,000, then one third all costs subject overall maximum $30,000. Swedish 5,000,000 $12,000, plus 25% of any costs in excess of $250,000 UK 15,000,000 Nil, but no cover for disputes under $10,000 West 10,000,000 $5,000, then 25% maximum $50,000 but $100,000 for building disputes. 15

16 Pooling and Reinsurance Layers of International Group Excess Loss Programme 2016/17 Protection and indemnity 3.08bn 3.1bn Collective Overspill Excess of underlying 2.08bn 2.1bn Third Layer Excess of underlying Oil Pollution 1.08bn 1.1bn 1.0bn Second Layer Market Share Second Layer Market Share 580m 80m 45m 30m 10m First Layer Market Share 55% Hydra 60% Hydra 30% 25% 25% Hydra 75% 5% Private Placement 5% Private Placement 5% Private Placement Upper Pool Reinsured by Hydra Lower Pool reinsured by Hydra Lower Pool First Layer Market Share 55% Individual Club Retention (ICR) Hydra 30% Hydra 60% Hydra 75% 5% Private Placement 5% Private Placement 5% Private Placement 7.5% ICR 350m 120m 100m 80m P&I and Oil Pollution Market Share 55% Hydra 30% 25% Hydra 60% Hydra 75% Upper Pool Reinsured by Hydra Lower Pool reinsured by Hydra Lower Pool Individual Club Retention (ICR) 5% 5% 5% 7.5% ICR Single per-vessel retention Chartered Entries Multi Year Private Placement Multi Year Private Placement Multi Year Private Placement 16

17 Excess of Loss Reinsurance Rates Dirty Tanker Clean Tanker Passenger Other The Actual rates US$ per GT are: 7ear 2006/ / / / / / / / / / /16 Tankers (Dirty) Tankers (Clean) Dry Cargo Passengers Estimated Cost of Notified Pool Claims For 2016, the Club retention increased from $9m to $10m but the Pool limit remained at $80m. The table show the total cost of Pool claims based on historical thresholds. Estimates in USD millions as at February

18 Current International Group Issues The Insurance Act 2015 The Insurance Act 2015 came into force on 12 August, The legislation, which seeks to create a new and fairer balance between the Policyholder and Insurer, represents the most significant change to insurance contract law in the UK for over a century. The Act deals with: Duty of disclosure which is replaced by a duty of fair presentation Remedies available to insurers The abolition of basis of contract clauses Warranties Terms not relevant to an actual loss Fraudulent claims An Insurer s ability to contract out of the Act in certain circumstances. The Act applies to all insurance and reinsurance / retrocession contracts (and variations to existing contracts) concluded after 12th August 2016 which are governed by UK law and applies regardless of where the Policyholder is based. When being drafted it was recognised that the new Act might not be required in sophisticated markets, with the marine insurance sector identified as one such market. P&I is a sophisticated insurance market, with well established practices that benefit Members and the P&I Clubs. Accordingly and in the interest of continuity across the wider International Group, the eight UK based P&I Clubs subject to the Act have decided to contract out of most of the provisions and have made the necessary amendments to their Rules from 20th February The main exception relates to basis of contract clauses. The new Act prohibits any term in an insurance contract by which the insured warrants the truth of all pre- contractual representations. This prohibition negates the effect of Club Rules which declare such information to be the basis of the contract of insurance. This provision is mandatory and, consequently, any such basis of contract wording has been removed from the Rules of the eight affected Clubs. Any inaccuracies in material representations will instead be treated as relevant to the question of whether or not there has been a fair presentation of risk. Maritime Labour Convention 2006 All Clubs in the International Group have incorporated provisions in their rules to cover repatriation costs following abandonment and in addition, all flag states currently accept Club certificates of entry as evidence of compliance with the financial security provisions of the MLC. Amendments to the MLC come into force in January These amendments include an entitlement for seafarers to receive four months wages in the event of abandonment. The Clubs have confirmed they will extend the scope of P&I cover to include unpaid back wages of up to four months in the event of abandonment. As with repatriation costs following abandonment, this exposure will not be pooled, so Clubs are looking to the commercial market for reinsurance excess of their retention. The Clubs are still discussing the form of security they will provide to third parties and ships crews. Sanctions IRAN Whilst most EU Iran sanctions and the US-imposed secondary Iran sanctions have been lifted in 2016, sanctions continue where particular companies or individuals remain designated, or in relation to specific prohibited trading activity. Furthermore, US prohibitions continue to apply to US domiciled insurers and reinsurers, thus creating large gaps in the International Group s reinsurance programme. It was pleasing to see the International Group move quickly to create a fall-back reinsurance programme designed to make good the inability of US domiciled reinsurers on the Group and Hydra reinsurance programmes to contribute to claims involving Iranian liabilities. It is subscribed to by non-us domiciled reinsurers and is subject to annual and per-event limits and limited reinstatements. This has provided a degree of comfort 18

