Aon Risk Solutions. Marine Insight. Review 2013 Protection & Indemnity

Transcription

1 Aon Risk Solutions Marine Insight Review 2013 Protection & Indemnity

2 Contents.

3 Introduction Introduction 1 Mutual Clubs 7 P&I Comparative Data 35 P&I Club Market Reference 43 Specialist Markets 51 Mutual Clubs Specialist Markets P&I Comparative Data P&I Club Market Reference

4 Introduction. by Simon Schorr, Executive Director, Head of P&I The 20 February 2013 P&I renewal was conducted against a backdrop of one of the most prolonged downturns in global shipping markets in recent memory. At the same time most of the 13 International Group (IG) P&I Clubs faced, to a greater or lesser extent, a challenging operational environment brought about by a combination of technical underwriting deficits and low levels of investment returns. The result was, as suggested in Aon s 2012 Review, a greater variance in the levels of General Increases the 13 IG Clubs sought at the 2013 P&I renewal, with percentages ranging from mid single figures to the mid teens.

5 At the 2013 P&I renewal a number of IG Clubs either compromised on the level of General Increase they posted or offered assistance / concessions to their members by means of one off premium rebates. Introduction One year later Over the last twelve months we have seen some green shoots of recovery in the global economy coupled with a rally in certain key investment markets. Nevertheless, IG P&I Clubs continue to be subject to the ever more stringent capital requirements imposed on them by financial regulators as well as ever increasing scrutiny from rating agencies. As a consequence, Club boards and managers these days have become far more risk adverse when it comes to investing members funds and there will always be limits to the positive impact any upturn in the investment environment will have on the level of returns Clubs can generate for their members. Therefore, although an improvement compared to the prior policy year, the investment returns achieved across the 13 IG P&I Clubs for 2012/13 still only ranged between 2.5% to 7.8%. At the same time throughout the 2012/13 policy year, Clubs continued to experience further inflationary pressure on claims costs. In particular, larger claims within the Clubs retention levels have been increasing both in frequency as well as severity. If one then also considers the fact that the 2012/13 policy year produced the worst run of pool claims on record, it is not difficult to draw the conclusion that the overall claims environment the Clubs face has become more challenging. Finally, leading into the 2013 P&I renewal, many of the IG P&I Clubs openly acknowledged the ongoing tough trading conditions faced by the majority of their membership. With record levels of free reserves being held across the IG, a number of Clubs were prepared to strike a balance between the financial needs of the Club on the one hand and the harsh economic and commercial realities much of their membership were facing on the other. As a result, at the 2013 P&I renewal a number of IG Clubs either compromised on the level of General Increase they posted or offered assistance / concessions to their members by means of one off premium rebates or a combination of both. Outlook for 2014 P&I Renewal The individual Club financials in this 2013 Review highlight, technical underwriting continues to be one of the key challenges for the 13 IG Clubs, with all but two, again posting technical underwriting losses for the 2012/13 policy year. Add to this factors such as moderate investment returns, albeit improved, and a more adverse claims environment, the consequence has been a deterioration in the combined ratios of a considerable number of the IG Clubs for the 2012/13 policy year. 1

6 For a number of Clubs, improving their combined ratios leading up to the 2014 P&I renewal is likely to be made more challenging by the impact concessions granted at the 2013 renewal. The overall net effect is that most Clubs across the IG only achieved a very marginal increase in their free reserves, with a handful of Clubs even having to record a drop in their levels of reserves for the 2012/13 policy year. For a number of Clubs, improving their combined ratios leading up to the 2014 P&I renewal is likely to be made more challenging by the impact concessions granted at the 2013 renewal. At the same time, many analysts in the maritime sector continue to be cautious to predict any kind of meaningful recovery of shipping markets during 2013 and even Owners and operators will therefore most likely continue to face economic headwinds for the next couple of years. However, with Clubs combined ratios ranging between 95.5% to 123% for the 2012/13 policy year, their boards, especially those of Clubs that feature at the higher end of this range, will find it rather more difficult this time round to take into account their members ongoing commercial woes when formulating their Club s requirements for the 2014 P&I renewal and offer any kind of concessions. We can expect General Increases posted at the 2014 P&I renewal to range between 5% to 15%. Therefore, at the 2014 P&I renewal we will most likely again see a greater variance across the International Group when it comes to the Clubs setting their 2014 General Increases. The need for Clubs to demonstrate ongoing financial stability in the face of pressure from rating agencies as well as meeting their regulatory / solvency requirements will mean we can again expect General Increases posted at the 2014 P&I renewal to range between 5% to 15%. The 2014 International Group Reinsurance Renewal There is an acute sense of déjà vu when commenting on the potential challenges of the International Group Reinsurance renewal this year. We are still talking about Costa concordia, we are still talking about Rena and we are still talking about deterioration of estimates. At the time of the 2013 renewal, the First General Excess layer had been fully exhausted and the Second General Excess layer partially penetrated by the two claims referred to above. Since then, the further deterioration of these claims means that at this point in time the Second General Excess layer has also been fully exhausted and the Third General Excess layer partially penetrated. Whilst at this point it is still difficult to give any accurate guidance on what reinsurer s demands will be, one can assume premium increases 2

7 A difficult and expensive wreck removal could fall upon any vessel type and therefore is a very mutual exposure rather than one that is unique to the passenger sector. Introduction are not far from their mind. However, following the sizable increase applied in 2013 across all three layers, we would hope mitigating any increase will be at the forefront of the of IG s mind when negotiating with their reinsurance underwriters. The Costa concordia s estimate increasing to approximately USD 1.2 billion may potentially lead to pressure from within the IG to apply a further significant increase to passenger ship Group RI rates at the 2014 renewal. We would encourage the IG reinsurance sub-committee during their deliberations to keep in mind that the passenger ship category had to absorb a monumental and universally unexpected 125% increase in The adjustment in the estimate is due to a complicated wreck removal process, made more difficult and costly due to the challenging jurisdiction in which it is being conducted. The IG should not lose sight of the fact that a difficult and expensive wreck removal could fall upon any vessel type and therefore is a very mutual exposure rather than one that is unique to the passenger sector. The debate within the IG over whether container ships should be separated out from the dry cargo ship category for rating purposes has also gathered some momentum again, with the discussion having partially been fuelled by the Rena claims estimate having also further deteriorated during the course of the year. A number of senior and influential individuals within the IG now firmly believe a large modern container ship presents a very different risk profile and exposure compared to a bulk carrier or general cargo ship. In particular the concern is around potentially how expensive a Removal of Wreck claim could be for one of the giant modern containerships that are now in operation. Others within the IG are still opposed to the idea of splitting the dry cargo ship category and to date no consensus has yet been reached on the subject matter. In general, should the reinsurance market s expectations regarding the renewal of the IG reinsurance contract be too aggressive, this may push the IG to look at retaining significantly more risk themselves. Whilst the larger and financially stronger Clubs of the IG may well be able to, and even welcome, such a move, it may prove more of a challenge for some of the smaller IG Clubs. To satisfy the solvency requirements associated with retaining more risk, smaller IG Clubs are likely to either have to purchase additional reinsurance or turn to other ways of securing additional capital. Either of the aforementioned will increase smaller Clubs retained costs and any increase of these may eventually put them at a competitive disadvantage compared to their compatriots in the IG. 3

8 Some smaller Clubs may need to seek greater economies of scale and as such the topic of consolidation between Clubs within the IG may well feature more prominently in the not too distant future. Release calls / EC Investigations In 2012 the European Commission announced that it would be closing its investigation of the International Group which began in One of the areas of focus of the Commission s investigation was a review of the Group Club s release calls, which included the procedure for accepting bank guarantees, as well as an assessment of whether the release call percentages, which are set by each Club individually, are fair. The release call percentages should reflect the risk of a Club making an unbudgeted supplementary call, the Club s assessment of that risk and the amount of call needed to restore a Club s reserves to an acceptable level. The Commission noted during its investigations that there was a concern that the calculation of release calls did not accurately reflect the run off of future claims. A number of assessment factors are now explicitly referred to in the International Group Agreement although the Clubs advised the Commission that consideration of such factors is not new. These factors include premium risk, catastrophe risk, reserve risk, counterparty default risk, market risk and operational risk. It should be noted however that a Club s assessment of the release call percentages will still be derived from an internal model and set by each Club individually. Following on from this investigation a number of Clubs have re-evaluated their assessment of the open year percentages and some have adjusted the percentage amounts to put greater emphasis on the most recent year(s) reflective of a greater degree of uncertainty. Maritime Labour Convention At 20 August 2013 the Maritime Labour Convention (MLC) 2006 took effect seemingly without any objection from member states in accepting International Group Club Certificates of Entry as evidence of financial security. As has been well publicised by the P&I market and trade press, the convention requires that evidence financial security is in place for the repatriation of seafarers (including the case of insolvency/abandonment) and compensation in the event of death or long term disability due to an occupational injury, illness or hazard as set out in national law, the seafarer s employment agreement or collective agreement. Whilst death and injury is covered under the Rules, all of the Group Clubs also agreed to extend the scope of cover to include repatriation in cases of insolvency and in other circumstances as listed under the MLC. The International Group were therefore actively engaged 4

