Protection & Indemnity. Market Review 2006/2007

Transcription

1 Protection & Indemnity Market Review 26/27

2 Protection & Indemnity Market Review 26/7 Summary 4 Market Developments 8 Market Financial Commentary 16 General Increases 24 International Group Reinsurance 28 Average Expense Ratio (AER) Comparisons 36 Introduction to Club Pages 4 Club Financial Pages American 44 Britannia 46 Gard 48 Japan 5 London 52 North of England 54 Shipowners 56 Skuld 58 Standard (Bermuda) 6 Steamship 62 UK Club 64 West of England 66 Liverpool & London 68 Swedish 69 Supplementary Call history 72 Comparison of Original and Actual Supplementary Calls 74 Percentage Variation from Initial Estimated Total Call 78 Supplementary Call History Summary 82 Release Calls 88 P&I Fixed Premium Market 92

3 » Summary

4 Summary Looking back - February 26 Consolidation? There were a wide range of general increases announced in the run up to the renewal at 2 February 26. The average of the general increases was 6.5 percent, although the overall increase actually achieved by the market was in the region of 4.5 percent (a material reduction from 25 when the actual overall increase was roughly 7 percent). The 26 renewal was the fifth consecutive year in the current hard market phase, however there were further signs that underwriters in certain Clubs were trying to apply increasing flexibility in trying to assess risk rather than seeking to automatically apply general, tariff increases. One of the major concerns in the run up to the 26 renewal was that following the disastrous 25 US Gulf hurricane season and the reinsurance market s inevitable hardening, there would be sizeable rises applied to the International Group (IG) reinsurance programme. The timing was particularly unfortunate as the IG programme had also experienced an adverse claims record in the 24 policy year. The actual result (an increase of approximately 8 percent) was far better than most commentators expected. The outcome is probably testament to the importance of the IG programme to, and the resilience of, the reinsurance market. Results of the 25/6 Financial Year The market claims results for the 25/6 financial year were curious. Paid claims were actually marginally reduced on the previous year (market gross and net paid claims reduced by 6.2 percent and 2.8 percent respectively). By contrast, over the same period estimated outstanding claims levels continued their progressive trend upwards (market outstanding claims estimates rose by 3.3 percent). Against a general background for ship operators of increasing limitation and a more onerous operating environment, combined with the ongoing commercial pressures on ships, we would expect the outstanding claims results to be the better indicator of the underlying claims trend (i.e. we would anticipate continued gradual increases in total claims levels going forward). Putting the claims results in context, the 25/6 financial year reported the second highest paid claims levels in the P&I market s history (24/5 was the highest) and the highest ever outstanding claims levels. As predicted in our Review last year, with premiums moving upwards the operating deficit for the market was eliminated and a marginal paid surplus of approximately USD 22 million was achieved in 25/6 (roughly a 1 percent surplus). This was the first paid operating surplus since 19. Investment income continued at a steady if unspectacular level, with average returns of around 5 percent. Investment income therefore further improved the overall market surplus allowing increases in total market Assets and Free Reserves by 5.8 percent and 1 percent respectively. As at the end of 25/6, the total combined level of funds held by the market and available to pay claims was at the highest point ever reported (both in terms of total Assets and total Free Reserves). Solvency II and Unbudgeted Calls In October 26 the West of England announced substantial unbudgeted calls. The rationale presented by the Club was that these measures were needed to refinance it in preparation for the European Union solvency legislation to be introduced in 21. This legislation, known as Solvency II, has not yet been finalised therefore exact details are not yet known. The Club s decision was therefore made on the basis of an outside consultant s best prediction about the eventual requirements that the legislation would introduce. In essence the West of England felt they needed to nearly double their Free Reserves to comply with the as yet unformulated solvency requirements. The West of England chose a mechanism of pre-emptive unbudgeted supplementary calls to ensure they meet this requirement. This is an unprecedented position and it is discussed further under the Market Developments section. The West of England s financial position is not absolutely unique, but neither is it the norm in the market. We do not currently expect that there will be a widespread repetition of the use of unbudgeted calls from other Clubs to comply with Solvency II. In previous P&I Reviews we have suggested there will be fewer, larger P&I Clubs in the future. The announcement of merger discussions between the Swedish Club and Skuld in August 26 seemed to signal that a further step in this direction was imminent. After four months of discussion however the Swedish Club rejected the proposed merger. This leaves both Clubs in a rather strange interim position. They both appear to acknowledge the benefits of the potential economies of scale and greater spread of risk that a larger organisation would confer, but without a partner to exploit the synergies with. It would not be surprising if other suitors presented themselves in the not too distant future. While consolidation was deliberated in the mutual market, the general theme of the fixed premium P&I market was one of contraction. AXA withdrew from P&I underwriting in late 25 and Markel followed them in late 26. In contrast with this trend, there are initial reports of a new fixed premium facility (for P&I and Hull and Machinery) being established in Norway. The facility, to be called Vega Marine, is expected to be able to write limits up to USD 1 billion and be aimed at owners able to carry comparatively large retentions. It is expected that more details of the proposed facility will become known in early 27. Expectations for February 27 In spite of the largely positive overall market finances, not all Clubs face a similar financial outlook. On average the general increases announced for the forthcoming renewal are at a similar level as the average of those announced in 26. This spread of announcements is narrower than last year but as ever they continue to broadly reflect the fact that certain Clubs continue to need the increases to attain operating balances; while for most Clubs the 27/8 increases will represent a continuation of the process of further building reserves. We expect the International Group (IG) programme in its current form to be renewed without any increase at 2 February 27. We do anticipate two significant changes in the structure of the programme at 2 February 27. It is expected that individual Club retentions will increase from USD 6 million to USD 7 million. It is also anticipated that P&I Club cover for passenger and crew risks will be reduced to USD 3 billion each vessel, each accident, with a sub-limit for passenger risks of USD 2 billion each vessel, each accident. To try to ensure that a potential USD 3 billion claim will not trigger an overspill claim in the event of a passenger vessel catastrophe additional reinsurance is likely to be purchased to protect the USD 1 billion layer in excess of the current IG excess of loss reinsurance. The contentious aspect is likely to be the allocation of the cost of this additional reinsurance. Against the background of a generally solvent market and overall claims levels increasing by marginally more than inflation, operators with well managed fleets and positive loss records will again be applying pressure on underwriters to differentiate their renewals by the individual rating of risk, in spite of the announced general increases. Market Predictability Previous Willis P&I Reviews have highlighted that it is possible to identify trends in the market with reasonable accuracy. In a continually changing market the value of the professional advisor continues to be the ability to ensure that risk is addressed and the most competitive sustainable terms are achieved. As in earlier years, this report aims only to provide a general overview of the quantitative aspects of the P&I market. The Willis P&I team would be happy to expand in more detail on any issues raised and how they might affect individual operators. The operating deficit for the market was eliminated and a marginal paid surplus of approximately USD 22 million was achieved in 25/6 (roughly a 1 percent surplus). This was the first paid operating surplus since 19 4 Willis P&I Review 26/7 Willis P&I Review 26/7 5

5 » Market Developments The following section outlines four issues which have impacted the Market over the last 12 months and which have future ramifications for the industry.

