THE SWEDISH CLUB. Sveriges Ångfartygs Assurans Förening

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1 THE SWEDISH CLUB Gothenburg, Sweden Operating Company Non-Life THE SWEDISH CLUB Sveriges Ångfartygs Assurans Förening Gullbergs Strandgata 6, Gothenburg, Sweden P.O. Box 171, Gothenburg, Sweden Web: Tel.: Fax: AMB#: AIIN#: AA BEST S CREDIT RATING Best s Financial Strength Rating: A- Outlook: Stable Best s Financial Size Category: VIII RATING RATIONALE Rating Rationale: The rating of Sveriges Ångfartygs Assurans Förening (The Swedish Club or the Club) reflects the Club s excellent risk-adjusted capitalisation, solid operating performance and strong business profile. As a mutual association, the Club accepts some volatility in underwriting performance but, with five years of profitable operations out of the last six, free reserves have increased from USD million at year-end 2008 to USD million at year-end Whilst recognising that large claims or substantial investment losses could have a significant impact on future operating performance, A.M. Best expects risk-adjusted capitalisation to remain supportive of the rating. The Club reported a good profit for 2013 of USD 17.0 million before tax and transfer to safety reserve (2012: USD 9.1 million), reflecting a strong technical result and solid investment earnings. In 2014, a good pre-tax profit is again expected. A- The Club has a strong underwriting record with a five-year ( ) average combined ratio of 99.2%, in spite of the combined ratio being around 110% for 2011 and Investment earnings also have been subject to some volatility, due in part to the high proportion of equity investments. The Club s investment strategy has a target asset allocation of 20% equities. The Club has a strong business profile as a leading and diversified mutual marine insurance company and a member of the International Group of protection and indemnity (P&I) clubs. Having been established initially to write hull and machinery insurance for owners of steamships, the Swedish Club continues to insure over 2,400 ships on that basis with an aggregate gross tonnage of 90 million tons. On the P&I side, the Club provides liability insurance in relation to over 1,000 ships with an aggregate gross tonnage of 40 million tons. Both these lines of business are highly diversified in terms of type of vessel and geographic area of ownership. Following the assignment of the current rating, a positive rating action is considered unlikely in the next two years. However, unexpectedly poor operating results or a material decrease in the Club s free reserves could put negative pressure on the rating. FIVE YEAR RATING HISTORY Best s Date FSR 12/17/14 A- BUSINESS PROFILE The Swedish Club was established as a mutual insurance association in Gothenburg in 1872 writing hull and machinery (H&M) insurance for owners of steamships, which were not insurable through traditional insurers at that time. In 1910 the Club began writing protection and indemnity (P&I) insurance on behalf of its membership. It is one of the 13 members of the International Group of P&I clubs A.M. Best Company, Oldwick, NJ Printed January 29, Page 1 of 5

2 The membership of the Club was wholly Swedish until 1971, when the UK-registered Flowergate was entered for H&M insurance. Further steps taken to make the Club a global operation included opening branches in Piraeus (1980), Hong Kong (1982), Tokyo (1991) and Oslo (2010). Of these branches, Piraeus, serving markets in Greece, Italy and the Middle East, and Hong Kong, serving Asian markets, are full service offices while Tokyo is a representative office and Oslo focuses on energy risks, including property insurance for mobile offshore units and floating production, storage and off-loading vessels (FPSOs). The Club s core lines of business of H&M and P&I are highly diversified in terms of type of vessel and geographic area of ownership. Additional business diversification has come from writing freight, demurrage and defence (FD&D) risks from 1984, energy risks since 2011, currently in respect of around 165 mobile offshore units and nearly 250 mostly Norwegian offshore supply vessels, and taking a follow line on builders risks. Other insurance cover offered includes war risks, loss of hire and increased value (hull interest/freight interest). Nearly all non-p&i business is written through insurance brokers