9 Some smaller Clubs may need to seek greater economies of scale and as such the topic of consolidation between Clubs within the IG may well feature more prominently in the not too distant future. Introduction with each member state to ensure that a Group P&I certificate would be accepted as sufficient evidence that such cover is in place. Whilst the solution by way of an amendment to the Rules was effective for most of the world s fleet, it is worth noting that there was however a need for a few Clubs to arrange some form of counter security where the aggregation of such repatriation costs breached a Club s individual retention level (USD 9 million). This is something which is unique to the cruise ship sector where the repatriation costs could theoretically amount to tens or even hundreds of millions of dollars, an exposure which the relevant Clubs were not able to absorb. Accordingly in order to address this issue each Club with such an exposure submitted separate solutions which included reinsurance and the arranging of a credit default swap or similar financial instrument which the Club could call upon in the event of insolvency of a member. At the time of publication the efforts of the International Group had been successful in that no member state had indicated that a Club Certificate of Entry would not be acceptable. Indeed neither had any vessel s application been rejected on the basis of submitting such as evidence of financial security. 5

10 Mutual Clubs.

11 American Club 8 Britannia 10 Gard 12 Japan Club 14 Mutual Clubs London Club 16 North of England 18 Shipowners Club 20 Skuld 22 Standard Club 24 Steamship Mutual 26 Swedish Club 28 UK P&I Club 30 West of England 32 Commentary on individual Clubs has been supplied by the Clubs themselves. Balance sheet data includes combined P&I and FD&D figures if applicable. 7

12 American Club American Steamship Owners Mutual Protection and Indemnity Association, Inc. Shipowners Claims Bureau, Inc., 1 Battery Park Plaza, 31st Floor, New York, NY 10004, USA american-club.com t: Manager s comment In terms of entered tonnage and premium the 2012 policy year saw little by way of change. The percentage makeup of the entered tonnage, by domicile of management, shows 42% for both Europe and Asia, 13% for USA and 3% for the rest of the world. The 2012 policy year saw an increase in the number and value of pollution and collision claims than was recorded in earlier years and the pool claims recorded are significantly higher in number and value, when compared to the previous year at the same stage. General Cargo 13% Tugs 5% Bulk 52% Number of ships Tankers 30% Entered GT by vessel type Asia Pacific 42% Other 3% North America 13% Europe 42% Entered GT by region During 2012, the American Club continued its participation in the Eagle Ocean Marine facility, a fixed premium product for smaller ships in local and regional trade, supported by a quota share re-insurance programme at Lloyd s and elsewhere. The positive first year results are mirrored in 2012 and entered ships has grown. 2013: 1, : 1, : 1,280 Average GT 2013: 11, : 12, : 12,031 Owned GT 2013: 15,100, : 16,100, : 15,400,000 Fixed premium GT 2013: 500, : 1,000, : 1,000,000 8

13 A second successive year ending with a reduction in free reserve has been caused by a large underwriting loss for the 2012/13 year. This will likely mean a difficult renewal as the Club attempts to address the deficit. Aon comment Financial year balance sheet data (year ending December) USD 000s Mutual Clubs Income Calls and premiums 112, ,955 Excess calls 0 0 Reinsurance premiums -18,585-16,283 Total income 93,541 95,672 Expenditure Net claims incurred -83,265-72,986 Net operating expenses -31,995-33,045 Total expenditure -115, ,031 Underwriting result pre investment/other financial income and tax -21,719-10,359 Investment/other financial income 16,089 7,361 Tax/interest charged Overall result -5,990-3,393 Free reserves 54,229 60,219 Equities 32% Fixed Assets 68% Breakdown of investment by type S&P Rating Aug 2013 Aug 2012 Rating BBB- BB+ Outlook Stable Stable Policy year General Increase % Supplementary call record % 25/60 40/70 20/56 0/0 0/20 0/35 0/30 0/25 20/20 25/25 25/25 0/0 0/0 9

14 Britannia The Britannia Steam Ship Insurance Association Limited 45 King William Street, London, EC4R 9AN, UK britanniapandi.com t +44 (0) Manager s comment The 2013/14 renewal was challenging for the whole industry, being conducted against the backdrop of continuing global economic uncertainty and persistently recessionary markets across most shipping sectors. This coincided with a continued increase in the cost of attritional claims as well as the severity of high profile casualties. Maintaining financial stability remains a key strategic objective of Britannia and the Club has been consistently proactive in achieving this objective. Therefore at renewal it was prudent to impose a significant General Increase. The overwhelming majority of members supported this financial strategy. Disappointingly, there were a small number of members where it was not possible to agree renewal terms. It is regrettable to see any member leave. Nevertheless, a fundamental principle of mutuality is that all members make a fair financial contribution, as the overall financial health for the Club is more important than membership growth. The Association s financial strength continues to provide a high degree of security to its membership. Container 28% Number of ships 2013: 2, : 2, : 2,820 Average GT 2013: 37, : 37, : 36,525 Owned GT Other 1% Bulker/General Cargo 38% 2013: 110,500, : 111,100, : 103,000,000 Fixed premium GT Tanker 33% Entered GT by vessel type Asia Pacific 56% OtherAmericas 2% 6% Europe 36% Entered GT by region 2013: 25,000, : 28,900, : 36,000,000 10

15 2012/13 was an unusually difficult year for Britannia underlined by one the highest combined ratios in the IG. A tough negotiating stance at last renewal will have helped to improve underwriting performance and a smaller General Increase is expected for the coming renewal. Aon comment Financial year balance sheet data (year ending February) USD 000s Income Calls and premiums 294, ,772 Excess calls 0 0 Reinsurance premiums -66,820-63,681 Total income 227, ,091 Expenditure Net claims incurred -200, ,634 Net operating expenses -29,317-29,389 Total expenditure -229, ,023 Underwriting result pre investment/other financial income and tax -2,674-20,932 Investment/other financial income 39,988 39,531 Equities 18% Cash 13% Corporate Bonds 18% Governement Bonds (Short) 23% Governement Bonds (Medium) 14% Inflation-linked Bonds 14% Breakdown of investment by type Mutual Clubs Tax/interest charged -1,174-2,830 Overall result 36,140 15,769 Free reserves excluding Boudicca 326, ,677 Free reserves including Boudicca 438, ,977 S&P Rating Aug 2013 Aug 2012 Rating A A Outlook N/A N/A Type of rating Pi Pi Policy year General Increase % * * ** Supplementary call record % 25/25 40/40 40/40 40/30 40/30 30/30 30/30 40/40 40/ /40 40/40 40/40 45/45 * includes the effect of an increase in budgeted supplementary call ** includes the effect of an increase in budgeted supplementary call however increase applied to members accounts was 10.5% due to 7.5% rebate on advance call 11

16 Gard Assuranceforeningen Gard Gard AS, Kittelsbuktveien 31, NO-4836 Arendal, Servicebox 600, NO-4809 Arendal, Norway gard.no t Manager s comment Despite challenging market conditions, Gard reported strong results for the financial year ending 20 February 2013, with a surplus of USD 99 million and an almost Other 27% Tanker 31% Asia Pacific 23% Americas 10% break-even underwriting result across the group, with a combined ratio net of 101%. Passenger 2% Our overall gross written premium was USD 884 million, an increase of 3% compared to the previous year. For P&I, gross premium written for the year was USD 561 million, an increase of 8% compared to the previous year. The 2013 P&I renewal was a successful one for Gard and concluded the eighth consecutive P&I renewal with a positive tonnage development. Container 17% Bulker/General Cargo 23% Entered GT by vessel type Number of ships Europe 67% Entered GT by region Gross claims totalled USD 796 million and we had six claims above USD 10 million on a gross basis. Although the total number of large claims was as expected, there were considerably more claims in P&I and fewer in other areas than anticipated. 2013: 5, : 5, : 5,300 Average GT 2013: 26, : 25, : 24,528 Owned GT 2013: 158,700, : 146,800, : 130,000,000 Fixed premium GT 2013: 57,5 00, : 57,500, : 51,000,000 12

17 Another year with a large surplus despite a substantial underwriting loss on the P&I side for Gard. The Club should be commended for again giving money back to the Membership. Aon comment Financial year balance sheet data (year ending February) USD 000s Income Calls and premiums 560, ,199 Excess calls -30,708-14,387 Reinsurance premiums -124,994-90,641 Total income 404, ,171 Emerging market debt Real 5% Estate 5% Equities 15% Non US Bonds 19% Cash 3% US Bonds 53% Mutual Clubs Expenditure Net claims incurred -422, ,132 Net operating expenses -75,191-41,330 Total expenditure -497, ,462 Underwriting result pre investment/other financial income and tax -92,844-29,291 Investment/other financial income ** ** Tax/interest charged ** ** Overall result not available not available last yr Free reserves 894,792* 1 825,618* Breakdown of investment by type S&P Rating Aug 2013 Aug 2012 Rating A+ A Outlook Stable Positive Type of rating Interactive Interactive * includes reserves available to non P&I business ** no longer allocated across individual lines of business 1 after reduction in deferred call of USD 31 million Policy year General Increase % Supplementary call record % 25/25 25/25 25/25 25/25 25/20 25/20 25/25 25/25 25/10 25/15 25/20 25/15 25/ 13