6 Market Developments Athens Protocol Catalyst for Change in Club Passenger Liability Limit? The current international convention which establishes a regime of liability for passengers carried on seagoing vessels is the Athens Convention relating to the Carriage of Passengers and their Luggage by Sea, 1974 (Athens Convention). Although adopted in 1974 it only came into force on 28 April In November 22 a new Protocol to the Athens Convention was adopted by the IMO and would come into force 12 months after being accepted by 1 States. The Protocol has to date only been ratified by four states, consequently it would be almost impossible for the Protocol to come into force in the 27/8 P&I policy year. The 22 Protocol introduces a number of potentially onerous provisions, including compulsory insurance (to be supported by a separate certificate attesting that insurance or other financial security is in force), the concept of strict liability and raising the limits of liability substantially. An overview of the changes proposed under the 22 Protocol is outlined below. However, the still un-ratified Protocol is likely to prove to be a catalyst for a potential change within the Club system. The debate, revolving around whether large passenger ships represent a disproportionately high catastrophe exposure and/or whether they fit comfortably within a mutual system is not new. The provisions of the proposed Athens Protocol have simply brought a number of issues into focus and provided a negotiating position for the non-passenger ship lobby to force a compromise solution. In exchange for the P&I Clubs within the International Group (IG) agreeing to provide the insurance and produce the necessary certification to support the compulsory insurance requirement under the 22 Protocol (for all P&I risks, but not terrorism, which is expanded on below), the Clubs are expected to agree to reduce the overall limit available for passenger claims. It is expected (but needs to be agreed by the majority of Club Boards) that with effect from 2 February 27 P&I Club cover for passenger and crew risks will be reduced to USD 3 billion each vessel, each accident, with a sub-limit for passenger risks of USD 2 billion each vessel, each accident. For passenger risks this is a material reduction from the present maximum IG limit which is currently in excess of USD 4.5 billion. Linked with this compromise, the IG propose to buy reinsurance to protect against a USD 1 billion overspill exposure (for all P&I risks). This is likely to be a significant extension to the current reinsurance programme at 2 February 27 and the key issue for most owners will be how the additional cost of this layer will be apportioned. Background Overview - The 22 Protocol to the Athens Convention The Protocol introduces three main items: 1. It replaces the fault-based liability system under the 1974 Athens Convention with a strict liability system for shipping related incidents. 2. It introduces the requirement of compulsory insurance to cover the strict liability aspects. Such compulsory insurance to be supported by the issuance of a certificate attesting that insurance or other financial security is in force. 3. It raises the limits of liability significantly (as outlined below). In effect points 1 and 2 move the regime for liability in respect of passengers towards the way in which pollution liabilities are regulated. 1. Strict Liability - Change in Burden of Proof Under the 1974 Athens Convention a carrier would be liable for damage or loss suffered by a passenger if the incident causing the damage occurred in the course of the carriage and was due to the fault or neglect of the carrier. Unless the carrier acted with intent to cause such damage, or recklessly and with knowledge that such damage would probably result, he would be able to limit his liability. Under the first layer of the 22 Protocol (see below under Limits of Liability) the carrier is liable, unless he can prove that the incident resulted from an act of war, hostilities, civil war, insurrection or a natural phenomenon of an exceptional, inevitable and irresistible character; or was wholly caused by an act or omission done with the intent to cause the incident by a third party. In essence, strict liability. 2. Compulsory insurance The limit of the compulsory insurance or other financial security is set at a minimum of 25, Special Drawing Rights (SDR) (approximately USD 37,) per passenger on each distinct occasion. Ships are required to carry a certificate attesting that insurance or other financial security is in force, guaranteeing this level of cover. 3. Limits of liability Under the 1974 Athens Convention the limitation amount for the death of, or personal injury to, a passenger is 46,666 SDR (approximately USD 69,) per carriage. The limits of liability will be raised dramatically under the 22 Protocol and the mechanism for raising limits in the future has been made easier. The Protocol has a two layer approach to limitation. The first layer is essentially strict liability, and coincides with the compulsory insurance limits. The second, excess, layer is slightly more in the ship operator s favour, but in the case of a shipping incident is still a difficult test for the carrier. First layer The liability of the carrier for the death of or personal injury to a passenger is limited to 25, SDR (approximately USD 37,) per passenger on each distinct occasion. The carrier is liable, unless he proves that the incident resulted from an act of war, hostilities, civil war, insurrection or a natural phenomenon of an exceptional, inevitable and irresistible character; or was wholly caused by an act or omission done with the intent to cause the incident by a third party. Second layer If the loss exceeds the above limit, the carrier is further liable up to a limit of 4, SDR (approximately USD 588,) per passenger on each distinct occasion. The carrier is liable unless he proves that the incident which caused the loss occurred without the fault or neglect of the carrier. For the loss suffered as a result of the death of or personal injury to a passenger not caused by a shipping incident, the carrier is liable if the incident which caused the loss was due to the fault or neglect of the carrier. The burden of proving fault or neglect lies with the claimant. 22 Athens Protocol Terrorism Implementation of the 22 Protocol has been complicated by the issue of insurance for liabilities arising from terrorist acts. The Protocol does not exclude the possibility of passenger carriers being liable for terrorist acts. Normal Rules P&I cover excludes terrorism and P&I clubs have not been able to confirm that they will provide cover or the insurance certificates which are required under the Protocol. The industry initially proposed that ship operators should simply be exempt from liability arising from terrorist acts as a matter of policy. This argument was eventually rejected; however at the 92nd session of the IMO Legal Committee, held in Paris between 16-2 October 26, a compromise proposal was agreed. This compromise was suggested jointly by the Norwegian and UK governments and supported by the shipping industry represented by the ICS and ICCL. The compromise limits the liability of carriers (and consequently insurers) for terrorism losses to the first layer limit of 25, SDR per passenger (approximately USD 37,) or an overall limit per ship of 34 million SDR (approximately USD 5 million). The solution also recognises that the insurance certificates for this risk will be issued by a separate guarantee provider rather than the clubs (in a similar way that Certificates of Financial Responsibility are arranged for OPA 9). Consolidation? In previous Willis P&I Reviews we have suggested that it is likely that the trend towards fewer, larger P&I Clubs would continue. In August 26 the Swedish Club and Skuld announced that they were involved in discussions regarding a potential merger. This seemed to signal that a further step in this direction was imminent. After four months of discussion however the Swedish Club rejected the proposed merger. Both Clubs would now appear to be in a rather peculiar interim position. They have tacitly acknowledged that potential economies of scale and greater spread of risk could be achieved as part of a larger organisation. Following the breakdown of their particular negotiations however they are without an obvious partner to try to pursue such synergies. We would expect therefore that the issue of consolidation for one or both of these Clubs is not entirely dead and other potential partners are likely to become evident in Willis P&I Review 26/7 Willis P&I Review 26/7 9