19 to a number of shipowners now trading to Iran although a number of others remain concerned about the potential limitations on the available reinsurance cover. The fall-back solution is only an interim measure, and while the Group is continuing discussions with the US administration to try to find a solution to the difficulties arising from the continuing application of US primary sanctions measures, we understand that if no resolution is achieved before the 2017 renewals, US reinsurers will not be invited to renew their participation in the Group s reinsurance programme. OTHER COUNTRIES EU and US sanctions impacting on trade and the provision of insurance cover continue to apply in a number of other countries including Syria, North Korea and Cuba. 19

20 P&I Club Information Introduction The information contained in this report is not and is not intended to be a definitive analysis of the Clubs accounts. In so far as is possible we have homogenised the data to enable comparison. Calls and Premiums are the consolidated totals for all classes. The net underwriting statistics express the technical result for the year and exclude any non-technical investment income. Operating Expenses include management expenses and Solvency margins are calculated as the ratio between total assets and gross outstanding claims. All monetary figures shown are US dollars. Whilst every effort has been made to ensure that the information contained in the report is accurate and up-todate at the time of printing, this cannot be guaranteed by Tysers. Under no circumstances shall Tysers be responsible or liable for any loss or damage caused directly or indirectly by the publication or use of this information. business acquisition costs. 20

21 Protection & Indemnity Club Reviews American 22 Britannia 23 Gard 24 Japan 25 London 26 North of England 27 Shipowners 28 Skuld 29 Standard 30 Steamship Mutual 31 Swedish 32 UK 33 West of England 34 21

22 American Steamship Owners Mutual Protection & Indemnity Association, Inc. Tonnage by Vessel Type Bulkers 14% 2% Tankers General Cargo/ Passenger/Container Tugs/Barges/Small craft 44% 40% Managers SCB Inc (Eagle Ocean Management LLC) Gross Tonnage Owned 14,100,000 Chartered 1,100,000 Tonnage by Area Europe North America Asia Other 29% 13% 3% 55% Free reserves ,410, ,600, ,344, ,229, ,219,000 Standard & Poor s Rating BBB Year Calls/Premium 97, , , , ,955 Reinsurance Cost 16,128 20,553 18,581 18,585 16,283 Net Claims (incurred) 49,364 65,962 65,064 83,265 72,986 Operating Expenses 33,978 34,795 35,250 31,995 33,045 Net Underwriting Result (1,966) (6,512) (10.936) (21,719) (10,359) Gross Outstanding Claims 212, , , , ,902 Total Assets 314, , , , ,048 Average Expense Ratio 24.20% 21.60% 19.30% 19.30% 18.30% Solvency Margin Reserves/GT Ratio $4.00 $4.22 $3.43 $3.61 $3.74 All figures $ 000 There is little on the positive side to report about the Club as it staggers towards its centenary in Tonnage hardly changed, while premium income fell below the $100 million mark to $97.5 million, of which a whopping $34 million was spent on operating expenses. Fortunately, claims were well down so an underwriting loss of $2m and a neutral investment position saw free reserves fall by just $2.2m. With the benign claims climate, we do wonder if operating expenses could soon exceed the net claims total. Claims on the 2015 policy year, at the twelve months development point, totalled just $32 million, the lowest since 2002 with only four claims over $1 million and none over $2 million. placed with the Club and bolster its figures, but no doubt the Managers have their reasons. The Club s move into hull business via its investment in the ailing Hellenic Hull Mutual was first announced in October 2015, but the new company, American Hellenic, only obtained its license from the Cyprus regulator and started underwriting from its office in Greece in July As we understand it, the investment is $19.5 million done by means of a surplus note with an interest rate of 8% and maturity in December We await to see exactly how the Eagle Ocean and American Hellenic ventures produce concrete benefits for the mutual members of the Club. We are told that the Managers fixed premium P&I facility, Eagle Ocean Marine made excellent progress in 2015 and continues to provide respectable profits for both the Club and its co-venturers (or carriers) at Lloyd s. The Club has changed its participation to a 50% share of the first $10 million, from its previous 20% share of the first $25 million. We remain confused as to why this profitable business cannot simply be 22