18 Japan Club Japan Shipowners Mutual P&I Association Nihonbashi-Ningyocho, Chuoh-ku, Tokyo , Japan piclub.or.jp t Manager s comment In 2012, we promoted various loss prevention activities such as a ship-visiting campaign and seminars given by our experienced mariners. These initiatives have enabled us to reduce the costs of claims, and to achieve the reserve target which has largely surpassed the plan. The reserves climbed up to JPY 14,817 million in total, JPY 1,096 million up from last year. In July, 2013, the Association s rating was upgraded to BBB+ with a stable outlook by Standard & Poor s who revised the ratings in accordance with their amended insurance criteria. There was a 5% General Increase in premium for the 2013 policy year for ocean-going vessels, which was minimised to the lowest level among the IG Clubs for the second consecutive year. At renewal, the overall tonnage entered with the Association increased to million gross tons, which represents an increase of 2.09 million gross tons when compared to the last year. Passenger 1% Container 10% Other 17% Number of ships 2013: 2, : 2, : 2,558 Average GT 2013: 37, : 35, : 34,805 Owned GT Tanker 16% Bulker/General Cargo 57% Entered GT by vessel type Others 13% Asia Pacific 3% Europe 20% Americas 64% Entered GT by region 2013: 89,370, : 87,250, : 89,030,000 Fixed premium GT 2013: 2,580, : 2,610, : 2,890,000 14

19 Another difficult year for the Japan Club on the underwriting side as the Club announced a low General Increase to minimise financial pressure on the Membership. On the positive side the Club have an upgrade from S&P. Aon comment Financial year balance sheet data (year ending February) USD 000s Income Calls and premiums 223, ,865 Excess calls 0 0 Reinsurance premiums -44,545-46,228 Total income 179, ,637 Expenditure Net claims incurred -175, ,390 Net operating expenses -29,413-27,506 Total expenditure -205, ,896 Underwriting result pre investment/other financial income and tax -26,296 5,741 Investment/other financial income 35,582 4,151 Tax/interest charged -1,088-6,027 Overall result 8,198 3,865 Free reserves 157, ,949 Foreign securities 38% Stocks 1% Other securities 6% Cash and deposits at banks 21% Corporate bonds 19% Money trusts 6% Breakdown of investment by type Japanese government bonds 2% Japanese local government bonds 7% S&P Rating Aug 2013 Aug 2012 Rating BBB+ BBB Outlook Stable Stable Type of rating Interactive Interactive Mutual Clubs Policy year General Increase % Supplementary call record % 20/10 20/20 30/10 30/30 30/30 30/60 30/30 30/30 40/40 40/50 40/40 40/40 40/ 15

20 London Club The London Steamship Owners Mutual Insurance Association Limited A Bilbrough & Co Ltd, 50 Leman Street, London E1 8HQ, UK londonpandi.com t +44 (0) Manager s comment Notwithstanding the challenges arising from factors including the unexpectedly high level of Pool claims, as well as the impact of churn on premium volume, the surplus achieved for 2012/13 consolidated the London P&I Club s free reserve and financial strength; during the same period, there was further growth in our Owned entry and steady progress in our Charterers and War Risks facilities. There was also work to strengthen our loss prevention output and website offering; and, in particular, to enhance our operations in Hong Kong and Piraeus, where our offices were supplemented by new team members and were moved into new premises during the year - all with a view to reinforcing the delivery of immediate, high quality support and advice to London P&I Club Members around the world. Gas carriers 3% Container 15% Tanker 23% Number of ships Asia Pacific 29% Northern Europe 19% Americas 4% Southern Europe 48% Entered GT by region 2013: 1, : 1, : 930 Average GT General Cargo 2% Bulker/ General Cargo 57% Entered GT by vessel type 2013: 35, : 37, : 41,627 Owned GT 2013: 41,390, : 40,777, : 38,713,248 Fixed premium GT 2013: 5,060, : 3,428, : 5,117,048 16

21 The London Club s underwriting performance has improved for the second year in a row leading to a healthy surplus and increased free reserve. However, the Club are still too reliant on investment income and the technical underwriting needs to improve further. Aon comment Financial year balance sheet data (year ending February) USD 000s Alternatives 1% Mutual Clubs Cash 13% Income Calls and premiums 101, ,190 Excess calls 0 0 Reinsurance premiums -22,175-21,216 Total income 79,776 87,974 Expenditure Net claims incurred -82,691-93,338 Equity 22% Fixed income 63% Net operating expenses -11,483-11,367 Total expenditure -94, ,705 Underwriting result pre investment/other financial income and tax -14,398-16,731 Investment/other financial income 23,838 16,484 Tax/interest charged Overall result 9, Free reserves 154, ,669 Breakdown of investment by type S&P Rating Aug 2013 Aug 2012 Rating BBB BBB Outlook BBB Stable Type of rating Pi Pi Policy year General Increase % Supplementary call record % 40/40 40/40 40/40 40/40 40/40 40/89 40/89 40/75 40/40 0/0 0/0 0/0 0/0 17

22 North of England North of England P&I Association Limited The Quayside, Newcastle Upon Tyne, NE1 3DU, UK nepia.com t +44 (0) Manager s comment Overall we are pleased to report a satisfactory financial result for the year, with an increase in premium to USD million and a net investment income of USD 8.5 million. However, the high levels of P&I claims and in particular the International Group Pool claims (where despite our historic good performance, our contribution to other Clubs pool claims is significant) is reflected in the underwriting result and led to an overall deficit of USD 1.8 million, a modest fall in the free reserve to USD million and a resulting combined ratio of 104.2%. The Club continues to reserve all claims at a very conservative 95% confidence level. Container 19% Passenger 2% Other 10% Bulk carrier/ General cargo 36% Number of ships Tanker 33% Entered GT by vessel type Asia Pacific 27% Other 11% Entered GT by region 2013: 3, : 4, : 3,665 Americas 10% Europe 52% Average GT 2013: 38, : 30, : 28,377 Owned GT 2013: 133,510, : 123,000, : 104,000,000 Fixed premium GT 2013: 43,000, : 40,000, : 39,000,000 18

23 A combined ratio of 104% was not nearly as bad as some in the market expected. Unfortunately a poor investment performance still meant a reduction in the free reserve. The Membership can again expect tough negotiations with the Club at this renewal but a lower General Increase than last year. Aon comment Financial year balance sheet data (year ending February) USD 000s Mutual Clubs Income Calls and premiums 364, ,764 Excess calls 0 0 Reinsurance premiums -70,183-54,301 Total income 294, ,463 Non-Government bonds 17% Government bonds 33% Short dated US treasuries and cash 50% Expenditure Net claims incurred -253, ,072 Net operating expenses -51,669-52,509 Total expenditure -305, ,581 Underwriting result pre investment/other financial income and tax -10,857-8,118 Investment/other financial income 9,379 17,061 Tax/interest charged ,665 Overall result -1,765 7,278 Free reserves 306, ,739 Breakdown of investment by type S&P Rating Aug 2013 Aug 2012 Rating A A Outlook Stable Stable Type of rating Interactive Interactive Policy year General Increase % Supplementary call record % 25/25 25/25 25/25 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 19

24 Shipowners Club The Shipowners Mutual Protection and Indemnity Association St Clare House, Minories, London EC3N 1BP, UK shipownersclub.com t +44 (0) Manager s comment Maintaining the high quality cover and service that we hope to provide to our Members and their brokers, and yet ensuring that we remain competitive in an increasingly crowded market place is always challenging but we hope that we have met those objectives again this year. The essence of a mutual is insurance at cost and sound and stable underwriting is the foundation of our approach. This has enabled us to track our combined ratio at an average just below 100% over an extended period. In addition to our policy of nil additional or release calls we have also kept General Increases to the minimum necessary to address claims trends. Offshore 34% Yachts 2% Entered GT by vessel type Number of ships Fishing 6% Harbour 11% Barges 47% Middle East & India 10% Central & South America 10% Europe 21% Africa 2% South East Asia & Far East 47% Canada & USA 5% Australia, New Zealand & South Pacific 5% Entered GT by region The significant increase in our free reserves reinforces the fundamental security of the Club. When many Members are themselves facing difficult trading environments, we hope that they can take some comfort from the fact that the Club is in very good financial health and we are ready when they need us. 2013: 32, : 31, : 30,602 Average GT 2013: : : 593 Owned GT 2013: 21,920, : 19,792, : 18,151,077 Fixed premium GT 2013: N/A 2012: N/A 2011: N/A 20

25 Another outstanding result from the Shipowners Club has lead to the overdue return of the S&P A rating as predicted on this page last year. Aon comment Financial year balance sheet data (year ending February) USD 000s Income Calls and premiums 221, ,689 Excess calls 0 0 Deposits with credit institutions 1% Equities 25% Mutual Clubs Reinsurance premiums -21,795-19,927 Total income 200, ,762 Fixed interest investments 74% Expenditure Net claims incurred -146, ,172 Net operating expenses -44,321-43,030 Total expenditure -191, ,202 Underwriting result pre investment/other financial income and tax 8,938 28,560 Investment/other financial income 33,027 18,903 Tax/interest charged -1, Overall result 40,873 46,546 Free reserves 275, ,460 Breakdown of investment by type S&P Rating Aug 2013 Aug 2012 Rating A- BBB Outlook Stable N/A Type of rating Interactive Pi Policy year General Increase % Supplementary call record % 25/0 25/0 25/0 25/0 25/0 25/0 25/0 25/0 10/0 0/0 0/0 0/0 0/0 21