7 Market Developments continued While consolidation was one of the background themes in the mutual market, the general trend of the fixed premium P&I market was one of contraction. AXA withdrew from P&I underwriting in late 25 and Markel followed them in late 26. The fixed premium market is no stranger to relatively rapid fluctuations in capacity. Over the last six years, five fixed premium P&I facilities have withdrawn from the market, some of them surviving for only very short periods of active underwriting. In line with the trend of volatility in fixed market capacity, there are initial reports of a new fixed premium facility (for P&I and Hull and Machinery) being established in Norway. The facility, to be called Vega Marine, is expected to be able to write limits up to USD 1 billion and be aimed at owners able to carry comparatively large retentions. It is expected that more details of the proposed facility will become known in early 27. OPA 9 limit increases The enactment of the Delaware River Protection Act of 26, title VI of the Coast Guard and Maritime Transportation Act of 26 had the effect of substantially increasing the limits of liability under the US Oil Pollution Act 199 (OPA 9). The increased OPA limits will not affect standard P & I cover offered by IG Clubs. To date there has been no change to the Regulations in relation to Certificates of Financial Responsibility (COFRs). The existing COFR arrangements will therefore remain in place for the time being until such time as new Regulations are issued to bring the certification requirements in line with the new liability levels. It is expected that this will be brought in line during 27, when the COFR providers will assess the impact of their resultant increased reinsurance cost. Any eventual COFR guarantee cost increase is expected to be less than 15 percent. The following table summarises the changes. OPA 9 : Amended Liability Limits Amended liability limits in Title VI of the Coast Guard and Maritime Transportation Act (CGMTA) of 26 Vessel Type Single Hull Vessels: Tank vessel greater than 3, gross tons with a single hull, double sides only, or double bottom only Tank vessel less than or equal to 3, gross tons with a single hull, double sides only, or double bottom only Double Hull Vessels: Tank vessel greater than 3, gross tons with a double hull Tank vessel less than or equal to 3, gross tons with a double hull Original OPA 9 Limit (the greater of ) New CGMTA 26 Limits (the greater of ) Effective Date USD 1,2 per gross ton or USD 1,, USD 3, per gross ton or USD 22,,. 9-Oct-6 USD 1,2 per gross ton or USD 2,, USD 3, per gross ton or USD 6,,. 9-Oct-6 USD 1,2 per gross ton or USD 1,, USD 1,9 per gross ton or USD 16,,. 9-Oct-6 USD 1,2 per gross ton or USD 2,, USD 1,9 per gross ton or USD 4,,. 9-Oct-6 All other vessels: Any vessel other than a tank vessel USD 6 per gross ton or USD 5, USD 95 per gross ton or USD 8,. 11-Jul-6 West of England and Future Solvency Requirements In September 26 the West of England announced a series of unbudgeted calls as a pre-emptive measure in preparation for the implementation of the expected European solvency directive Solvency II. Such a move is quite unprecedented and the following outlines the background to their decision and the potential ramifications (if any) for the market. From 25, United Kingdom (UK) based P&I Clubs came under regulation from the UK Financial Services Authority (FSA). With this, two new regulatory measures came into force relating to Capital held by insurers. The first of these, the Enhanced Capital Requirement (ECR) is a relatively straightforward measure, essentially an augmentation of the European Solvency I requirements. In addition, the FSA are introducing a more complicated Individual Capital Requirement (ICR) which requires the Clubs to evaluate their own risk areas and make an Individual Capital Assessment (ICA) (i.e. their own assessment of how much head room they have in their reserves for unexpected fluctuations / risk). This is quite a complex analysis, and each analysis is unique to each particular insurer. For Clubs regulated outside of the UK, but within the European Economic Area (EEA), the closest equivalent regulation currently in the pipeline is the Solvency II Directive. This is probably at least three years from implementation but will be the new European Union requirement. Exact details are not yet established, but clearly it will be a more onerous test than the current Solvency I requirements. The West of England is domiciled in Luxembourg and therefore the FSA issues do not apply, but Solvency II will when it is implemented (estimated by 21). The West of England s financial position is not exactly dire. As outlined in the West of England s page later in the Review, at the end of the last policy year the Club had Free Reserves of USD million, a relatively manageable paid operating deficit (roughly a seven percent deficit compared to paid premium) and market average investment returns. The Club do however have two main issues: The growth of the Club has diluted their asset base. The West of England have increased their entered tonnage by around 5 percent over the last five years, but over the same period their Net Assets have grown by only 8.8 percent and Free Reserves have actually marginally reduced (by 3.8 percent). Outstanding claims estimates have crept up over the last five years (increased by approximately 12 percent since 21/2). The series of unbudgeted calls announced in September were as follows: 24/5 policy year: 15 percent additional call 25/6 policy year: 15 percent additional call 26/7 policy year: 15 percent additional call to be debited for payment in August 27, with an additional call of 35 percent for this year authorised by the Club s Board if necessary. (In essence for all these years, the amount actually debited is equivalent to each year s previous release call estimates.) In money terms the three years of 15 percent calls would generate approximately USD 66 million. The additional 35 percent for the 26/7 would generate an additional USD 55 million. The West of England s rationale behind the unbudgeted calls The rationale behind the Club s estimate of the EU s solvency requirements under the yet to be established Solvency II were based on two analyses. Both were conducted by the outside consultant PWC. The first analysis was based on the capital requirements as if the West of England were already regulated by the UK FSA. This analysis led to an estimated Free Reserve requirement in the region of USD 24 million. The second analysis was based on the consultant s best current idea of what Solvency II will entail. There have been various proposals in the formation of this European legislation, but the Club s analysts also came up with a very similar range of Free Reserve requirement, between USD 24 and 25 million. The Club is also clearly of the view that the Luxembourg authorities are more prescriptive than the FSA. I.e. Luxembourg will give the parameters for the solvency requirements which the Club will either pass or fail, without the ability to discuss interpretation of its implementation. Consequently the West of England are very aware of the need to ensure the requirements are adequately met when the solvency requirements change. 1 Willis P&I Review 26/7 Willis P&I Review 26/7 11

8 Market Developments continued The likelihood that the additional 35 percent mooted for the 26 year will be necessary The 26 year possible additional call of 35 percent represents USD 55 million in money terms. Evidently this is pitched at the level to ensure that should the Club not be able to increase their asset base by the normal method of adding operating surpluses to reserves quickly enough, then by calling this additional amount the Club would still meet their required estimate of Solvency II (USD million). The Club s stated aim is to avoid the calling of this additional 3 if possible. The primary tool to achieve this will be to try to push up the underwriting levels over the next two renewals to the extent that the 35 percent 26-year additional call is not required in due course. These premium increases required would also be mitigated if investment income is higher than projected and/or claims lower than projected and/or if Solvency II turns out to be less onerous than currently anticipated by the Club. If a material proportion of the tonnage leaves the Club in subsequent renewals this will also improve the solvency ratio targets. Solvency Summary The West of England view the announced unbudgeted calls as their cornerstone to ensure they meet the Solvency II requirements. The Club should be able to underwrite themselves (one way or another) into a position where the additional 35 percent is not required. Whether they will have the fortitude to actually do what is necessary over the next two renewals however is yet to be seen. In terms of the comparison with rest of the market, over the last three or four years the West of England s financial ratios have slipped further away from the strongest competitors in the International Group. As mentioned earlier, Solvency II is still in its consultation stage and implementation is not planned until 21. It is not possible therefore to forecast with certainty exactly how it will impact on P&I Clubs. What is known however is that the FSA s existing ICA scheme, also outlined earlier, is structured to meet the same underlying criteria as the currently proposed Solvency II requirements (essentially individual modelling to set a capital requirement sufficient to withstand a 1-in-2 years event for the Club). Most of the UK regulated Clubs have already had their ICA reviewed, or are in the process of being reviewed by the FSA. Based on the information currently available we do not therefore expect the use of unbudgeted calls to comply with Solvency II to become widespread across the market. It is expected (but needs to be agreed by the majority of Club Boards) that with effect from 2 February 27 P&I Club cover for passenger and crew risks will be reduced to USD 3 billion each vessel, each accident, with a sub-limit for passenger risks of USD 2 billion each vessel, each accident 12 Willis P&I Review 26/7 Willis P&I Review 26/7 13

9 » Market Financial Commentary As predicted in our Review last year the operating deficit for the Market was eliminated and a marginal paid surplus was achieved in 25/6. This was the first paid operating surplus since 19. The following section expands on the breakdown of this result as part of a full analysis of the Market results.

10 Market Financial Commentary Overview In our P&I Review last year we made a number of financial predictions for the market. These expectations have again been broadly realised in the Clubs published financial results. The highlights from the combined results of the International Group (IG) market are as follows: We expected the Operating result to improve to show the first surplus for 11 years. We predicted that the surplus would not be enormous and the actual result was indeed a modest surplus (roughly a 1 percent surplus). We anticipated investment income returns would remain in the region of 5 percent and the eventual return was on average around this level. We estimated the combined market surplus (including the operating and investment results) would be around USD 3 million and the actual surplus was USD 326 million. We were confident that the total Asset levels would represent a new high point for the market. The actual result is indeed the highest ever figure, up by 5.8 percent on 24/5. While there were no major surprises, the claims results were interesting. Paid claims actually reduced slightly between 24/5 and 25/6. This paid result however contrasted with the continued rise in estimates for outstanding claims. It is probable that the outstanding claims position provides a better indication regarding future claims levels. It is also in line with the expectation of progressive inflationary increases in claims against the background of a positive freight market, high commodity prices and an ever more onerous legislative environment. This feature of the results, along with a full analysis of the market results are discussed in the following section. Note (Basis of Figures) The figures used in the following sections are collated from the International Group (IG) P&I Clubs. The basis on which we have extracted and summarised the Clubs figures is consistent with our previous P&I Reviews. A definition of what is included under each financial heading is outlined in the Introduction to the Club Financial Pages (pages 4-42). The following sections therefore represent the P&I Market results for approximately 9 percent of the world fleet. All the figures are based on the consolidated financial year results. Improved Gross Underwriting Surplus Following the fifth year of a hard market it would be a surprise if anything other than an improved underwriting result was reported. Total premiums paid increased by 3.4 percent. Interestingly gross paid claims actually reduced for the first time in three years (-6.2 percent). Putting this in perspective however, this is a reduction from the 24/5 year which represented the highest ever annual gross paid claims figure recorded by the market. This resulted in a very much improved gross paid underwriting surplus. The historical development of paid premiums compared to gross paid claims is shown in the graph on the previous page. First Net Operating Surplus for Eleven Years The increase in gross paid premiums was largely offset by increases in operating expenses and reinsurance costs. This resulted in only a very marginal overall increase in net technical market income (operating income) between 24/5 and 25/6 (less than 1 percent). In line with the Gross paid claims result, Net paid claims were also reduced, but by a smaller margin (-2.8 percent). The difference resulted in an improvement in the overall net underwriting (operating) result for the market by nearly USD 45 million. The operating deficit was eliminated, and the market moved into a USD 22 million paid surplus position (approximately a 1 percent surplus). Although marginal, 25/6 represents the first year of overall net operating surplus for the market since 19. The Market net underwriting (operating) development from 19 to 25/6 is shown in the following graph. Market Development of Paid Premiums and Gross Paid Claims Market Development of Operating Income and Net Paid Claims 2, 9 2.bn 9 2, 9 2.bn 9 99/ /1 1/2 2/3 3/4 4/5 5/6 USD m 1,5 1, Entered Tonnage (GTm) 1.5bn bn 4 3/4 4/5 5/6 99/ /1 1/2 2/3 3/4 4/5 5/6 USD m 1,5 1, Entered Tonnage (GTm) 1.8bn 1.6bn 1.4bn 1.2bn bn 5.8bn 4 3/4 4/5 5/6 Calls and Premiums Gross Paid Claims Total Tonnage (GT) Operating Income Net Paid Claims Total Tonnage (GT) 16 Willis P&I Review 26/7 Willis P&I Review 26/7 17