around the globe but a large proportion of P&I members are entered on a direct basis. By virtue of the different insurance products offered, the Club s major competitors are not only other members of the International Group, particularly Gard and Skuld, but also marine underwriters such as the Norwegian Hull Club. One aspect of the Club s business that provides it with a competitive advantage is its loss prevention and skills development training available through the Swedish Club Academy, a joint venture training company. Its Maritime Resource Management course is provided free to all members for two years and other modules, such as the Mariner Attitude Survey and main engine damage study, are available for a fee was another profitable year for the Swedish Club Academy. RISK MANAGEMENT The Swedish Club s risk management framework has been in place across all the Club s operations for several years but continues to be developed as part of the Club s preparations for Solvency II. Continued enhancement has ensured that the risk management framework is appropriate for the Club s risk exposure. Recent developments have included the decision during 2012 to bring many actuarial functions in-house by employing an experienced actuary. In late 2012, the Board approved a new corporate governance manual to define the roles and responsibilities of the various corporate bodies within the Club. The manual includes Board Directives, in effect sets of instructions from the Board to the Club s management. One of these is the Risk Tolerance and Solvency Directive, which sets out a range of controls relating to capital strength, in particular the limits of risk tolerance in relation to available capital at any time. New initiatives in 2013 included the formation of two internal committees, the reserve committee and the risk committee, which meet regularly during the year. The reserve committee provides the Club s actuary with information on such matters as claims run-off, large and complex cases and emerging risks. The work of the risk committee centres on the ownership of risk within each operational unit and across all offices of the Club. Thus the Club has the standard three lines of defence in relation to risk. The second and third lines are the risk management function, led by the risk manager, and the auditing function, but the primary, first line of defence is the operational recognition of risk ownership. A capital model has been in use since 2009/2010 as a risk management tool and to assist with completion of the Club s ORSA. The model was used for restructuring the Club s reinsurance programme in 2010 and in other major decisions since then. It is not expected to be used for Solvency II purposes, mainly on account of the costs involved in the approval process, both for initial approval and for any changes to the model thereafter, although the documentation will be prepared to allow model approval if needed. For regulatory reporting under Solvency II the Club will use the standard formula. OPERATING PERFORMANCE Operating Results: The Swedish Club has a strong underwriting record with a 5 year ( ) average combined ratio of 99.2%, in spite of the combined ratio being around 110% for 2011 and These weaker performances resulted from a series of major losses in the two years, the containership Rena, which grounded off New Zealand in October 2011, the bulk carrier Flash, which grounded off Tunisia in June 2012, and the containership MSC Flaminia, which suffered a fire in mid-atlantic. All three were entered in the Club for both hull and P&I cover. In recent years investment earnings have shown some volatility, due in part to the high proportion of equity investments. The Club s investment strategy has a target asset allocation of 20% equities. A profit for 2013 of USD 17.0 million before tax and transfer to safety reserve (2012: USD 9.1 million) was reported. A good profit is also expected in 2014, with a reduced but still positive technical income and an improved level of investment income. As a result of recent operating performance, free reserves have increased from USD million at year-end 2008 to USD million at year-end Underwriting Results: As a mutual association of shipowners, the Club accepts some volatility in underwriting performance, aiming for a combined ratio below 100% over two or three years depending on line of business. After two years