26 Skuld Assuranceforeningen SKULD (Gjensidig), Ruseløkkvn. 26, 0251 Oslo, Norway skuld.com t Manager s comment With a comprehensive portfolio of services and covers to meet the varying needs of members and customers, the Skuld group offers first class security under three brands: Skuld P&I, Skuld Offshore and Skuld 1897, a Syndicate at Lloyd s. The synergies in the group ensure we can customise insurance covers according to customer needs, offer our customers first class service around the clock and deliver new innovative insurance solutions. Passenger 1% Other Gen cargo 4% 9% Container 10% Bulker carrier 30% Tanker 46% Entered GT by vessel type Other 1% Nordic 26% Far East 34% Americas 5% Europe 35% Entered GT by region In January 2013, we opened our branch office in Singapore to be close to our local members and clients. In London we set up both a P&I team as well as an offshore team to enhance our services. From London we also market our new products Skuld Fixed and Skuld Yachts. The wake of a successful decade with positive technical result, we see further diversification that leads towards an ocean off opportunities, always to the benefit of our members and clients. Number of ships 2013: 3, : 3, : 3,688 Average GT 2013: 19, : 18, : 17,226 Owned GT 2013: 75,600, : 69,900, : 63,530,385 Fixed premium GT 2013: N/A 2012: N/A 2011: N/A 22

27 Another year and another underwriting surplus for Skuld. They are the only big ship Club to record a positive underwriting result. There will still likely be an increase at renewal despite the Club outwardly saying no General Increase is applied. Aon comment Financial year balance sheet data (year ending February) USD 000s Equities 15% Private equity 3% Commodities 1% Cash 9% Mutual Clubs Income Calls and premiums 317, ,971 Excess calls 0 0 Reinsurance premiums -40,244-38,482 Total income 277, ,489 Expenditure Net claims incurred -212, ,722 Net operating expenses -64,556-56,109 Total expenditure -276, ,831 Fixed income 72% Breakdown of investment by type Underwriting result pre investment/other financial income and tax ,658 Investment/other financial income 18,739 14,802 Tax/interest charged -2,189-2,106 Overall result 17,518 24,354 Free reserves 308, ,429 S&P Rating Aug 2013 Aug 2012 Rating A A Outlook Stable Stable Type of rating Interactive Interactive Policy year General Increase % n/a n/a n/a Supplementary call record % 20/20 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 23

28 Standard Club The Standard Steamship Owners P&I Association (Bermuda) Limited 12/13 Essex Street, London WC2R 3AA, UK standard-club.com t +44 (0) Manager s comment While the Club is in robust health, we believe that 2013 will be a challenging year. We forecast another difficult underwriting year; that large claims, including Pool claims, will remain at historically high levels; and that repeating the strong investment performances that we have achieved in recent years will be difficult. Nonetheless, the Club is committed to supporting its members in every way that it can, not just by providing financial security through insurance for members liability needs, but also by delivering a high level of service and strong support on claims. While the Club is committed to safe shipping operation and loss prevention, the Club exists to pay claims, not to find reasons not to do so. This will remain at the core of our approach. Passenger & Ferry 6% Offshore 12% Container & General Cargo 25% Other 3% Tanker 28% Dry Bulk 26% Entered GT by vessel type Number of ships Asia Pacific 33% Other 8% Americas 15% Europe 44% Entered GT by region 2013: 8, : 7, : 7,257 Average GT 2013: 13, : 17, : 16,537 Owned GT 2013: 107,000, : 96,000, : 86,000,000 Fixed premium GT 2013: 30,000, : 29,000, : 37,000,000 24

29 The Club have again been rescued by their investment team outperforming the market. 2012/13 is the second year with a large underwriting loss and it is likely the Club will take action to rectify this at the coming renewal. Aon comment Financial year balance sheet data (year ending February) USD 000s Income Calls and premiums 294, ,200 Excess calls 0 0 Reinsurance premiums -62,900-65,500 Cash Gold 1% 1% Alternative assets 3% Equities 16% Bonds 79% Mutual Clubs Total income 231, ,700 Expenditure Net claims incurred -244, ,900 Net operating expenses -26,100-23,900 Total expenditure -270, ,800 Underwriting result pre investment/other financial income and tax -39,600-44,100 Investment/other financial income 50,900 49,600 Tax/interest charged -1,300-2,600 Overall result 10,000 2,900 Free reserves 362, ,600 Breakdown of investment by type S&P Rating Aug 2013 Aug 2012 Rating A A Outlook Negative Stable Type of rating Interactive Interactive Please note that the data included for both the 2011 and 2012 policy years now includes the results of both the Standard London and Standard War Risks which it has not done in the past. Policy year General Increase % Supplementary call record % 25/25 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 25

30 Steamship Mutual The Steamship Mutual Underwriting Association (Bermuda) Limited Aquatical House, 39 Bell Lane, London E1 7LU, UK simsl.com t +44 (0) Manager s comment Underwriting performance for the year ended 20 February 2013 was adversely affected by the worst pool experience on record. Claims within retention were also at higher levels than predicted, despite the economic downturn. Nevertheless there was an improvement in prior year results, which is consistent with the Club s normal experience. These factors resulted in a financial year combined ratio of 112.5% and an increase in the three year average ratio to 106.4%. Investments recorded a gain of USD 27.0 million, a 3.0% return. These investment gains largely offset an adverse underwriting result, and free reserves stand at USD million for The level of owned entered tonnage grew by 3.2 million GT during the year, representing a 5% increase. The overall total entered tonnage rose to million GT. Container 16% Other 3% Passenger 13% Tanker 24% Bulker/ General Cargo 44% Entered GT by vessel type Number of ships Asia Pacific 39% Other 7% Americas 23% Europe 30% Entered GT by region 2013: 8, : 9, : 9,035 Average GT 2013: 7, : 6, : 6,397 Owned GT 2013: 65,294, : 62,600, : 57,800,000 Fixed premium GT 2013: 25,845, : 30,000, : 34,000,000 26

31 The underwriting performance has improved from the 2011/12 year but the deficit is still too big and has lead to a second successive reduction in free reserve. The Club will take a tough negotiating stance at the coming renewal. Aon comment Financial year balance sheet data (year ending February) USD 000s Income Calls and premiums 315, ,646 Excess calls 0 0 Property 1% Equities Alternative 4% investments 8% Corporate bonds 29% Government bonds 48% Mutual Clubs Reinsurance premiums -44,323-51,470 Total income 270, ,176 Expenditure Net claims incurred -266, ,194 Net operating expenses -38,456-44,922 Total expenditure -304, ,116 Underwriting result pre investment/other financial income and tax -33,775-40,940 Investment/other financial income 24,146 33,477 Tax/interest charged -2-6 Overall result -9,631-7,469 Free reserves 286, ,838 Cash & deposits 11% Breakdown of investment by type S&P Rating Aug 2013 Aug 2012 Rating A- A- Outlook Stable Stable Type of rating Interactive Interactive Policy year General Increase % Supplementary call record % 0/40 0/0 0/0 0/0 0/0 0/12.5 0/14 0/20 0/0 0/0 0/0 0/0 0/0 27

32 Swedish Club Swedish Club Gullbergs Strandgata 6SE Göteborg, Sweden swedishclub.com t Manager s comment The first half of 2012 was a stable period for the Swedish Club with a benign claims position. A strong financial market worked to the Club s advantage, increasing the investment income. In terms if claims and financial markets, volatility increased during the second half of the year. The investment income continued having a positive influence on the overall Club result showing a surplus of USD 9.1 million which is deemed as acceptable given the volatility of the period. The Swedish Club P&I book showed steady growth and ended with a portfolio of about 35 million GT. With the addition of chartered tonnage the overall portfolio showed a size of 51 million GT. This is in line with The Swedish Club s expectations. The growth followed the markets in which The Swedish Club holds it s overseas offices. Number of ships 2013: 1, : 1, : 1,006 Average GT Other 5% Passenger 2% Tanker 15% Container 41% Bulker/ General Cargo 37% Entered GT by vessel type Asia Pacific 38% 2013: 34, : 33, : 31,511 Europe 62% Entered GT by region Owned GT 2013: 34,800, : 34,400, : 31,699,596 Fixed premium GT 2013: 15,9 00, : 16,000, : 17,200,404 28

33 A difficult year for the Swedish Club but the Club performed well in other sectors leading to an overall surplus. A very high pooling contribution for a small Club could be challenging going forward. Aon comment Financial year balance sheet data (year ending February) USD 000s Euro Soverign Bonds 3% Emerging Market Bonds 2% US High Yield Bonds 2% Euro Corporate Bonds 5% Alternative Investment 1% Equities 11% Mutual Clubs Income Calls and premiums 91,742 91,356 Excess calls 0 0 Reinsurance premiums -24,354-19,038 Total income 67,388 72,318 US Core Bonds 76% Expenditure Net claims incurred -71,276-71,014 Net operating expenses -13,376-12,675 Total expenditure -84,652-83,689 Breakdown of investment by type Underwriting result pre investment/other financial income and tax -17,264-11,371 Investment/other financial income 17,878 2,865 Tax/interest charged 0 0 Overall result 614-8,506 Free reserves (includes reserves 151,000** 141,900* available to non P&I business) * for the year ending Dec 2011 ** for the year ending Dec 2012 S&P Rating Aug 2013 Aug 2012 Rating BBB+ BBB+ Outlook Stable Stable Type of rating Interactive Interactive Policy year General Increase % Supplementary call record % 0/0 0/0 0/0 0/0 0/0 0/35 0/35 0/0 0/0 0/0 0/0 0/0 0/0 29