23 The Britannia Steam Ship Insurance Association Limited Tonnage by Vessel Type Bulkers/OBO Tankers (Crude) Containers 12% 6% 35% Managers Tindall Riley (Britannia) Limited Tankers (Other) Cargo/Other 31% 16% Gross Tonnage Owned 105,900,000 Chartered 35,500,000 Free reserves Tonnage by Area Asia Scandinavia Europe Americas Other 5% 3% 25% 16% 51% ,396,000* ,267,000* ,998,000* ,817,000* ,677,000* Standard & Poor s Rating A *Excluding Boudicca reserves, which included in Reserves/GT Ratio below Year Calls/Premium* 260, , , , ,772 Reinsurance Cost* 65,663 73,191 74,866 66,820 63,681 Net Claims (incurred)* 167, , , , ,634 Operating Expenses* 26,986 24,963 26,811 29,317 29,389 Net Underwriting Result* ,331 (21,026) (2,674) (20,932) Gross Outstanding Claims* 1,308,955 1,093,595 1,122,485 1,147,253 1,010,461 Total Assets* 1,687,087 1,489,236 1,499,487 1,499,103 1,326,366 Average Expense Ratio* 9.12% 8.43% 8.03% 8.49% 8.49% Solvency Margin* Reserves/GT Ratio $4.84 $5.03 $4.37 $3.96 $4.15 *Excludes Boudicca All figures $ 000 Chairman Nigel Palmer has very little to say this year, referring mainly to the strategy review in 2015 which concluded that bigger is better The study identified scale as an important attribute that could also deliver a number of strategic advantages - and resulted in the now defunct merger talks with the UK Club. We wait to hear whether the strategy review still holds good and alternative efforts to grow are on the table, although we imagine the Club has lost its appetite and will revert to its traditional conservatism for the time being The technical result for the year was neutral, but an investment loss of $24 million (-2.30%) saw overall free reserves, including those of the Club s dedicated reinsurer, Boudicca, fall by $33 million to $513 million. This is no cause for concern as the underlying underwriting policy looks sound and the Club remains one of the best reserved in the International Group. Owned tonnage was down by 3 million GT but chartered tonnage rose by over 8 million GT. Claims in 2015 were higher than the exceptionally good 2014 year but well below the levels of the previous two years, and the Club feels 2015 indicates a return to a more normal claims level. There were 20 claims in excess of $1m, and two hit the Pool. One of these, involving the vessel Alpine Express which hit and destroyed a jacket rig in Iranian waters, will exceed the Pool limit of $80 million and involve the International Group s Excess Loss reinsurance. This is likely to be the Club s largest ever claim. The Club s investigation of the root cause of large claims confirms that human error remains the major factor, with navigational issues, poor bridge team management and over-reliance on pilots the most significant issues. The Club concludes that shipowners must maintain their efforts to minimize incidents through a combination of training and the adoption of best practices and onboard procedures, including regular audits of compliance with those procedures. 23