11 Market Financial Commentary continued Investment Income Further Improves the Overall Position The graph below highlights the development of the operating result and compares it with investment income. The combination of operating result and investment income gives the overall result for the market (red line in the graph below). Following the extraordinary investment returns in 23/4, the most recent reported periods have presented more normal investment levels. The actual results varied from Club to Club, but investment returns in the region of 5 percent were typical. The impact of investment income on the overall result is clear from the graph. Adding to the marginal operating surplus, the contribution by investment income allowed the market to report an overall surplus of USD 326 million. Market Reserves Grow to Highest Ever Level The trend in development of Total Assets and Free Reserves within the IG market over the last ten years is highlighted in the two graphs on the opposite page. In summary: Assets and Free Reserves grew progressively between 19 and 19; the growth slowing to a previous high point in 1999/2. From 1999/2 to 22/3, total assets reduced by roughly USD 754 million (a deterioration of 13.5 percent) and then stabilised. Over the same period Free Reserves dropped by over 27 percent. 23/4 was the first year of material recovery, which was followed by a more incremental growth in 24/5 and 25/6. Total Assets and Free Reserves are now at the highest level ever registered by the market. The first graph displays how the Free Reserves are constituted by also including information regarding estimated Outstanding Claims and Forecast Additional Calls (in addition to the levels of total Assets and Free Reserves). The graphs highlight that the Clubs estimates for Outstanding Claims over the last three years have continued to increase (by 2.5 percent in 23/4, 3.5 percent in 24/5 and 3.3 percent in 24/5). The Outstanding Claims estimates for the 25/6 year represent a new high point for the Market. Market Development of Assets and Free Reserves Breakdown USD m 6, 5, 4, 3, 2, For most Clubs the increase in outstanding claims over the last three years is only to be expected in the context the current claims environment. For one or two Clubs however the speed of growth in outstanding claims estimates continues to indicate potentially more worrying trends. 6bn 5bn 4bn The overall market surplus resulted in growth in total Assets and Free Reserves by 5.8 percent and 9.9 percent respectively. The second graph, in order to highlight the overall trends more clearly, simply shows Assets, Free Reserves and Outstanding Claims levels. 1, 3bn 99/ /1 1/2 2/3 3/4 4/5 5/6 3/4 4/5 5/6 Market Underwriting Development Net Assets (Market) Forecast Additional Calls Outstanding Claims Free Reserves USD m / /1 1/2 2/3 3/4 4/5 5/6.8bn.6bn.4bn.2bn.bn -.2bn 3/4 4/5 5/6 Market Development of Assets and Free Reserves USD m 7, 6, 5, 4, 3, 2, 1, 99/ /1 1/2 2/3 3/4 4/5 5/6 7bn 6bn 5bn 4bn 3bn 2bn 1bn 3/4 4/5 5/6 Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) Net Assets (Market) Free Reserves Net Outstanding Claims 18 Willis P&I Review 26/7 Willis P&I Review 26/7 19

12 Market Financial Commentary continued Background to Increased Outstanding Claims Levels We have outlined in previous reviews the Market s concern that greater utilisation and pressure on turnaround of ships as a result of the positive freight market would result in a greater number and size of claims. Coupled with this, there is a general background of increasing limitation on ship owners and an increasingly onerous operating environment. All of which further corroborates expectations of generally increased claims levels. This apprehension continues to be reiterated by the Clubs, both anecdotally by claims executives and in published Report and Accounts. As mentioned earlier in this section, 25/6 was an interesting year from a claims perspective as Net Paid Claims reduced slightly from the 24/5 year level. Putting this in context however 24/5 represented the highest ever level of claims paid out by the P&I Market in a single financial year. Even with the slight reduction in 25/6, this most recent year was still the second highest level of annual Net Paid Claims for the Market. Underlying the paid claims results, outstanding claims estimates have been gradually increasing for the last four years. The underlying claims trend over the previous 8 years had been one of relative stability, with reducing numbers of claims being offset by increased size of individual claims. Even after the current thriving freight market subsides there is an expectation that the size of individual claim awards will continue to rise. It is unlikely however that the numbers of claims will reduce further to offset this trend materially. Future trends Despite the marginal reduction in overall paid claims in 25/6, our expectation continues to be that the overall claims levels will increase in the short term. A dramatic increase is not expected however a gradual, inflationary rise in total claims looks likely. The renewal at 2 February 26 was the fifth year of the current hard market phase. Premium increases actually obtained varied from Club to Club, but overall for the market they were probably in the range of 4 percent. For the market overall we expect the 26/7 operational result to show an improved surplus. The increase is unlikely to be enormous, but should be in the region of USD 3 million. The last five years have seen quite dramatic fluctuations in investment income results. The range has been from negative results (to the tune of approximately -3 percent) to enormous levels (in the 15 to 2 percent range) and some fairly mediocre years in between. There continues to be a degree of uncertainty about the level of future results, but most Clubs expect returns for 26/7 to be similar than those for the 25/6 year. Combining the expected improvement in underwriting results and anticipated investment returns in the 5 percent region, 26/7 should show an increased overall market surplus. Depending largely on the investment climate, this overall surplus is expected be around USD 35 million for the market. These future projections are displayed in the graph on the previous page. In terms of total Assets within the market, 26/7 should therefore represent a new peak for the IG. In a similar way to the underwriting development, our projections on the development of Reserve base of the market are shown in the graph below. Despite the recent hard market and some positive investment income results in the last three years, there continues to be a wide variation in financial strength between individual Clubs in the market. Some of the stronger Clubs have been able to (re)build reserves quicker than the weaker ones. The West of England Club demonstrated this trend when they announced unbudgeted calls in October this year as a, very unwelcome, method of facilitating the rebuilding of their reserves. There continue to be major challenges ahead for certain Clubs if they are to maintain sustained calling stability in the coming years. The majority of Clubs achieved paid operating surpluses in 25/6. As predicted last year however a handful of Clubs still have some way to go. This differential is likely to be one of the factors reflected in the spread of general increases announced by the Clubs for the 27 renewal. There is likely to be a rough split in the market between those Clubs announcing general increases in the 5 percent region and those announcing around 1 percent. The specific motivation behind the increases naturally varies from Club to Club, however the 27 increases will in essence continue to represent reserve building measures for most Clubs. Against the background of relatively positive movements in the financial position of most Clubs and following five successive hard market renewals, whatever general increases are announced, P&I underwriters will again be under huge pressure to demonstrate more flexibility in assessing individual renewal offers to reflect each operator s risk and record. Underwriting Development - Projected Assets and Free Reserves Projected 99/ /1 1/2 2/3 3/4 4/5 5/6 6/7 4/5 5/6 6/7 USD m bn.6bn.4bn.2bn.bn -.2bn 7, 6, 5, 4, 3, 2, 1, 99/ /1 1/2 2/3 3/4 4/5 5/6 6/7 4/5 5/6 6/7 USD m 7bn 6bn 5bn 4bn 3bn 2bn 1bn Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) Net Assets (Market) Free Reserves Net Outstanding Claims 2 Willis P&I Review 26/7 Willis P&I Review 26/7 21

13 » General Increases The range of general increases is narrower than those announced in 26 (the difference between the lowest and highest was 1 in 26 but only 7. in 27). The average however is similar (+ 6.6 in 27 compared to % in 26). The following page outlines the historic supplementary call performance of the Market.