34 UK P&I Club The United Kingdom Mutual Ship Assurance Association (Bermuda) Limited Thomas Miller P&I Ltd, 90 Fenchurch Street, London, EC3M 4ST, UK ukpandi.com t +44 (0) Manager s comment This year the Club has produced a surplus of USD 9.5 million, increasing the free reserves and hybrid capital of the Club to USD 494 million. Underpinning this result was a respectable underwriting performance in the face of mounting claims costs. The combined ratio for the year was 104% (excluding the mutual premium discount) which is within the Club s tolerances in the short term, taking into account the current elevated claims environment. Increased claims on the 2012 policy year are a warning that, despite weak global economic growth, claims inflation continues to be present. It is therefore essential to maintain a disciplined approach to achieve the target of a balanced underwriting result. The Club remains committed to being the leading shipowner controlled provider of P&I insurance. That is the guiding principle and affects everything the Club does. Significant strides have been made towards that goal and this will continue in the years to come. Other 17% Passenger 3% Container 15% Bulker/ General Cargo 34% Tanker 31% Entered GT by vessel type Number of ships Asia Pacific 37% Americas 10% Europe, Middle East & Africa 53% Entered GT by region 2013: 3, : 3, : 3,400 Average GT 2013: 34, : 33, : 30,882 Owned GT 2013: 120,000, : 112,000, : 105,000,000 Fixed premium GT 2013: 80,000, : 80,000, : 80,000,000 30

35 The UK Club s recovery continues despite the combined ratio rising above 100%. Going forward the Club will also benefit from a significantly reduced pooling contribution and a smaller coupon on the hybrid capital. Aon comment Financial year balance sheet data (year ending February) USD 000s Absolute return funds 10% Mutual Clubs Income Calls and premiums before mutual discount 360, ,540 Equities 18% Discount -7, ,540 Gross Premium 352,950 Cash 7% Fixed interest 65% Excess calls 0 0 Reinsurance premiums -73,190-70,685 Total income 279, ,855 Expenditure Net claims incurred -258, ,754 Net operating expenses -43,508-42,109 Breakdown of investment by type Total expenditure -302, ,863 Underwriting result pre investment/other financial income and tax -22,427 9,992 Investment/other financial income 39,024 10,214 Tax/interest charged -9,000-9,627 Overall result 7,597 10,939 Free reserves including Hybrid capital 493, ,777 Free reserves excluding Hybrid capital 394, ,459 S&P Rating Aug 2013 Aug 2012 Rating A- A- Outlook Positive Stable Type of rating Interactive Interactive Policy year General Increase % Supplementary call record % 0/0 0/0 0/0 0/0 0/0 0/20 0/25 0/20 0/0 0/0 0/-2.5 0/0 0/0 31

36 West of England West of England Ship Owners Mutual Insurance Association (Luxembourg) Tower Bridge Court, 226 Tower Bridge Road, London, SE1 2UP, UK westpandi.com t +44 (0) Manager s comment A favourable claims experience and a better than expected investment return produced a satisfactory overall financial result for the Club in 2012/13 in a continuing difficult operating environment. The Free Reserve increased by 10%, from USD million to USD million and the combined ratio, the key measure of technical operating performance, improved to 102.5% from 108.7% for the previous year. Other 2% Passenger 3% Container 16% Bulker/General Cargo 54% Tanker & OBOs 25% Entered GT by vessel type Asia Pacific 39% Other 7% Americas 5% Europe 48% Entered GT by region Number of ships 2013: 2, : 3, : 3,091 Average GT 2013: 18, : 16, : 15,852 Owned GT 2013: 53,600, : 50,900, : 49,000,000 Fixed premium GT 2013: 18,000, : 15,000, : 20,000,000 32

37 The West of England have done an excellent job of improving their underwriting result in recent years and reported one of the lowest combined ratios in the IG for the 2012/13 year. The challenge for the Club is to ensure this does not deteriorate going forward. Aon comment Financial year balance sheet data (year ending February) USD 000s Income Calls and premiums 195, ,551 Excess calls 0 0 Reinsurance premiums -29,187-33,008 Fixed income 70% Cash 15% Equities 10% Absolute Return 5% Mutual Clubs Total income 166, ,543 Expenditure Net claims incurred -135, ,595 Net operating expenses -35,264-36,492 Total expenditure -170, ,087 Underwriting result pre investment/other financial income and tax -4,136-15,544 Investment/other financial income 24,287 11,250 Tax/interest charged -2, Overall result 18,065-3,308 Free reserves 197, ,356 Breakdown of investment by type S&P Rating Aug 2013 Aug 2012 Rating BBB BB Outlook Stable N/A Type of rating Interactive Pi Policy year General Increase % * Supplementary call record % 20/20 20/20 20/20 20/35 20/35 20/55 20/55 20/65 30/30 30/30 30/30 30/30 35/35 33

38 P&I Comparative Data.

39 Combined ratio 37 Free reserves 38 Gross call / GT 39 Net claims / GT 39 Free reserves / Net call income 40 Net claims / Net call income 40 Pooling contributions 41 P&I Comparative Data Data based on information supplied by the Clubs themselves 35

40 P&I Comparative Data Traditionally the popular method of comparing the financial health of the Clubs has been to generate key performance indicators around Gross Tonnage (GT), call income, claims and reserves. Although we have used GT as part of our analysis, we do not consider it the most useful constant. A Club with a high USD per GT ratio is not necessarily an expensive or conservative Club; one with a low figure, likewise, is not necessarily competitive as GT does not give any allowance for the type of vessels within the Club nor the individual retentions or loss records they may carry. We have always said that since premium is the underwriter s assessment of risk it is more valid to use annual call income to generate comparative analytical data. Over the last few years a small number of Clubs have called less than their originally estimated deferred calls. Variations from the estimated total call tend to be rare and give a distorted view of a Club s financial position. We therefore do not include these adjustments in analysis and use the original estimated total call for comparisons. In the past when conducting this analysis we have not included the effect of unbudgeted supplementary calls as this would similarly distort the findings. Conversely, any adjustment will be evident in a Club s free reserves and therefore these adjustments have been included. Notes 1. Net annual call income excludes the cost of reinsurance and the product of an excess call. 2. UK Club free reserves include Hybrid capital. 3. The reduction in Gard s 2011/12 and 2012/13 deferred call has been reinstated. 4. UK Club mutual premium discount has been reinforced for the 2011/2012 policy year. 5. American Club s ratios and free reserves are in respect of the years 12 months at 1st December 2011 and

41 Combined ratio P&I Comparative Data 0 American Britannia Gard Japan London North Shipowners Skuld Standard Steamship Swedish UK West (Year end February 2013) NB: (incurred claims + expenses) / (premium - reinsurance) 37

42 Free reserves ,000,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000,000 0 American Britannia Gard Japan London North Shipowners Skuld Standard Steamship Swedish UK West 38

43 Gross call / GT Total gross call income shown as USD per total Gross Tonnage (GT) entered for owners risks American Britannia Gard Net claims / GT Japan London North Shipowners Skuld Standard Steamship Swedish UK West Gross call income reflects the Club s total income (inclusive of group reinsurance costs) as an assessment of current and future risk. Total entered GT is a measure of the size of the Club, but provides no indication of current or future risk. The rating which is expressed as a USD per gross ton can give some assessment of the Club s membership risk profile. P&I Comparative Data Total net claims shown as USD per total GT entered for owners risks American Britannia Gard Japan London North Shipowners Skuld Standard Steamship Swedish UK West Net claims are the Club s actual current exposure (and a guide to future exposure). Total entered GT is a measure of the size of the Club. The rating which is expressed as a USD per gross ton can give some assessment of the Club s membership risk profile. 39

44 Free reserves / Net call income 250% % 150% Free reserves shown as a percentage of net annual call income. 100% 50% 0 American Britannia Gard Japan London North Shipowners Skuld Standard Steamship Swedish UK West Net call income reflects the Club s assessment of current and future risks and free reserves are the Club s safety net. The greater the ratio between free reserves and net call income the greater the Club s safety net. Net claims / Net call income 120% 100% Total incurred losses shown as a percentage of net annual income % 60% 40% 20% 0 American Britannia Gard Japan London North Shipowners Skuld Standard Steamship Swedish UK West Net call income reflects the Club s assessment of current and future risk. Net claims are the Club s actual current exposure (and a guide to future exposure). The lower the ratio between net claims and net call income the more favourable the underlying underwriting position.