24 Gard P&I (Bermuda) Limited Tonnage by Vessel Type Tankers & Gas 14% Bulkers/OBO Containers Dry Cargo 3% 4% 18% 36% Managers Lingard Limited Car Carriers Gross Tonnage Passenger/Cruise/MOU/Other 25% Owned 215,200,000 Tonnage by Area Asia Norway Europe 18% 11% 27% Chartered 90,000,000 Free reserves ,016,697,000* ,590,000* ,123,000* Germany Greece 13% 15% ,792,000* ,618,000* Americas 16% Standard & Poor s Rating A+ Year Calls/Premium 607, , , , ,812 Reinsurance Cost 137, , , ,994 90,641 Net Claims (incurred) 351, , , , ,132 Operating Expenses 50,494 59,723 43,396 75,191 41,330 Net Underwriting Result 67,614 10,364 (43,744) (92,844) (29,291) Gross Outstanding Claims 1, 572, 498* 1,379,308* 1,375,264* 1,344,151* 1,370,242* Total Assets 3,012,936* 2,745,611* 2,731,378* 2,617,380* 2,494,244* Average Expense Ratio 11.83% 11.40% 11.30% 14.10% 13% Solvency Margin 1.92* 1.99* 1.99* 1.95* 1.82* Reserves/GT Ratio $4.72* $5.12* $5.06* $5.13* $5.08* All figures $ 000 Note: items marked * are Group figures and include all business lines, not just P&I. Despite an investment loss of $54 million, Gard still managed an overall surplus across all lines of business of $85 million, which allowed it to return $37 million to its mutual P&I members for the 2015 policy year. This marks the seventh consecutive year there has been a return, with a total benefit to the members of $223 million. The net increase in free reserves was thus $48 million to $1,017 million. Not surprisingly, Chairman Bengt Hermelin had no worries about the proposed UK/Britannia merger. Indeed, he welcomed the news, feeling it could be a positive step for the future of the International Group. Hermelin feels Gard is more than big enough compared to the other Clubs and already realises benefits of scale, but he does add that the Club remains small compared to commercial insurers and will keep an open mind on further growth if the benefits are evident. Unsurprisingly, tonnage continues to grow and total owned and chartered business now exceeds 300 million GT. CEO Rolf Thore Roppestad s review of the year is, to be honest, not an easy read, telling us in somewhat convoluted terms how good the Club is: - for example our risk management insight and competence, along with our superior claims handling abilities, enhance sustainable value creation for all our stakeholders, and Our strategy and daily operations are focused on activities that create value while at the same time positively affecting the environment, our Members and clients, employees and society overall. Our review can be stated more simplistically. Gard has shown the rest of the International Group the way forwards, and the Usain Bolt of P&I is so far ahead of the field we doubt it will ever be caught. 24