14 General Increases % % American American Britannia Britannia Gard * Gard Japan 1 1 Japan London London North of England North of England Shipowners Shipowners Skuld 6-1 Standard (Bermuda) Skuld Standard (Bermuda) Steamship Steamship Swedish +R/I 15 +R/I +R/I Swedish United Kingdom United Kingdom West of England West of England Average Average * Gard have announced a numeric general increase but the overall rise they are seeking to achieve is approximately Average Market General Increases 4% 3 3% 2 2% 1 1% % Willis P&I Review 26/7 Willis P&I Review 26/7 25

15 » International Group Reinsurance The following section summarises the results of the IG reinsurance renewal at 2 February 26. It also outlines our expectation regarding two material changes to the programme structure at the forthcoming renewal.

16 International Group Reinsurance Introduction No structural changes at 2 February 26 The major factor dominating the International Group (IG) reinsurance discussions for the 26 renewal was cost. Following the 25 US Gulf hurricane season there was much speculation on how the market hardening would affect the IG pricing discussions. In addition to the general market conditions, the IG entered renewal negotiations with an adverse claims record in the 24 year and increased exposure to oil pollution liabilities resulting from the introduction of TOPIA (Tanker Oil Pollution Indemnification Agreement). In addition to this, the total insured tonnage in the IG increased by nearly 4.5 percent between 24 and 25. Countering the above issues, the IG s long term record continues to be favourable and the importance of the IG as a consistent, large-scale reinsurance protection buyer in the world s leading markets should not be underestimated. These positive factors contributed to a far more satisfactory outcome for the IG than may have been expected. The eventual result over all layers equated to an overall increase of approximately 8 percent, which represented approximately a 6 percent increase when translated to the rates per gross ton (GT) passed on to shipowners. The final reinsurance rates are outlined in the table below and the movement in the rates over the last 14 years, in the graph on the page opposite As predicted in our Review last year, following the relatively major structural changes to the International Group (IG) reinsurance programme in the two previous years, 26 was something of a consolidation year as no changes were made. Hydra Hydra, the IG cell-captive established in Bermuda, was activated at 2 February 25. It is too early to accurately predict the results for the first year of operation, however as claims involving the Pool in 25 appear to be improved on 24; initial indications suggest Hydra will show a surplus for the year. For 26 the extent of Hydra s involvement in the programme is also unchanged on 25, i.e. it will continue to reinsure each Club s share of the upper Pooling layer, together with each Club s 25 percent share of the first layer of the IG s reinsurance programme. Assuming that over forthcoming years the premium paid to Hydra (and the investment income earned on the premium) will exceed claims on the captive; a capital base will start to accumulate. Hydra therefore continues to be viewed by the IG as a potential medium term vehicle to offer an alternative to capital provided by reinsurers. International Group Excess of Loss Rates International Group Reinsurance Rates Vessel Type 25/6 (USD, per GT, per annum) 26/7 (USD, per GT, per annum) Increase (USD, per GT, per annum) Percentage Change Dirty Tanker Clean Tanker % Dry/Other Passenger % Tanker Chartered % Other Chartered % US Voyage Surcharges: Additional Fixed Premium, USD per GT, per voyage USD per GT /6 26/7 Reduction (USD, per GT, per voyage) Percentage Change.2 Vessels with SBT Vessels without SBT % Dirty Tanker Clean Tanker Passenger Other 28 Willis P&I Review 26/7 Willis P&I Review 26/7 29

17 International Group Reinsurance continued 26/7 Reinsurance Structure Summary of changes at 2 February 26 US Voyage Additional Premiums USD 4.5bn 2.5bn Protection and Indemnity Catastrophe/overspill call liability of shipowners Fourth Excess Layer (One Reinstatement) Programme Structure No structural changes to the programme P&I War risks P&I war risks limit remained at USD 5 million in excess of an entered vessel s proper value. Cost The renewal in money terms represented an increase of 8 percent. As a result of the increase in total entered tonnage, when translated to rates per GT this increase was moderated to an average of just over 6 percent. The allocation of rate increases per GT applied by the Clubs ranged from percent (clean tankers) to percent (passenger ships). US Voyage additional premiums were reduced by 5 percent The voyage surcharge system for tankers carrying persistent oils to the United States (US) has been in place since It was introduced largely as a response to the US Oil Pollution Act 199 (OPA 9) in anticipation of greatly increased oil pollution exposure in US waters. The record for US pollution claims from internationally trading tankers carrying persistent oil has generally been good since the surcharges were introduced. A number of Clubs feel that the current system should be reviewed and this continues to be a discussion point within the IG. The US voyage surcharge system has always been a very crude method of assessing and transferring the cost of risk. As ever the debate revolves around the historic record versus exposure. There is little doubt that the cost of clean-up per barrel spilt in the US is higher than the rest of the world, however the incidence frequency is arguably lower. In July 26 the US approved the United States Coast Guard and Maritime Transportation Act of 26, which under Title VI increased the limitation amounts under OPA 199. The increases in limitation are dependant on vessel type, but broadly equate to a 6 percent increase for double hull tankers (and dry vessels) and roughly a 15 percent increase for single hulled tankers. These changes clearly increase the exposure, however the limitation amount under OPA 9 was never the primary concern of the P&I industry. The more onerous aspect of OPA 9 is the potential that limitation can be broken altogether (the test is certainly easier under OPA 9 when compared with International Conventions on pollution). Interestingly, one of the cases that proved to be a catalyst for the change in OPA limitation was the spill involving the tanker ATHOS I in the Delaware River in November 24. It has recently been established that limitation has been upheld for this case. Consequently the ship has been able to limit at USD 45.4 million allowing for a recovery of additional expenses incurred of over USD 7 million from the Fund. It is a positive sign that the cost of the US voyage surcharges has been squeezed down over the last couple of years. It is hoped this trend will continue until a more significant reassessment of this system of tariffed additional premiums is concluded. The development in cost of US voyage additional premiums is shown in the following graph. 1.55bn Third Excess Layer (Unlimited Reinstatements) Oil pollution International Group US Voyage Additional Premiums 1.5bn m Second Excess Layer (Unlimited Reinstatements) Second Excess Layer (Unlimited Reinstatements) Charterers Protection and Indemnity and Oil pollution m 3m First Excess Layer Unlimited Reinstatements Upper Pool (Hydra) Co-Insurance 2 (Hydra) First Excess Layer Unlimited Reinstatements Upper Pool (Hydra) Co-Insurance 2 (Hydra) 35m 5m Unlimited Reinstatements Primary Charterers R/I Co-Insurance 2 (Hydra) USD per GT per voyage m Lower Pool Individual Club Retention Lower Pool Individual Club Retention 15m 6m Pool Individual Club Retention Owned Entries Chartered Entries Vessels with SBT Vessels without SBT 3 Willis P&I Review 26/7 Willis P&I Review 26/7 31