45 Pooling contributions With effect from the 2013 policy year there was an adjustment made to the way each club s contribution to the pool is calculated. We have therefore set out below a comparison of the 2012 against the new 2013 policy year contributions for each Club. 20% 18% 16% 14% 12% 10% 8% P&I Comparative Data 6% 4% 2% 0 American Britannia Gard Japan London North Shipowners Skuld Standard Steamship Swedish UK West It should be noted that the key fundamental elements of the pooling contribution assessment remain unchanged, these being premium, tonnage and claims, adjusted by each Club s pool loss ratio. That said, the new formula for assessment of the contribution has proved to provide a significant beneficial adjustment to some Clubs as well as having negative effect on others. As guide an adjustment of 1% to a Club s contribution, as shown in the graph above, may save or cost USD 3 million per annum. Should you require a further explanation of the mechanics used to assess each Club s pooling contribution please contact the Aon P&I Team. 41

46 P&I Club Market Reference.

47 2013 Policy Year Mutual Reinsurance Structure 44 P&I Class Supplementary Call History 48 P&I Class General Increase History 49 P&I Club Market Reference 43

48 2013 Policy Year Mutual Reinsurance Structure Pooling The International Group pooling structure changed relatively significantly at the 20 February 2013 renewal and there are a couple of reasons for these changes. Firstly the larger Clubs have been pushing for an increased individual Club retention for many years. A lot of Clubs would like to see each Club retaining at least USD 10 million on each claim. The individual Club retention did increase from USD 8 million to USD 9 million and this was as much part of an on going process of increased retention as it related to the large claims affecting the International Group. The pool limit was also increased from USD 60 million to USD 70 million by including an additional USD 10 million in excess of USD 60 million layer. Within this USD 10 million layer there is a 5% individual Club retention for the Club that brought the claim to the pool. The rest of the pool structure beneath that level remains the same with the 10% individual Club retention maintained in the USD 15 million in excess of USD 60 million layer. This means that for a claim that reaches all the way the way through to the excess of loss contract the Club bringing the claim to the pool will retain USD 11 million in total before their contribution to the pool for the loss. The other major change to the structure is that the pool take a 30% co-insurance on the first general excess layer. This is increased from 25% in the 2012/13 year. Hydra, the International Group captive, maintains its entry point at USD 30 million and participates from that point through to the USD 70 million upper limit of the pool and on the 30% coinsurance of the first general excess layer. The reasoning behind the International Group increasing the upper pool to USD 70 million and the additional co-insurance on the first general excess layer were primarily to ameliorate the premium increases being sought by reinsurers. Although the International Group have long believed increased retention and less reliance on reinsurance is a good thing following the recent major losses of Rena and Costa concordia they were left with little choice but to take these steps at last renewal rather than being phased in gradually. Claims that exceed the overall limit of the Group s Excess Reinsurance contract, including the reinsured overspill layer, are then be pooled among the Group Clubs. The overall limit for this overspill remains unchanged at 2.5% of the limitation funds under the 1976 Limitation Convention for all mutual ships entered in the Group Clubs. 44

49 2012 and 2013 Policy Year Rating Comparison Vessel type 2012/ /14 Difference Difference Dirty Tankers % Clean Tankers % Dry Cargo % Passengers % Above figures are expressed as USD per GT per annum Group Excess Reinsurance Historical Rating Dry cargo Clean tankers Passenger Dirty tankers P&I Club Market Reference

50 Excess of loss The 20 February 2013 renewal was one of the most fiercely argued in memory. Aside from the Club s General Increases and owners with little money, a key contentious issue was the level of increase applied to the International Group s excess of loss reinsurance programme. As is common practice, the Club s passed the increases straight through to owners and in many cases these reinsurance increases were more in dollar terms than the premium rise the Clubs expected for their own retained risk. The reasons for the level of increase demanded by reinsurers have been well publicised and unsurprisingly, given the Rena and Costa concordia claims, dry cargo and passenger ship owners were hit hardest. As we have talked about in the introduction to this review, the level of premium increases lead to much discussion on whether the four categories of vessel currently used (dirty tanker, clean tanker, dry cargo and passenger ship) should be segregated further. Many people argue bulk carriers and container ships represent a very different risk and should not be classed together. The contract was renewed for the 2013/14 year on a similar structure to the previous year with relatively significant changes being made to the pooling arrangement as we have outlined above. The excess of loss now incepts at USD 70 million up from the USD 60 million for the 2012/13 year. The Clubs via Hydra also take a 30% co-insurance on the first layer of USD 500 million in excess of USD 70 million. This has increased from a 25% co-insurance last year. Historically separate rating categories, determined by vessel types, have been utilised to allocate premium and this format continued for the 2013/14 policy year with upward variations in the individual rating categories. 46

51 International Group Excess of Loss Reinsurance Rates Protection and Indemnity USD 3,070 million USD 1,000 million Collective Overspill Protection One Reinstatement USD 2,070 million USD 1,000 million Third General Excess Unlimited Reinstatements Oil Pollution USD 1,070 million USD 570 million USD70 million USD60 million USD45 million USD30 million USD9 million USD 500 million USD 500 million USD10 million USD15 million USD15 million USD21 million USD9 million Second General Excess Unlimited Reinstatements First General Excess Unlimited Reinstatements ICR 5% ICR 10% Coinsurance 30% Reinsured by Hydra Second General Excess Unlimited Reinstatements First General Excess Unlimited Reinstatements Upper Upper Pool USD60 million - USD70 million RI by Hydra Upper Pool USD45 million: USD60 million RI by Hydra Lower Pool USD30 million - USD45 million RI by Hydra Lower Pool USD9 million - USD30 million Club Retention (ICR) Coinsurance 30% Reinsured by Hydra P&I Club Market Reference Owned Entries Source: Data based on the International Group of P&I Clubs public reports 47

52 P&I Class Supplementary Call History Original estimate/actual or current estimate as percentage of advance call/estimated total call as applicable. Policy year 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 American Club 25/60 40/70 20/56 0/0 0/20 0/35 0/30 0/25 20/20 25/25 25/25 0/0 0/0 Britannia 25/25 40/40 40/40 40/30 40/30 30/30 30/30 40/40 40/ /40 40/40 40/40 45/45 Gard 25/25 25/25 25/25 25/25 25/20 25/20 25/25 25/25 25/10 25/15 25/20 25/20 25/ Japan Club 20/10 20/20 30/10 30/30 30/30 30/60 30/30 30/30 40/40 40/50 40/40 40/40 40/ London Steamship 40/40 40/40 40/40 40/40 40/40 40/89 40/89 40/75 40/40 0/0 0/0 0/0 0/0 North of England 25/25 25/25 25/25 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 Shipowners 25/0 25/0 25/0 25/0 25/0 25/0 25/0 25/0 10/0 10/0 10/0 10/0 0/0 Skuld 20/20 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 Standard 25/25 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 Steamship 0/40 0/0 0/0 0/0 0/0 0/12.5 0/14 0/20 0/0 0/0 0/0 0/0 0/0 Swedish 0/0 0/0 0/0 0/0 0/0 0/35 0/35 0/0 0/0 0/0 0/0 0/0 0/0 UK 0/0 0/0 0/0 0/0 0/0 0/20 0/25 0/20 0/0 0/0 0/-2.5 0/0 0/0 West of England 20/20 20/20 20/20 20/35 20/35 20/55 20/55 20/65 30/30 30/30 30/30 30/30 35/35 Excess Supplementary Call Reduced Supplementary Call Open Year Source: Data based on the P&I Clubs public reports 48

53 P&I Class General Increase History Percentage of advance call/estimated total call as applicable including any change in budgeted supplementary call estimate. Policy year American Britannia Gard Japan London North Shipowners Skuld n/a n/a n/a Standard Steamship Swedish UK P&I Club Market Reference West Average Source: Data based on the P&I Clubs public reports 49

54 Specialist Markets. Last year Aon s Marine Insight Review reported that our P&I team were expecting to see significant developments in the fixed premium market in the year to come. This has certainly been the case. Over the past year this sector has seen a large number of relative newcomers seeking to establish a market share. This introduction of increased competition has lead to the most dynamic fixed premium market seen for many years. With substantial limits of cover, internationally recognised A rated security and highly experienced P&I practitioners the fixed premium insurers continue increase their market footprint, particularly in the small ships sector of the world fleet. As we move into 2014 Aon remains committed to maintaining a strong interest in the developments within the fixed market which continues to offer a credible insurance solution to those who seek an alternative outside of the traditional International Group of P&I Clubs.