25 The Japan Ship Owners Mutual Protection & Indemnity Association Tonnage by Vessel Type Bulk carriers 8% 9% Tankers Car Carriers Container Ships General Cargo/Other 9% 14% 60% Managers Self-Managed Gross Tonnage Owned 92,200,000 Chartered 12,500,000 Tonnage by Registry Panama Others Japan Hong Kong 5% 16% 14% 6% 59% Free reserves ,130, ,369, ,012, ,546, ,949,000 Liberia Standard & Poor s Rating BBB+ Year Calls/Premium 226, , , , ,773 Reinsurance Cost 59,229 55,257 56,264 44,545 46,228 Net Claims (incurred) 125, , , , ,390 Operating Expenses 25,556 21,488 22,775 22,574 26,498 Net Underwriting Result 16, (9,849) 1,619 (1,343) Gross Outstanding Claims 371, , , , ,358 Total Assets 584, , , , ,471 Average Expense Ratio 5.18% 5.25% 5.73% 5.69% 6.18% Solvency Margin Reserves/GT Ratio $2.03 $1.85 $1.70 $1.71 $1.86 All figures $ 000 Director General Yoshikazu Minagawa reports that due to the continuing challenging business environment for the shipping industry, the Club started a new Medium Term Operational Plan entitled JPI s CHANGE Phase II, which sets out three management strategies reliability, soundness and competitiveness aimed at convincing shipowners the Club should be their one of choice based on a quality insurance service at a competitive price. This appears to be a far more modest version of the plan announced last year, which would have seen the Club seeking growth in non-japanese tonnage and a possible move into less traditional areas of marine risk. In terms of competitiveness, the Club makes much of the fact it has only charged half of the estimated 40% final call for However, the remaining 20% does remain as an outstanding estimate and we await to see whether this will in fact be collected. The Club did manage a small underwriting surplus, thanks to a quiet claims year for ocean-going vessels, offset to some extent by two large claims on the Naiko (coastal trade) class totalling around $2.7 million. Overall, free reserves rose in dollar terms by nearly $15 million. Ocean-going tonnage reduced slightly, while the Naiko class remained stable and chartered tonnage rose slightly, so total gross tonnage over all classes remained virtually unchanged at just under 105 million GT. The Club continues to strive to increase its loss prevention services to members, with main activities being seminars, claims analysis, the publication of loss prevention bulletins and condition surveys. S&P has recently reaffirmed the Club s BBB+ rating, commenting that the Club somewhat lacks market leadership and effective innovation of strategy compared with other Clubs. A rare moment indeed, but for once we do agree with S&P. The Club appears to have a new, revised, short term plan every year rather than concentrating on the longer term. We cannot see the Club achieving much growth internationally, and do feel it should concentrate its efforts on its domestic market. It needs a very clear plan if it is to move up the medals table at the Tokyo Olympics. 25

26 London Steamship Owners Mutual Insurance Association Ltd Tonnage by Vessel Type Bulkers 16% 2% LNG/LPG & Tankers Container Cargo 25% 57% Managers A Bilbrough & Co Ltd Gross Tonnage Owned 44,400,000 Chartered 7,500,000 Tonnage by Area S. Europe Far East N. Europe Other 15% 34% 3% 48% Free reserves ,707, ,414, ,644, ,029, ,669,000 Standard & Poor s Rating BBB Year Calls/Premium 110, , , , ,190 Reinsurance Cost 22,670 24,445 20,754 22,175 21,216 Net Claims (incurred) 60, ,277 92,956 82,691 93,338 Operating Expenses 11,954 12,483 11,921 11,483 $11,367 Net Underwriting Result 15,319 (29,915) (18,736) (14,398) (16,731) Gross Outstanding Claims 332, , , , ,021 Total Assets 505, , , , ,078 Average Expense Ratio 9.52% 8.78% 8.36% 9.63% 9.40% Solvency Margin Reserves/GT Ratio $3.62 $3.59 $3.71 $3.72 $3.53 All figures $ 000 Perhaps in celebration of the Queen s 90 th birthday, this very British Club managed a technical surplus of $15 million, its first underwriting profit for what feels like ninety years. Sadly, the Club could not back this up with its usual good investment performance, and the investment return was a negative 2.5% ($11.5 million), reducing the overall surplus for the year to $3.3 million The combined ratio was 82,50% compared to 134% last year, and Chairman John Lyras attributes this to two factors the changes to the Club s deductible structure (higher deductibles, now including claims handling costs) and good fortune in avoiding higher severity claims there were just four claims over $1 million for the 2015 year as at 20 th February 2016, compared to 14 the previous year and an expected average of six or seven. The Chairman reports on the ongoing pollution litigation resulting from the loss of the Prestige off Spain in The Supreme Court of Spain has this year issued a verdict which has been met with widespread dismay and consternation across the maritime industry in that, firstly, it decided the Master was guilty of an environmental crime (a draconian approach which glossed over the fact the vessel was denied access to a place of refuge and ordered out to sea where she sank) and, secondly, ruled that the Club could not rely on the CLC limitation of liability which should certainly have applied. It looks like these proceedings are bound to run for a further considerable length of time. The Club celebrates its 150 th anniversary this year, and CEO Ian Gooch promises there will be suitable celebrations. How about a zero general increase, to which we would all raise a toast? Owned tonnage rose by 600,000GT, including entries under the Club s new fixed premium facility for vessels up to 7,500GT, where the Club is being very competitive. Chartered tonnage remained static but is expected to grow during 2016 as new accounts attached at the renewal. 26