18 International Group Reinsurance continued Expectations for the reinsurance renewal at 2 February 27 There was some speculation last year that 26 would not be the high point of the hard reinsurance market. It was predicted that the real effect of the 25 hurricane season on available capacity would start to be felt when the claims began to be actually paid. In reality the world reinsurance markets have shown more resilience and the cost environment for the IG reinsurance renewal, albeit still at a very early stage, is expected to be relatively benign. On the basis of the current reinsurance structure, we expect the overall cost of the International Group (IG) reinsurance programme at 2 February 27 to be almost unchanged. There continues to be pressure from some of the larger and better funded Clubs to further increase the individual Club retentions. When the retentions were increased from USD 1 million to USD 5 million in the early 199s, this was carried out in an incremental process over a period of six years between 1989 and Our Review last year highlighted that a further increase in retentions was not anticipated in 26, but predicted that there may be a second incremental increase in 27. Our expectation continues to be that individual Club retentions will increase from USD 6 million to USD 7 million at 2 February 27 Our expectation continues to be that individual Club retentions will increase from USD 6 million to USD 7 million at 2 February 27. It is likely in subsequent years that this retention level will continue to be periodically edged upwards towards an eventual level of around USD 1 million. The development in retentions and pooling layers is shown in the graph on the previous page, along with our projection for the 27 renewal, below. As expanded on in the Market Developments section it is also expected (but needs to be agreed by the majority of Club Boards) that with effect from 2 February 27 P&I Club cover for passenger and crew risks will be reduced to USD 3 billion each vessel, each accident, with a sub-limit for passenger risks of USD 2 billion each vessel, each accident. Linked with this development, the IG propose to buy reinsurance to protect against a USD 1 billion overspill exposure (for all P&I risks). This is likely to be a significant extension to the current reinsurance programme at 2 February 27 and the key issue for most owners will be how the additional cost of this layer will be apportioned. Linked with the limiting of cover for passenger risks, the IG propose to buy reinsurance to protect against a USD 1 billion overspill exposure (for all P&I risks). This is likely to be a significant extension to the current reinsurance programme at 2 February 27 and the key issue for most owners will be how the additional cost of this layer will be apportioned Retention and Pooling Development Retention Development 5 5m 8 7bn 4 3 4m 3m bn USD m 2 2m USD m 4 3 5bn 1 1m bn m Club Retention Pool Upper Pool (Hydra) Club Retention Club Retention (Projected 27) 32 Willis P&I Review 26/7 Willis P&I Review 26/7 33

19 » Average Expense Ratios Average Expense Ratios (AERs) were introduced in 1999 following pressure from the European Commission to improve transparency of costs between the Clubs. The following section expands on the limitations of this measure in practice.

20 Average Expense Ratios Average Expense Ratios (AERs) were introduced in 1999 following pressure from the European Commission to improve transparency of costs between the Clubs. The intention was to enable direct comparisons of operating cost efficiency between all the International Group Clubs. Consequently all Clubs are required to follow the same format when calculating their AER figure. The ratio is a five-year average of: Operating costs x 1 (Premium income + Investment income) The Shipowners Club has a significantly higher AER than the other Clubs. This is also to be expected as their Membership consists of large numbers of small ships paying relatively low premiums per vessel. The value of trends? The results themselves are of limited use to Members seeking to establish the cost efficiency of their Club, compared with others in the market. Acknowledging that the ratio could only be a crude guide to relative efficiency there was still a hope that reviewing the trends of particular Clubs over a number of years might assist owners in understanding how well their Club is operating, both within itself and when compared with the rest of the market. The results themselves are of limited use to Members seeking to establish the cost efficiency of their Club, compared with others in the market Average Expense Ratios 25 AERs are a reasonable idea in principle, however direct comparisons are not straightforward. It is too simplistic to assume that the Club with the lowest AER is the most efficient and the Club with the highest the most inefficient. Difficulties with direct comparisons There are a number of factors which affect the AER figure, including: A Club with a disproportionately high level of premium or investment income will produce a lower AER. Loss prevention programmes, which most Clubs consider fundamental to reducing the overall cost of insurance, increase direct operating costs therefore pushing up the AER. Whether the Club owns or rents their office space. If it is owned, the operating costs will be less, therefore reducing the AER. Owning property however is not automatically a benefit, as it means the costs associated with the purchase are not available for investment. We have included all eight years published AERs in the following graph. When reviewing the trends however even this limited analysis does not prove to be enormously helpful. It is true that average actual expense costs and average AER s have increased across the market by roughly the same margin over the last seven years. The timing of the changes in AERs however arguably continues to show greater (inverse) correlation with the combined effects of investment and premium income of the individual Clubs rather than the level of reported expenses themselves. To further confuse the trend analysis, in 24/5 the Standard Club revised the basis upon which they calculated their AER (to move to the basis adopted by most other Clubs of including commissions within the calculation). This caused a large jump in their reported AER in 24/5 and subsequent years. This change automatically diminished the value of reviewing the long term AER trend of this particular Club. % It is too simplistic to assume that the Club with the lowest AER is the most efficient and the Club with the highest the most inefficient Japan Britannia Gard / North of England 2/1 London Swedish UK Club 21/2 22/3 Skuld 23/4 Standard 24/5 Steamship West of England 25/6 American Shipowners 36 Willis P&I Review 26/7 Willis P&I Review 26/7 37

21 » Club Financial Pages The following individual Club pages include consolidated Financial Year summaries for each Club. As in previous years, our main aim in presenting these summaries has been consistency. There are still variations between the way Clubs report, however we have tried as far as possible to compare like with like. We have simplified and summarised certain aspects, but where information is available, we have tried to adopt the same approach for all Clubs.

22 Introduction to Club Financial Pages The following individual Club pages include consolidated Financial Year summaries for each Club. As in previous years, our main aim in presenting these summaries has been consistency. There are still variations between the way Clubs report, however we have tried as far as possible to compare like with like. We have simplified and summarised certain aspects, but where information is available, we have tried to adopt the same approach for all Clubs. We define below the figures included under each heading: Calls and Premiums: Reinsurance Premiums: Expenses: Operating Income: Gross Paid Claims: Net Paid Claims: Operating Surplus: Investment Income: Surplus for Year: Net Assets: Outstanding Claims: Forecast Additional Calls: Free Reserves: All calls less brokerage. All reinsurance premiums. All general management, administrative and audit expenses. Calls, less reinsurance costs, less expenses. Paid gross claims, including Pool contributions (for the sake of consistency we have only considered paid claims). Paid gross claims less reinsurance and Pool recoveries. Operating income, less net paid claims. All investment income, exchange gains, tax etc. Operating surplus, plus investment income. Total assets (at market value), less creditors, less miscellaneous provisions for taxation etc., less additional calls advised but not yet debited. Net estimated outstanding claims. Calls advised but not yet debited. Net assets (market value) + forecast additional calls (where available) - outstanding claims. Paid Results vs Outstanding Estimates Most of the financial analysis we include in this report is on the basis of the consolidated financial year results, concentrating predominantly on amounts paid in to the Clubs and paid out by the Clubs in each reporting period. This approach is not entirely in line with the way most of the Clubs have reported their financial year results in recent years, however we continue to adopt the methodology for two main reasons: It is the most consistent approach over the longest period available. It does not rely on Club estimates of outstanding claims, movements in provisions etc. No single approach is perfect and one of the principal challenges with this approach is that some care must be taken when reviewing Clubs which are either increasing or decreasing in size relatively quickly. P&I is a long tail class of insurance. Consequently claims incurred today are often not actually paid until a number of years later (sometimes on large, involved cases the time frames can be quite extended). A Club which is increasing in size rapidly will normally appear to have superior paid results, as the claims associated with the growth will only be paid in future years. Similarly when a Club is decreasing in size rapidly the paid results will often look worse than the underlying trend, because the Club is paying off the tail of the larger Club they were a couple of years earlier. When reviewing paid claims figures it is therefore relevant to keep in mind whether a Club is expanding or contracting and the trends of the results. In each Club page we therefore include the outstanding claims totals in the Reserves graphs to assist in building the overall picture of each Club s financial position. The intention behind this inclusion is to highlight the trend in outstanding claims for each Club, to build on the picture provided simply by the paid results. Estimates Used A number of Clubs are unwilling to disclose all the figures used in our analysis, consequently in the following pages we have been forced to make a number of educated estimates. These estimated are as follows (all figures USD, s): Policy Year / 2/1 21/2 22/3 23/4 24/5 25/6 Britannia Brokerage 4,34 3,899 4,77 5, 5, 6, 8,5 1, 1,5 1,5 Claims management expenses: 5,5 5,5 5,5 6,7 5,5 6,5 7,5 8,5 12, 14, Standard Claims management expenses: 3,179 3,594 5, 4,6 5,5 7, 6,5 7, 7, 7, UK Club Brokerage 9, 9, 11, 13, 13, 15, 17, 2, 2, Claims management expenses: 18, 18, 19, 18, 18, 22, 2, 23, 23, West of England Claims management expenses: 9,5 8,54 9,7 1, 11, 12, 14, 14, We have simplified and summarised certain aspects, but where information is available, we have tried to adopt the same approach for all Clubs 4 Willis P&I Review 26/7 Willis P&I Review 26/7 41