of underwriting losses driven by the major shipping losses mentioned above, in 2013 the Club achieved a solid underwriting surplus of USD 8.1 million with a combined ratio of 93%. This surplus gave the Club four years of profitable underwriting out of the last six. A good underwriting surplus is anticipated for 2014, with a combined ratio between 95% and 100% forecast. Investment Results: The Club s exposure to equities is relatively high, amounting to 23.4% of total investments and cash at year-end 2013, up from 11.8% at year-end 2012, following a reduction in risk for the last three months of The investment portfolio is subject to a strategic target asset allocation of 80% bonds and 20% equities. This exposure can lead to volatile investment performance, as demonstrated by the realised and unrealised losses amounting to USD 23.1 million in 2008, at the height of the global financial crisis, contrasted with the net gains of USD 12.9 million at year-end 2010, USD 21.7 million at year-end 2012 and USD 8.9 million at year-end The overall net investment return for 2013 was 2.7% (2012: 6.5%) and a similar return is expected for 2014, reflecting the continuing low interest rate environment. BALANCE SHEET STRENGTH Capitalization: The Swedish Club is expected to maintain excellent risk-adjusted capitalisation throughout As a mutual association, the Club accepts some volatility in underwriting performance, but with five years of profitable operations out of the last six, free reserves have increased from USD million at year-end 2008 to USD million at year-end Whilst recognising that large claims and substantial investment losses could have a significant impact on future operating performance, A.M. Best expects risk-adjusted capitalisation to remain supportive of the rating. Loss Reserves: The Club s outstanding claims reserves are initially set on a case by case basis by the claims department. The IBNR reserves are calculated for each main line of business using chain ladder and other actuarial techniques. Reserves are set with a modest margin above the internal actuary s net IBNR estimate. In each of the last five years net reserve releases have been reported, although the case by case review has resulted in reserve strengthening for a number of losses. Liquidity: A.M. Best expects the Club to maintain good liquidity into Although the Club s exposure to equities is relatively high, amounting to 23% of total investments and cash at year-end 2013, all investments are readily realisable. Government bonds and A rated corporate bonds represent the majority of the fixed income portfolio and there is no material exposure to peripheral European sovereign bonds or banks. Average duration is approximately 3 years A.M. Best Company, Oldwick, NJ Printed January 29, Page 2 of 5

3 Summarized Accounts as of December 31, 2013 Data reflected within all tables of this report has been compiled from the financial statements of this company (Source: Company Financial Statement). An independent audit of the company s affairs through December 31, 2013, was conducted by KPMG AB. STATEMENT OF INCOME 12/31/2012 USD(000) USD(000) Net claims paid 137, ,542 Net increase/(decrease) in claims provision -46,781 4,270 Net claims incurred 90, ,812 Management expenses 8,469 5,822 Acquisition expenses 18,806 20,443 Net operating expenses 27,275 26,265 Total underwriting expenses 117, ,077 Balance on combined technical account 8,084-13,371 Non-technical account: Net investment income 2,283 4,531 Realised capital gains/(losses) 4,172 4,925 Unrealised capital gains/(losses) 2,442 12,214 Exchange gains/(losses) 775 Profit/(loss) before tax 16,981 9,074 Taxation 537 2,657 Profit/(loss) after tax 16,444 6,417 Transfer to reserves 14, Retained profit/(loss) for the financial year 2,317 6,687 Retained profit/(loss) carried forward 2,317 6,687 MOVEMENT IN CAPITAL & SURPLUS USD(000) 12/31/2012 USD(000) Capital & surplus brought forward -4,340-10,930 Change in non-distributable reserves 4 Currency exchange gains Profit or loss for the year 2,317 6,687 Total change in capital & surplus 2,315 6,590 Capital & surplus carried forward -2,025-4,340 Technical account: Direct premiums 174, ,580 ASSETS Gross premiums written 174, ,580 12/31/2012 Reinsurance ceded 47,291 39,843 USD(000) % of total USD(000) Net premiums written 127, ,737 Cash & deposits with credit institutions 28, ,506 