27 The North of England P&I Association Limited Tonnage by Vessel Type Bulkers Tankers 6% 10% Containers Car Carriers 19% 39% Managers North Insurance Management Ltd Other 26% Gross Tonnage Owned 131,000,000 Chartered 54,000,000 Tonnage by Area 2% Free reserves Europe Asia Pacific Middle East Americas Scandinavia Others 7% 7% 12% 36% 36% ,109, ,109, ,274, ,236, ,013,000 Standard & Poor s Rating A Year 2016* 2015* Calls/Premium 489, , , , ,348 Reinsurance Cost 128, ,438 77,885 70,788 55,432 Net Claims (incurred) 196, , , , ,420 Operating Expenses 77,579 69,385 53,175 51,921 52,681 Net Underwriting Result 87,434 (28,347) 20,847 (10,874) (8,185) Gross Outstanding Claims 869,420 1,069, , , ,450 Total Assets 1,490,314 1,606,592 1,361,357 1,249,306 1,167,710 Average Expense Ratio 12.40% 12.40% 12.50% 13.10% 12.60% Solvency Margin Reserves/GT Ratio $3.27 $2.66 $2.40 $2.46 $2.55 *2016 and 2015 includes Sunderland Marine. All figures $ 000 Chairman Pratap Shirke and all the staff who appear in this year s Management Report have wide smiles as the Club peaked at just the right time for the Olympics, reporting an excellent year after a period in the doldrums. The Chairman reports that a benign claims environment, significant improvements on past years and Pool claims and a successful strategy to improve our underwriting performance have combined to increase free reserves by $90 million to over $428 million. Even an investment loss of $13 million was countered by an $18 million reduction in the Club s pension scheme deficit. Owned tonnage grew by 4 million to 131 million GT, and chartered tonnage grew by over 10 million to a record high of 54 million GT. The acquisition of Sunderland Marine is, we are told, testament to the success of the Club s overall strategy as it delivers a platform for further diversification benefits for the mutual membership. Sunderland Marine did make a small loss in 2015 (under $1 million) but the Chairman states this represented a significant improvement on the previous year and North will continue to improve efficiency and profitability. The Club affirms its commitment to mutuality, but will continue to diversify and provide new solutions to support the members and achieve its vision of being a world leading marine insurance group, providing the highest quality of cost-effective service. P&I claims saw a dramatic improvement, and the Club suffered only 19 claims over $1 million, totaling $71 million net, compared to 49 in 2014 totalling $143 million and attritional claims also compare favourably with the experience of the last five years.. As with other Clubs, North has also benefited from the release of reserves on prior years due to its conservative estimating policy. It is good to welcome North back into the fold after a difficult period, but some members will certainly be thinking they should see an immediate benefit from the combined ratio of 73% and a surplus of $90 million. There will be pressure on the Club to return some of this surplus by means of a return premium on 2015 does the Club feel strong enough to do this? We hope so. 27