23 Introduction to Club Financial Pages Club Financial Pages Notes: Britannia With effect from the 19 policy year Britannia entered into a reinsurance contract with Boudicca Insurance Company Limited, located and regulated in Bermuda. Boudicca Insurance holds assets in a way that they cannot be dissipated to the detriment of the reinsurance contract with Britannia. This is intended to be a tax efficient vehicle for a proportion of Britannia s reserves. Boudicca is owned and controlled by the Iceni Trust, a charitable trust for which Report and Accounts are unavailable. In our summary page for Britannia for the sake of effective comparison with previous years, we have included Boudicca s assets in the figures. The assets of Boudicca as disclosed by the Club are as follows: 19 USD 62 million 19 USD 87 million 1999/ USD 97.5 million 2/1 USD 15.4 million 21/2 USD 16.7 million 22/3 USD million 23/4 USD 152 million 24/5 USD million 25/6 USD million Swedish Club The Swedish Club discloses its financial results on a different basis from the rest of the International Group. Within the Swedish Club s published Report and Accounts there is no allocation of funds between their Protection and Indemnity and Hull and Machinery Classes. This makes the P&I Class impossible to compare directly with other Clubs and consequently we have not included a full financial summary for this Club. Standard and Poor s Standard and Poor s (S&P) ratings mentioned in the following pages fall into two categories, interactive ratings and public information ratings. S&P establish interactive ratings following in-depth meetings with the Club Managers. Interactively rated Clubs are identified by * after the rating. Public information ratings are signified by a pi subscript and are established purely on the basis of the information provided in the Clubs published financial statements. It is the Clubs themselves that choose whether or not to pursue an interactive rating and there is a cost to the Club from S&P for the consequent additional work involved. It is worth noting that when an interactive rating is undertaken, the rating of the particular Club usually shows some form of improvement from the public information rating. This is interesting as the majority of interactive ratings have taken place over the last five years, when the market was generally experiencing deteriorating levels of assets and free reserves. North of England / Newcastle Club The Newcastle Club merged with the North of England in 19. To try to demonstrate the trends as clearly as possible the 19 year figures for the North of England do not include the income and expenditure figures for the Newcastle Club. We have however included the Newcastle Club s free reserve figure for this year to reflect the total combined reserve. For the subsequent years we have included the fully integrated figures under the North of England. As all open years for the Newcastle Club have now been formally closed we have not included a separate page for this Club. 42 Willis P&I Review 26/7 Willis P&I Review 26/7 43

24 American Highlights Owned entered tonnage reduced Volatility in paid premiums largely due to USD 24 million of unbudgeted calls registered in 24/5 Underlying increase in paid premiums roughly 7.5 percent Gross paid claims increase by almost 4 percent Paid result positive, however this belies the core underlying issue of spiralling outstanding claims Outstanding claims estimates have increased by roughly 25 percent over the last five years The increase in outstanding claims is also accelerating. Between 21 and 22 outstanding claims increased by USD 4.5 million. Between 22 and 23 the increase was USD 28 million. The increase between 23 and 24 was USD 4.5 million and in the last reported period outstanding claims estimates rose by USD 77 million. Assets increased by over 53 percent due to the paid result Despite the increase in Assets reflecting the paid surplus, the enormous increase in outstanding claims estimates further depleted the Free Reserves (reduced by 57 percent) Underwriting Development / /1 1/2 2/3 3/4 4/5 5/6 Calls and Premiums Net Paid Claims Total Tonnage (GT) Entered Tonnage (GTm) Premiums per GT Entered Tonnage Net Claims per GT USD/GT / /1 1/2 2/3 3/4 4/5 5/6 Premium per Entered Ton Net Claims per Entered Ton Total Tonnage (GT) Entered Tonnage (GTm) Tonnage Distributions by Nationality of Management Asia 11% Middle East 6% Europe 62% North America 19% Other 2% Consolidated Financial Year Summary (USD s) Net Underwriting Development Assets and Free Reserves Tonnage Distributions by Vessel Type 23/4 24/5 25/6 Calls and Premiums 85,79 147, ,261 Reinsurance Premiums -12,81-15,223-1,868 Operating Expenses -11,469-16,548-21,66 Operating Income 6,8 116,166 1,733 Gross Paid Claims 5,124 54,41 75,566 Net Paid Claims 43,531 49,994 66,472 Operating Surplus (Deficit) 17,269 66,172 34,261 Investment Income 4,889 4,779 5,659 Surplus for Year (Deficit) 22,158 7,951 39,92 Net Assets (market) 69, ,86 179,113 Outstanding Claims 92, ,89 29,948 Forecast Additional Calls 55,9 5,967 45,764 Free Reserves 31,949 34,964 14, Bulk Carrier Others 1% Tug / Barge 9% Passenger 6% Tankers 23% Entered Tonnage (GT) Owned / Mutual 18,5, 19,3, 15,446,194 Chartered / Fixed 1,5, 2,4, 3,71,119 Total 2,, 21,7, 18,517, / /1 1/2 2/3 3/4 4/5 5/6 5 99/ /1 1/2 2/3 3/4 4/5 5/6 General Cargo 7% Container / RoRo 4% Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) Net Assets (Market) Free Reserves Net Outstanding Claims S&P Rating BBB- BB+* B+* 44 Willis P&I Review 26/7 Willis P&I Review 26/7 45

25 Britannia Highlights Owned entered tonnage increased by nearly 8 percent Paid premiums reduced by 2.5 percent 5 percent reduction in gross paid claims but nearly a 9 percent increase in net paid claims Paid operating surplus significantly reduced but still positive Investment return of nearly 4 percent adds to the overall surplus Assets increased by nearly 5 percent Despite just over a 4 percent increase in outstanding claims estimates, Free Reserves increased by 3.4 percent Gross Underwriting Development Entered Tonnage (GTm) Premiums per GT Entered Tonnage Net Claims per GT USD/GT Entered Tonnage (GTm) Tonnage Distributions by Nationality of Management Middle East 3% Australasia 1% Europe 1 Americas 1% Asia 51% Consolidated Financial Year Summary (USD s) 23/4 24/5 25/6 Calls and Premiums 199,23 216, ,31 Reinsurance Premiums -39,887-39,495-37,855 Operating Expenses -16,78-2,912-23,74 Operating Income 142, ,35 149,742 Gross Paid Claims 127, ,28 173,655 Net Paid Claims 113,94 132, ,65 Operating Surplus (Deficit) 28,596 24,77 5,677 Investment Income 74,58 27,361 2,65 Surplus for Year (Deficit) 13,14 51,438 25,742 Net Assets (including 72, ,41 791,53 Boudicca assets) Net Outstanding Claims 458, ,475 56,16 Additional Calls not yet debited 16,8 19,2 13,7 Free Reserves (Including Supplementary Calls not yet debited, and including Boudicca) 261,13 288, ,647 Entered Tonnage (GT) Owned / Mutual 73,5, 75,8, 81,7, Chartered / Fixed 22,3, 23,6, 28,5, Total 95,8, 99,4, 11,2, / /1 1/2 2/3 3/4 4/5 5/6 Calls and Premiums Gross Paid Claims Total Tonnage (GT) Net Underwriting Development / /1 1/2 2/3 3/4 4/5 5/6 Premium per Entered Ton Net Claims per Entered Ton Total Tonnage (GT) Assets and Free Reserves Scandinavia 2% Tonnage Distributions by Vessel Type Bulk Carrier 28% Others 1% Tankers 46% Container / RoRo 21% General Cargo 4% S&P Rating Api Api Api -6 99/ /1 1/2 2/3 3/4 4/5 5/6 Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) 99/ /1 1/2 2/3 3/4 4/5 5/6 Net Assets (Market) Free Reserves Net Outstanding Claims 46 Willis P&I Review 26/7 Willis P&I Review 26/7 47