55 British Marine 52 Eagle Ocean Marine 53 Hanseatic 54 Hydor 55 Lodestar 56 Navigators 57 Osprey 58 Raets Marine 59 Charterers Club 60 Charterama 61 Norwegian Hull Club 62 S&P ratings as at August Commentary on individual insurers has been supplied by Aon and the insurers themselves. 51 Specialist Markets

56 British Marine British Marine Plantation Place, Fenchurch St, London, Greater London EC3M 3BD british-marine.com t: +44 (0) Key Data Carrier: QBE S&P Rating: A+ (stable) Limit of Cover: Up to USD 500 million as standard and exceptionally up to USD 1 billion With 136 years of experience British Marine is one of the longest standing fixed premium insurers providing P&I, Charterers liability, H&M and Defence products offering limits of up to USD 500 million or exceptionally up to US 1 billion. British Marine demutualised in 2000 and now although a whollyowned subsidiary of the QBE Group, still maintains somewhat of a mutual approach to service. Aon comment Tanker 6% Fishing 6% Unitised 10% Yachts 3% Smoothwater 10% Tug / Utility 11% Dredgers 1% General cargo 24% Tugs/utility/ barges/offshore 18% Misc Carriers 11% Scandinavia 3% India 4% Central America & Carribean 5% Australasia & Pacific Ocean 3% South America 4% Africa 3% Middle East 9% Eastern Europe 10% North America 2% Southern Europe 15% Northern Europe 24% Far East 18% 52 Manager s comment We continue to maintain a traditional focus towards P&I as well as offering strong experience in the offshore sector, superyachts, as well as a small vessels H&M product. The 2013 renewal season proved to be challenging for us, with particular pressures on the fixed premium market from both traditional competitors as well as a variety of P&I start-ups. As a result we took the opportunity not to renew a number of vessels whose long term experience was negative. This exercise is now complete and has had a positive effect on our underwriting result, putting us in a strong position as we move towards the forthcoming renewal. More recently we have joined forces with our QBE offices in Asia to create a unified P&I product for the Far East, QBE Asia P&I. Insured GT by vessel type Insured GT by region $$ $$ $$ Annual P&I Income 2012: 106,000,000* 2011: 125,000, : 133,000,000 Entered Tonnage 2012: 12,000,000* 2011: 12,600, : 13,200, : 2, : 3,030 Number of Vessels 2011: 3, : 9, : 2010: *not a complete year

57 Eagle Ocean Marine Eagle Ocean Marine c/o Eagle Ocean Agencies, Inc. One Battery Park Plaza - 31st Floor, New York, NY United States eagleoceanmarine.com t: Key Data Carrier: American Club S&P Rating: BBB- Limit of Cover: USD 50 million Formed in 2010 Eagle Ocean Marine is operated by Eagle Ocean Agencies which is an affiliate of Shipowners Claims Bureau, Inc., managers of the American P&I Club. This allows the facility to draw upon some of the expertise and service of the American Club including the ability to issue American Club guarantees. Eagle Ocean continue to offer P&I and Defence products up to USD 50 million and has recently benefitted from the American Clubs S&P rating upgrade BB+ to BBB-. Aon comment Fishing 1% Ferry 2% Bulk 5% RoRo 6% Tug & Barge 35% Tank 30% Containership 3% General 18% Insured GT by vessel type Middle East 10% Africa 12% Americas 3% Far East 68% Europe 7% Insured GT by region Manager s comment Eagle Ocean Marine has continued to see stable growth over the past year, building our book of business whilst maintaining a conservative approach to underwriting. The American Club s recent S&P upgrade from BB+ to BBB- (stable) is expected to augment the Eagle Ocean Marine product, fostering further growth over the next 12 months. Eagle Ocean Marine continues to have a strong presence in China and South East Asia, following a commitment by the American Club to increase its representation in the area. Eagle Ocean Marine has also benefited from having the ability to issue American Club guarantees, enhancing its claims handling service and American Club blue cards, which are recognised worldwide. $$ $$ $$ Annual P&I Income 2012: 6,500, : 5,000, : 500,000 Entered Tonnage 2012: 650, : 470, : 52, : 2, : 3,030 Number of Vessels 2011: 3, : : : Specialist Markets

58 Hanseatic Hanseatic Underwriters c/o Zeller Associates Management Services GmbH, Kreuzfahrtcenter, Van-der-Smissen- Str. 1, Hamburg, Germany hanseatic-underwriters.com t: Key Data Carrier: Allianz, Swiss Re, Lloyds of London S&P Rating: A Limit of Cover: USD 500 million Hanseatic P&I is an insurance consortium managed exclusively by Zeller Associates Management Services GmbH and provides fixed premium P&I up to limits of USD 500 million. The consortium has diversified its risk appetite on a geographical basis although retains a focus on small to medium sized general cargo and container vessels as well as liquid cargo and dry bulkers. Aon comment Tankers 3% Fishing 2% Offshore 1% Containers 19% Bulkers 22% Dredgers 1% Other 1% Tugs & Barges 42% General Cargo 42% Southern Europe 40% S. America Africa 4% 4% Northern Europe 50% Far East 8% Middle East 12% 54 Manager s comment We currently write business from all parts of Europe, Russia and Turkey. We are also looking at developing relationships in selected Middle East / North Africa and Asian regions. In 2012 we established a small direct presence in London to increase the sales effort alongside the existing branch offices in Moscow, Vladivostok, Limassol and Beirut. By the end of April 2012 three Lloyd s syndicates joined the consortium, not only adding further strength by additional highly rated security coming on board, but also establishing new direct connections for the consortium in the London and Lloyd s market offering synergies for special covers relating to P&I business as well. With our strong security behind us and excellent reinsurance support, we are is able to provide P&I cover for all types of vessels up to limits of USD 500 million. Insured GT by vessel type Insured GT by region $$ $$ $$ Annual P&I Income 2012: 20,700, : 16,750, : 15,600,000 Entered Tonnage 2012: 2,400, : 2,100, : 1,900, : 2, : 3,030 Number of Vessels 2011: 3, : 1, : 1, : 1,250

59 Hydor Hydor Jonasmyra 20, 1390 Vollen Norway hydor.no t: Key Data Carrier: Brit Syndicate 2987t S&P Rating: A+(Stable) Limit of Cover: USD 500 million Hydor was established in 2010 and began writing business in 2011 for vessels up to 10,000 GT. The facility is backed by 100% Lloyd s security through Brit Syndicate 2987 and offers owners P&I, charterers liability and defence products up to a USD 500 million limit. Claims servicing is provided by C Solutions Limited which is legal and claims consultancy. Aon comment Manager s comment We underwrite fixed premium Owner s Protection & Indemnity (P&I), Charterer s P&I, FDD, Hull & Machinery, Energy, Cargo and related insurance products on behalf of Brit Syndicate We are very pleased with the progress and results of Hydor so far. Our focus has been predominantly in North Europe but going forward we are looking to expand our geographical spread into other markets. Ferry 2% Tank 7% Bulk 20% Container -ship 10% Offshore 5% Annual P&I Income 2012: 5,000, : 2,000, : N/A Entered Tonnage General cargo 26% Fishing 28% Insured GT by vessel type Tug / Barge 2% Asia Pacific 9% $$ $$ $$ Others 4% Europe 71% 2012: 1,200, : 1,000, : N/A 2013: 2, : 3, : 3,091 Number of Vessels 2012: : : N/A Americas 16% Insured GT by region 55 Specialist Markets

60 Lodestar Lodestar Marine Limited 35 Seething Ln, City of London, EC3N 4DQ lodestar-marine.com t: + (0) Key Data Carrier: RSA, Lloyds and Company market S&P Rating: A Limit of Cover: USD 500 million Launched in September 2012, Lodestar appears to have been one of the most dynamic new entries into the market, offering fixed premium P&I, charterers liability and FDD up to a USD 500 million limit. Although a new contender, RSA A rated security as well as a team of experienced P&I individuals seems to have brought with it the full support of the broking community. Although Lodestar are not formally releasing premium figures, we look forward to an update once a full renewal cycle has been completed. Aon comment Yachts 1% Fishing 1% Tank 11% Offshore 9% Tug / Barge 9% Other 2% Dry Cargo 67% Insured GT by vessel type Australia 0.5% Africa 3% Indian Subcontinent 17% Middle East 15% Far East 11% N. America 1% S. America 11% S. Europe 32% N. Europe 11% Insured GT by region 56 Manager s comment One of the most pleasing aspects of Lodestar s development since its launch in September 2012 is the speed at which it has been accepted by Owners/ Managers, Brokers and crucially Charterers of vessels. Our aim was to create a vehicle that had the feel of something that had been around for a number of years and could deliver a competitively priced product, Club style service and first class security. Thanks to the experience, relationships and performance of our team we feel we have achieved these goals and judging by the levels of support we ve received in the last 12 months, the P&I market would seem to agree. $$ $$ $$ Annual P&I Income 2012: 2011: N/A 2010: N/A Entered Tonnage 2012: 1,777,512* 2011: N/A 2010: N/A 2013: 2, : 3,030 Number of Vessels 2011: 3, : : N/A 2010: N/A *As at

61 Navigators Navigators 7th floor, 2 Minister Court, Mincing Lane, London EC3R 7BB navg.com t: +44 (0) Key Data Carrier: Navigators Insurance Company and Navigators Specialty Insurance Company S&P Rating: A (Strong) Limit of Cover: USD 500 million Navigators was established in 2004 as a fixed premium facility providing P&I to ship owners, managers and charterers. Reinsurance is provided by Navigators Insurance Company and the risk appetite is for most vessel types under 10,000 GT but excluding passenger vessels and those with U.S. Flag / trading US. Aon comment Manager s comment Fishing 4% OSV 3% Barge 5% Tug 5% Tanker 10% Others 5% Bulker 10.5% General Cargo 56% Africa Other 4.5% Middle East 1.5% 6.5% Asia 32% UK / Europe 33% Mexico & Central America South 16% America 7% Navigators P&I provides the unrivalled expertise necessary to protect against or minimise disruption to the operation of commercial ships and promptly deliver funds to indemnify them in the event of a loss which they have been liable to pay to others arising from such operations. We now offer a USD 500 million limit but continue to focus on small to medium sized vessels that do not trade trans-atlantic or trans-pacific. We have a global network, a wide range of competence within P&I and with authority to settle claims. The main claims handlers and lawyers are based in London. Insured GT by vessel type Annual P&I Income 2012: 22,000,000* 2011: 22,500, : Entered Tonnage Insured GT by region $$ $$ $$ 2012: 2,100,000* 2011: 2,200, : 2013: 2, : 3, : 3,091 Number of Vessels 2012: 1, : 2010: * not a complete year 57 Specialist Markets