28 The Shipowners Mutual Protection & Indemnity Association (Luxembourg) Tonnage by Vessel Type Harbour Barges 5% 5% 5% 29% Fishing Ferries 14% Managers The Shipowners Protection Ltd Offshore Dry Tankers Yachts Tonnage by Area Europe 13% 8% 11% 4% 2% 21% 19% Gross Tonnage Owned 24,626,043 Chartered N/A Free reserves ,378, ,273,000 Americas S.E Asia & Far East Australia/NZ & Pacific Africa/Rest of World 50% 14% ,555, ,633, ,760,000 Standard & Poor s Rating Middle East & India A Year 2016* Calls/Premium 209, , , , ,689 Reinsurance Cost 27, ,243 30,664 21,795 19,927 Net Claims (incurred) 136, , , , ,172 Operating Expenses 42,704 54,168 52,255 44,321 43,030 Net Underwriting Result 3,247 11,438 2,334 8,938 28,560 Gross Outstanding Claims 474, , , , ,177 Total Assets 846, , , , ,184 Average Expense Ratio 21% 20% 18% 20% 20% Solvency Margin Reserves/GT Ratio $11.34 $12.74 $12.65 $12.57 $11.85 All figures $ 000 *The Club has changed its financial year to 31 st December so the 2016 figures above cover the shortened period of 20th February 2015 to 31 st December Chairman Philip Orme is pleased to report a sixth consecutive year of underwriting surplus, with a combined ratio of 98.2%. However, an investment loss of $24 million saw free reserves drop by $21 million to $279 million. CEO Simon Swallow clearly has no plans for the Club to diversify into new products. For him, diversification is restricted to the wideranging membership and the vessel types the Club insures, plus strategic partnerships such as the Club s new alliance with Swedish insurer Svensk, an attempt to break the monopoly of local P&I Insurers in Scandinavia. Over the shorter accounting period, tonnage grew by one million GT. The Club continues to perform well in the face of severe competition from both the fixed P&I market and from other Clubs now seeking to grow their small ship fixed offerings. While the Club s diversity of entered tonnage does limit the effect of depressed market conditions in many sectors, the serious downturn in the offshore sector (which accounts for 30% of the Club s income) is likely, Swallow admits, to limit overall growth in The Club is experiencing stability in terms of overall claims frequency as well as in quantum for claims below $1million. However, there is volatility in claims over $1m, with 13 such claims in the period to 31st December 2015 compared to seven for the previous eqiuvalent period. During 2015, the Club launched its wholly owned subsidiary, CTRL Marine Solutions Ltd, which provides advice on legal and technical issues not falling within the ambit of P&I cover. Assistance is provided to members on a non-profit basis, and is also available to non-members at a higher cost but, the Club states, on terms still more favourable to those of mainstream legal or consultancy firms. If other Clubs are still looking to merge, Shipowners will certainly be high on their hit list. 28

29 Assuranceforeningen Skuld Tonnage by Vessel Type Tankers 7% 7% Bulkers Container General Cargo 12% 39% Managers Self-Managed Other 35% Gross Tonnage Owned 82,200,000 Chartered Not advised Tonnage by Area Europe Far East Nordic Americas Other 23% 7% 5% 40% 25% Free reserves ,230, (restated) 335,195, ,548, ,425, ,429,000 Standard & Poor s Rating A Year 2016* 2015* 2014* 2013* 2012 Calls/Premium 409, , , , ,971 Reinsurance Cost 56,663 63,622 56,557 40,244 38,482 Net Claims (incurred) 243, , , , ,722 Operating Expenses 87,971 87,781 73,321 64,556 56,109 Net Underwriting Result 22, , ,658 Gross Outstanding Claims 583, , , , ,434 Total Assets 918, , , , ,709 Average Expense Ratio 12.80% 12.90% 12.30% 12.30% 12.40% Solvency Margin Reserves/GT Ratio $4.24 $4.19 $4.18 $4.08 $4.17 Note: For years marked * all figures are Group figures including all business lines, not just P&I. All figures $ 000 We like this year s Annual Report from Skuld; it is refreshingly free of sound bytes and sticks to reporting on what has been a good year for the Club. A solid technical surplus of $22 million, less a $9m investment loss ( a return of -1.6%) saw an overall surplus for the year of $13 million. This was aided by a positive result for the 2013 year from the Club s Lloyd s syndicate, and has enabled the Club to return 2.5% ($5 million) to mutual members for the 2015 policy year. Our figures show the financial position net of this return. The net combined ratio of 95% was the 13th consecutive year with a positive result, and the best performance since CEO Stale Hansen comments we have had a strong commercial result this year, which is a testament to the success of our diversification strategy and a tremendous job done in securing new high-quality business Hansen also confirms that Skuld will always be willing to consider partnerships in our industry if it benefits our members and clients. The Club is currently in the process of purchasing SMA/ Gerling, Norway, a respected hull insurer with annual premium of around $40 million. Chairman Klaus Kjaerulff rightly states Today we stand as a leading insurance provider to the marine industry with strong mutual and commercial platforms. We are more than ready to see what the future brings and to participate in the development of global marine insurance. The success of the Norwegian Clubs in growing profitably by means of diversification contrasts starkly with the failed efforts of London based Clubs to stick rigidly to P&I and grow by merger. 29