Increase/(decrease) in gross unearned premiums 2, Bonds & other fixed interest securities 211, ,159 Reinsurers share unearned premiums Shares & other variable interest instruments 73, ,792 Net premiums earned 125, ,706 Liquid assets 313, ,457 Total underwriting income 125, ,706 Inter-company investments Net claims paid 137, ,542 Net increase/(decrease) in claims provision -46,781 4,270 Total investments 313, ,468 Net claims incurred 90, ,812 Reins. sh. of tech. reserves - unearned premiums 3, ,694 Management expenses 8,469 5,822 Reinsurers share of technical reserves - claims 181, ,521 Acquisition expenses 18,806 20,443 Total reinsurers share of technical reserves 185, ,215 Net operating expenses 27,275 26,265 Total underwriting expenses 117, ,077 Insurance/reinsurance debtors 37, ,494 Other debtors 1, Balance on technical account 8,084-13,371 Total debtors 38, ,947 Combined technical account: Direct premiums 174, ,580 Fixed assets ,009 Gross premiums written 174, ,580 Prepayments & accrued income 7, ,841 Reinsurance ceded 47,291 39,843 Other assets 1, ,349 Net premiums written 127, ,737 Total assets 547, ,829 Increase/(decrease) in gross unearned premiums 2, Increase/(decrease) in reinsurers share unearned premiums LIABILITIES Net premiums earned 125, ,706 12/31/2012 Total revenue 125, ,706 USD(000) % of total USD(000) Non-distributable reserves 165, ,079 Claims equalisation reserve 1, ,653 Other reserves Retained earnings -4, ,364 Current year net income 2, ,687 Capital & surplus 164, ,316 Gross provision for unearned premiums 33, ,586 Gross provision for outstanding claims 318, ,349 Total gross technical reserves 351, ,935 Insurance/reinsurance creditors 15, ,013 Other creditors 6, ,964 Total creditors 22, ,977 Accruals & deferred income 2, ,765 Other liabilities 5, ,836 Total liabilities & surplus 547, ,829 MANAGEMENT Officers: Directors, Anders Leissner (Corporate Legal & FD&D), Lars A. Malm (Strategic Business Development & Client Relationship), Tord Nilsson (Underwriting & Risk Control), Jan Rydenfelt (Finance, Reinsurance & IT), Jacob Vierö (Marketing & Business Development/Acting Area Manager), Helena Wallerius Dahlsten (Human Resources); Managing Director, Lars Rhodin A.M. Best Company, Oldwick, NJ Printed January 29, Page 3 of 5

4 Directors: Michael Bodouroglou, Anders Boman, Fred Cheng, Peter Claesson, John Coustas (Deputy Chairman), Demetri Dragazis, Gustaf Grönberg, Rob Grool, Khalid Hashim, Lars Höglund, Anders Källsson, Andonis Lemos, Diamantis Manos, Jakob Osvald (Employee Representative), Lars Rhodin (Managing Director), Elisabeth Rydén (Employee Representative), Lennart Simonsson (Chairman), Kim Kyung Soo, Idil Baran Sualp, Sumate Tanthuwanit, Michael Vinnen, Chen Xiang, Weng Yi, Li Zhen. ANALYSIS OF GROSS PREMIUMS WRITTEN Marine, aviation & trans 174, , , , ,582 Total non-life 174, , , , ,582 REINSURANCE The Swedish Club s reinsurance combines the Club s own protection with cover provided by the International Group s pooling agreement and reinsurance programme. The International Group pools all members P&I claims on owned vessels in excess of a net retention of USD 9 million for the policy year to February All pooled claims on owned tonnage in excess of USD 80 million are protected by the International Group s reinsurance programme, which provides cover up to USD 3.08 billion, including USD 1 billion of overspill protection. Claims are pooled in four layers extending to USD 71 million in excess of USD 9 million, with the upper pool layers of USD 50 million reinsured by Hydra, an International Group captive reinsurer. Hydra also co-reinsures 30% of the first general excess layer of USD 500 million over USD 80 million. There is a similarly structured, but separate, oil pollution programme providing cover up to USD 1.08 billion. Below the pool retention, and above the Club s retention of USD 2 million, the Club has had in place since 2010 a whole account excess of loss box cover in relation to all P&I, marine and energy and charterers liability claims, subject to a minimum annual aggregate deductible and an annual aggregate limit. This cover also protects the Club s share of pool claims. Above this excess of loss cover, there is a further excess of loss layer for marine and energy risks plus a substantial facultative cover facility. The excess of loss layers are 75% placed, the remaining 25% being placed with General Reinsurance