62 Osprey Osprey Underwriting Agency Fountain House, 8th Floor, 130 Fenchurch Street, London, EC3M 5DJ osprey-uwr.co.uk t: +44(0) Key Data Carrier: Lloyds of London S&P Rating: A+ Limit of Cover: USD 100 million Osprey is a long established fixed premium provider offering P&I cover for limits of up to USD 100 million for vessels up to 10,000 GT. Security is A+ rated and Osprey is supported by Lloyd s of London. Aon comment Manager s comment Osprey Underwriting Agency is a specialist fixed premium marine insurance provider that offers P&I and a variety of other marine insurance products. Established in 1991, Osprey is the longest established fixed premium P&I insurance provider in London. The Agency remains a stable and consistent market focused on providing quality insurance products with the best possible service and security. All Osprey products are written on behalf of Lloyd s of London which is rated A+ (strong) by the Ratings Agencies. The Agency insures clients all over the world, including the USA, operating a wide range of vessel types and is supported by an extensive network of Lloyd s Agents and Correspondents. Passenger & pleasure 4% Tanker 1% Marine contractors 4% Oilfield 17% Misc 4% Dry cargo 8% Fishing 23% Tug & Barge 39% Insured GT by vessel type Caribbean 7% Asia 5% Africa 1% South America ROW Middle East 2% 4% 1% Europe 10% $$ $$ $$ Annual P&I Income USA 74% Insured GT by region 2012: 38,500, : 41,000, : 40,500,000 Entered Tonnage 2012: N/A 2011: N/A 2010: N/A 2013: 2, : 3, : 3,091 Number of Vessels 2012: 2, : 3, : 2,800 58

63 RaetsMarine RaetsMarine Insurance BV Fascinatio Boulevard 622, 2909 VA CAPELLE A/D IJSSEL, the Netherlands raetsmarine.com t: Key Data Carrier: Amlin Overseas Holding Limited S&P Rating: 'A-' Stable Limit of Cover: USD 500 million RaetsMarine is a specialist P&I and Marine insurance provider. Founded in 1993, RaetsMarine Insurance B.V. is a 100% subsidiary of Amlin Plc providing Shipowners P&I, Charterers Liability (including Damage To Hull) and Multimodal solutions at fixed cost up to limits of USD 500 million. Aon comment Manager s Comments Providing optimum service is crucial to us, hence we have a strong focus on client relation, risk management and claims services. Insurance solutions can be tailored to the exact needs of the client and if desired, can include combinations with H&M, Cargo insurance, FD&D insurance, Traders Defence, Bunker insurance, Freight insurance, War Risk insurance, K&R, LoH, Delay insurance and SOL cover. With the unique concept of our Support Desk and our readily available in-house claims handlers (25 in total and of various nationalities), we are available 24/7 to assist clients in need. With effect from 4th March 2013 RaetsMarine became a 100% subsidiary of the Amlin Group. Within the Amlin Group RaetsMarine acts independently as the centre of competence for P&I. Yacht, Reefer, Offshore, Dredger, RoRo each 1% Fishing 4% Container 5% Passenger 5% Others 21% Tug 6% Annual P&I Income 2012: 79,000,000* 2011: 76,200, : 62,400,000 Entered Tonnage Barge 7% General Cargo 22% Tanker 7% Bulk 18% Insured GT by vessel type Russia & CIS 2% Central S. America 5% 2012: 15,806,600* 2011: 16,262, : 11,390, : 2, : 3, : 3,091 Number of Vessels 2012: : : - N. America Africa 2% 1% Middle East / India 12% Europe 44% Asia Pacific 34% $$ $$ $$ *not a complete year Insured GT by region 59 Specialist Markets

64 Charterers Club Charterers P&I Club 65 Leadenhall Street, London UK. EC3A 2AD exclusivelyforcharters.com t: +44 (0) Key Data Carrier: Great Lakes/ Munich Re Group S&P Rating: AA- Limit of Cover: USD 500 million Manager s comment The Charterers P&I Club was set up in 1986 to fill the gap between the no-frills cover being offered by commercial underwriters and the owner orientated cover available from the owners P&I Clubs. Originally run as a mutual, the Club de-mutualised in 1999 and became a fixed premium operation offering the ethos of Club style service but with fixed premiums. The Club employs experienced maritime lawyers and commercial claims handlers who use their expertise to help manage claims and problems that an Assured experiences. We have offices in London and Shanghai and a claims handling presence in Dubai and Madrid. The Club currently insures around 270 clients from liner operators to trading houses. Tankers 3% Liner 15% Other 2% Bulkers 80% Insured GT by vessel type Europe 37% Middle East/ India 15% Africa 3% Americas 3% Asia 32% Insured GT by region $$ $$ $$ Annual P&I Income 2012: 28,000, : 25,500, : 27,000,000 Australasia 10% 60

65 Charterama Charterama, RSA - Royal & Sun Alliance Insurance Plc, UK Veerkade DE Rotterdam charterama.nl t: +31(0) Key Data Carrier: RSA - Royal & Sun Alliance Insurance Plc, UK S&P Rating: A+ Limit of Cover: USD 150 million Manager s comment Charterama is a fully independent provider of Charterers Liability Insurance. Supported by sound financial capital providers and the long term commitment of A rated carrier RSA, we are able to offer limits of up to USD 150 million. The specialist industry experience of our underwriting and claims staff means we understand the client s business, exposures and are able to offer bespoke solutions and provide optimal client satisfaction. Providing insurance solutions to Charterers is our sole business and our only focus. Charterama aims to be at the top end of the market in terms of service, market share and worldwide reach and to be the alternative for the Group Clubs. Africa 2% Australia 5% Middle East 7% N. America 9% Far East 17% S. America 2% Europe 58% Insured GT by region Australasia 10% $$ $$ $$ Annual P&I Income 2012: 12,000, : 10,000, : 7,000, Specialist Markets

66 Norwegian Hull Club Norwegian Hull Club Olav Kyrresgate 11 NO-5014 Bergen norclub.no t: Key Data Carrier: Norwegian Hull Club S&P Rating: A- (stable outlook). July 2013 Limit of Cover: USD 200 million Manager s comment The Norwegian Hull Club (NHC) has long been established as a leader in the Hull and Machinery and Loss of Hire markets, and last year the Club celebrated its 175 year anniversary. Our facility is now half way through its sixth underwriting year and the premium and portfolio have grown beyond initial expectations. The underwriting year 2012 has achieved a premium level of more than USD 12.5 million. The current underwriting year is showing an optimistic growth, despite the stagnant shipping market, with an increasing number of Assureds. It is anticipated that annual premium for this underwriting year will meet the estimated USD 14 million. We have the ability to offer limits up to USD 200 million and the majority of our clients are from Europe and Asia. We anticipate continuous growth from these markets and are also looking to expand in other markets going forward. The NHC is rated A- (stable outlook) by Standard & Poor s, a rating that was confirmed in July Fishing 4% OSV 3% Barge 5% Tug 5% Tanker 10% Others 5% Bulker 10.5% General Cargo 56% Insured GT by vessel type Other (Americas, Middle East) 10% Asia Pacific (including India & Australia) 40% Europe North & South 50% Insured GT by region $$ $$ $$ Annual P&I Income 2012: 12,500, : 11,000, : 9,500,000 62

67 Specialist Market Summary Specialist Market Security S&P Rating Limit (USD) Owners P&I Max GT. British Marine (est 1876) QBE A+ 500 million Exceptional 1 billion Generally 10,000 but on occasions higher Eagle Ocean Marine (est 2010) The American Club BBB- 50 million 12,500 Hanseatic Underwriters (est 2005) Lloyd's of London Various A min 500 million 40,000 bulkers 10,000 tankers Hydor (est 2010) Lloyd's of London - Britt Sydicate 2987 A+ 500 million 10,000 Lodestar Marine (est 2012) RSA** A 500 million 20,000 10,000 for tankers Navigators (est 2004) Navigators Insurance Company A 500 million 10,000 Osprey (est 1991) Lloyd's of London A+ 100 million 25,000 RaetsMarine (est 1993) Amlin Corporation Insurance BV A- 500 million 25,000 Carina (est 2013) Lloyd's of London A+ 500 million 5,000 Charterers Club (est 1986) Great Lakes / Munich Re AA- 500 million N/A Charterama (est 2009) Norwegian Hull Club (est 1837) RSA A+ 150 million N/A Norwegian Hull Club A- 200 million N/A 63 Specialist Markets

68 For more information, please contact: Simon Schnorr Chris Chadwick Chris Gimson For media and editorial: Patricia Kimwanga Aon Risk Solutions Global Broking Centre Marine 8 Devonshire Square London EC2M 4PL United Kingdom +44 (0) aon.co.uk This document has been produced using a minimum of 50% recycled material from a sustainable forest. FP: 8438 Published by Aon UK Limited. Registered office 8 Devonshire Square, London EC2M 4PL Copyright Aon UK Limited All rights reserved. No part of this report may be reproduced, stored in a retrieval system, or transmitted in any way or by any means, including photocopying or recording, without the written permission of the copyright holder, application for which should be addressed to the copyright holder. Aon UK Limited is authorised and regulated by the Financial Conduct Authority in respect of insurance mediation activities only.