30 The Standard Club Ltd Tonnage by Vessel Type Tankers 13% 2% Cargo/Container 1% 31% Bulkers Managers Passenger & Ferries 25% Charles Taylor & Co (Bermuda) Offshore Other 28% Gross Tonnage Owned 116,000,000 Chartered 22,000,000 Tonnage by Area Europe Asia USA Rest of World Canada UK 6% 13% 7% 26% 3% 45% Free reserves ,100, ,300, ,500, ,600, ,600,000 Standard & Poor s Rating A Year Calls/Premium 354, , , , ,200 Reinsurance Cost 90,100 92,000 82,900 62,900 65,500 Net Claims (incurred) 206, , , , ,900 Operating Expenses 39,600 28,600 26,500 26,100 23,900 Net Underwriting Result 17,700 (400) (4,200) (39,600) (44,100) Gross Outstanding Claims 976,000 1,000, ,900 1,005, ,700 Total Assets 1,426,400 1,449,600 1,395,800 1,429,900 1,261,600 Average Expense Ratio 12.20% 11.40% 10.90% 13.20% 13.40% Solvency Margin Reserves/GT Ratio $3.36 $3.40 $3.41 $3.33 $3.57 All figures $ 000 Chairman Rod Jones reports a solid result for 2015, with a surplus of $10 million net of a loss from its Lloyd s Syndicate of $4.5 million. The combined ratio improved to 95% from the prior year s 100%, but there was a small loss of just under 1% ($8 million) on investments. Operating expenses rose sharply by $10 million, reflecting the Syndicate s first year costs of nearly $7 million. Total owned and chartered tonnage rose by 3 million GT to 138 million. The claims environment continues relatively benign, but two of the 14 Pool claims in 2015 were from the Club, which notes in particular the increased cost of wreck removal liabilities and associated fines. The Club highlights concerns over bridge team management and navigational competence in crowded shipping lanes, feeling that unfamiliarity with new navigational aids such as ECDIS must be addressed by owners as a priority to prevent this becoming a more frequent cause of collisions, groundings and wreck removal. the source and diversity of its income streams by extending the range of insurance covers offered to members. The major initiative in 2015 was to establish The Standard Syndicate at Lloyd s, offering hull, energy and related covers. It is no surprise that the Syndicate has suffered a loss in its first year and while this can to some extent be attributed to high start up costs, premium volume was below target and the Syndicate is gaining a reputation for ultra-competitive pricing. The Club provides 40% of the syndicate s capital requirement, with the balance coming from industry investors and Lloyd s names. The Chairman does go on to affirm the Club s commitment to the International Group We engage positively with the IG s committees and working groups to support, improve and further develop the system. Jones feels that one of the most effective ways for the Club to provide a high level of financial security to members is to increase 30