on the same basis as before 2010 (separate towers of cover), in acknowledgement of the Club s long-standing relationship with the reinsurer. The Club s non-pooled business (marine, energy, charterers liability and other P&I fixed covers and war risks) is covered by separate excess of loss layers above the box cover. The reinsurance panel used for the Club s programme consists of reinsurers with a rating of A or above. The Club s share of pool claims is determined by its premiums, tonnage insured and claims record. After a series of recent pool claims (three in 2011 including the Rena and in 2012 the Flash and MSC Flaminia), the Club currently has a provisional pool contribution rate of nearly 8%. GEOGRAPHICAL DISTRIBUTION OF PREMIUMS WRITTEN USD USD (000) (000) Gross % of total 12/31/2012 Gross European Community 84, ,764 Sweden 9, ,392 Total Europe 93, ,156 Other World-Wide 81, ,424 Total 174, ,580 BALANCE SHEET ITEMS Liquid assets 313, , , , ,979 Total investments 313, , , , ,990 Total assets 547, , , , ,959 Total gross technical reserves 351, , , , ,184 Net technical reserves 166, , , , ,244 Total liabilities 382, , , , ,595 Capital & surplus 164, , , , ,364 INCOME STATEMENT ITEMS Gross premiums written 174, , , , ,582 Net premiums written 127, , , , ,791 Balance on technical account(s) 8,084-13,371-12,893 16,023 5,745 Profit/(loss) before tax 16,981 9,074-9,313 29,550 14,849 Profit/(loss) after tax 16,444 6,417-8,405 28,939 15,505 LIQUIDITY RATIOS (%) Total debtors to total assets Liquid assets to net technical reserves Liquid assets to total liabilities Total investments to total liabilities LEVERAGE RATIOS (%) Net premiums written to capital & surplus Net technical reserves to capital & surplus Gross premiums written to capital & surplus Gross technical reserves to capital & surplus Total debtors to capital & surplus Total liabilities to capital & surplus PROFITABILITY RATIOS (%) Loss ratio Operating expense ratio Combined ratio Net investment income ratio Operating ratio Return on net premiums written Return on total assets Return on capital & surplus A.M. Best Company, Oldwick, NJ Printed January 29, Page 4 of 5

5 Why is this Best s Rating Report important to you? A Best s Rating Report from the A.M. Best Company showcases the opinion from the leading provider of insurer ratings of a company s financial strength and ability to meet its obligations to policyholders, as well as its relative credit risk. The A.M. Best Company is the oldest, most experienced rating agency in the world and has been reporting on the financial condition of the insurance companies since A Best s Financial Strength Rating is an independent opinion of an insurer s financial strength and ability to meet its ongoing insurance policy and contract obligations. The Financial Strength Rating opinion addresses the relative ability of an insurer to meet its ongoing insurance policy and contract obligations. The rating is not assigned to specific insurance policies or contracts and does not address any other risk, including, but not limited to, an insurer s claims-payment policies or procedures; the ability of the insurer to dispute or deny claims payment on grounds of misrepresentation or fraud; or any specific liability contractually borne by the policy or contract holder. The rating is not a recommendation to purchase, hold or terminate any insurance policy, contract or any other financial obligation issued by an insurer, nor does it address the suitability of any particular policy or contract for a specific purpose or purchaser. In arriving at a rating decision, A.M. Best relies on third-party audited financial data and/or other information provided to it. While this information is believed to be reliable, A.M. Best does not independently verify the accuracy or reliability of the information. The company information appearing in this pamphlet is an extract from the complete company report prepared by the A.M. Best Company or A.M. Best Europe Rating Services Limited. For the latest Best s Financial Strength Ratings along with their definitions and A.M. Best s Terms of Use, visit the A.M. Best website at You may also obtain AMB Credit Reports by visiting our site or calling our Customer Service department at , ext To expedite your request, please provide the company s identification number (AMB#) A.M. Best Company, Oldwick, NJ Printed January 29, Page 5 of 5