26 Gard Highlights Owned entered tonnage increased by nearly 1 percent Paid premiums increased by 4.6 percent Nearly 15 percent reduction in gross paid claims but 2.5 percent increase in net paid claims Operating deficit improved by USD 13.5 million Investment return of over 9 percent allows healthy overall surplus Assets increased by nearly 11 percent Despite 8 percent increase in outstanding claims estimates, Free Reserves also increase by over 11 percent Gross Underwriting Development Entered Tonnage (GTm) Premiums per GT Entered Tonnage Net Claims per GT USD/GT Entered Tonnage (GTm) Tonnage Distributions by Nationality of Management Asia 19% Other Europe 21% Greece 9% Americas 8% Germany 18% Consolidated Financial Year Summary (USD s) 23/4 24/5 25/6 Calls and Premiums 212,2 232, ,742 Reinsurance Premiums -61,627-63,127-49,64 Operating Expenses -29,526-3,291-37,577 Operating Income 12, , ,11 Gross Paid Claims 197,22 213,63 181,933 Net Paid Claims 143, , ,24 Operating Surplus (Deficit) -22,879-21,654-8,139 Investment Income 119,265 54,317 61,778 Surplus for Year (Deficit) 96,386 32,663 53,639 Net Assets (Market) 771,95 841, ,231 Net Outstanding Claims 481,14 497,31 536,768 Forecast Additional Calls 37,88 41,1 33,181 Free Reserves (Inc. Forecast Supplementary Calls) 327, , ,644 Entered Tonnage (GT) Owned / Mutual 76,35,6 79,4, 87,1, Chartered / Fixed 4,, 4,, 4,, Total 116,35,6 119,4, 127,1, 1 The Gard do not disclose total chartered tonnage. Our estimate of 4 million GT is expected to be conservative. S&P Rating A* A* A* / /1 1/2 2/3 3/4 4/5 5/6 Calls and Premiums Gross Paid Claims Total Tonnage (GT) Net Underwriting Development / /1 1/2 2/3 3/4 4/5 5/6 Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) 2. 99/ /1 1/2 2/3 3/4 4/5 5/6 Premium per Entered Ton Net Claims per Entered Ton Total Tonnage (GT) Assets and Free Reserves / /1 1/2 2/3 3/4 4/5 5/6 Net Assets (Market) Free Reserves Net Outstanding Claims Norway 2 Tonnage Distributions by Vessel Type Bulk Carrier 17% Others 3% Mobile Offshore units 1% Cruise and Ferries 4% Tankers 37% General Cargo 12% Container / RoRo 17% 48 Willis P&I Review 26/7 Willis P&I Review 26/7 49

27 Japan Highlights Owned entered tonnage increased by 9 percent Marginal reduction in paid premiums 2.1 percent increase in gross paid claims and 6.7 percent increase in net paid claims Operating surplus reduced by just over USD 17 million Approximately a 2 percent investment return Assets reduced by 4 percent Despite 3 percent reduction in oustanding claims estimates, Free Reserves reduced by 6 percent Gross Underwriting Development Entered Tonnage (GTm) Premiums per GT Entered Tonnage Net Claims per GT USD/GT Entered Tonnage (GTm) Tonnage Distributions by Flag Japan 13% Hong Kong Liberia 4% Panama 69% Singapore 3% Philippines 2% Other 4% Consolidated Financial Year Summary (USD s) 23/4 24/5 25/6 99/ /1 1/2 2/3 3/4 4/5 5/6 Calls and Premiums Gross Paid Claims Total Tonnage (GT) Premium per Entered Ton 99/ /1 1/2 2/3 3/4 Net Claims per Entered Ton 4/5 5/6 Total Tonnage (GT) Calls and Premiums 125, , ,419 Reinsurance Premiums -22,57-14,55-25,442 Operating Expenses -14,786-14,316-13,817 Operating Income 88,231 16,32 94,16 Gross Paid Claims 73,628 8,439 82,171 Net Paid Claims 73,614 8,25 85,6 Operating Surplus (Deficit) 14,617 26,52 8,56 Investment Income 7,835-14,33 9,512 Surplus for Year (Deficit) 22,452 12,19 18,72 Net Assets (Market) 236, , ,345 Outstanding Claims (P&I Only) 127, , ,411 Forecast Additional Calls Free Reserves 19,792 17,532 1,934 Entered Tonnage (GT) Owned / Mutual 52,18, 6,3, 65,66, Chartered / Fixed 4,2, 4,2, 3,79, Total 56,38, 64,5, 69,45, Net Underwriting Development Assets and Free Reserves Tonnage Distributions by Vessel Type Bulk Carrier 46% Others 4% Car Carriers 12% Tankers 2 General Cargo 3% Container / RoRo 1% S&P Rating Unrated Unrated BBBpi / /1 1/2 2/3 3/4 4/5 5/6 Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) 99/ /1 1/2 2/3 3/4 4/5 5/6 Net Assets (Market) Free Reserves Outstanding Claims (P&I only) 5 Willis P&I Review 26/7 Willis P&I Review 26/7 51

28 London Highlights Owned entered tonnage increased by 5 percent Paid premiums increased by 5 percent 22 percent increase in gross paid claims but net paid claims stable Operating result improved by USD 3.3 million Investment return approximately 8 percent, overall deficit for year reduced by USD 6 million Assets reduced by 2.6 percent Free Reserves increase by 1 percent as a result of 7.8 percent reduction in outstanding claims estimates Gross Underwriting Development Entered Tonnage (GTm) Premiums per GT Entered Tonnage Net Claims per GT USD/GT Entered Tonnage (GTm) Tonnage Distributions by Nationality of Management Far East 29% Northern European 6% Southern European 56% Americas 3% Middle East 3% Other 3% Consolidated Financial Year Summary (USD s) 99/ /1 1/2 2/3 3/4 4/5 5/6. 99/ /1 1/2 2/3 3/4 4/5 5/6 23/4 24/5 25/6 Calls and Premiums 85,374 86,849 91,226 Reinsurance Premiums -15,58-16,82-17,147 Operating Expenses -18,373-21,917-21,992 Operating Income 51,493 48,112 52,87 Gross Paid Claims 12,136 79,192 97,87 Net Paid Claims 72,578 74,995 75,672 Operating Surplus (Deficit) -21,85-26,883-23,585 Investment Income 31,163 14,111 16,92 Surplus for Year (Deficit) 1,78-12,772-6,665 Net Assets 34, , ,791 Net Outstanding Claims 226, , ,616 Forecast Additional Calls 23,661 24,37 25,33 Free Reserves (Inc. Forecast Supplementary Calls) 11,854 1,38 11,478 Entered Tonnage (GT) Owned / Mutual 28,852,746 32,637,812 34,321,55 Chartered / Fixed 675,555 1,5, ,11 Total 29,528,31 33,643,355 35,252,66 Calls and Premiums Gross Paid Claims Total Tonnage (GT) Net Underwriting Development Premium per Entered Ton Net Claims per Entered Ton Assets and Free Reserves Total Tonnage (GT) Tonnage Distributions by Vessel Type Bulk Carrier 49.4% Others.3% Tankers 36.3% General Cargo 2.2% Container / RoRo 11.8% S&P Rating BBBpi BBBpi BBBpi -6 99/ /1 1/2 2/3 3/4 4/5 5/6 Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) 99/ /1 1/2 2/3 3/4 4/5 5/6 Net Assets (Market) Free Reserves Net Outstanding Claims 52 Willis P&I Review 26/7 Willis P&I Review 26/7 53

29 North of England Highlights Owned entered tonnage increased by nearly 11 percent Paid premiums increased only marginally, by just over 1 percent Modest reductions in gross and net paid claims (6.8 and 3.2 percent respectively) Further improvement in paid operating surplus Investment return of nearly 6 percent adds to the overall surplus Assets increased by nearly 11.5 percent Despite nearly a 9 percent increase in outstanding claims estimates, Free Reserves increased by 18 percent Gross Underwriting Development Entered Tonnage (GTm) Premiums per GT Entered Tonnage Net Claims per GT USD/GT Entered Tonnage (GTm) Tonnage Distributions by Nationality of Management Middle East 1 Far East 2% North America Scandinavia 11% Northern European 24% Southern European 24% Consolidated Financial Year Summary (USD s) 99/ /1 1/2 2/3 3/4 4/5 5/6. 99/ /1 1/2 2/3 3/4 4/5 5/6 Other 1% 23/4 24/5 25/6 Calls and Premiums 146, , ,69 Reinsurance Premiums -31,686-32,669-23,991 Operating Expenses -18,616-22,239-24,771 Operating Income 96,513 19, ,928 Gross Paid Claims 93,986 11,525 94,65 Net Paid Claims 84,286 91,614 88,723 Operating Surplus (Deficit) 12,227 18,244 29,25 Investment Income 52,21 21,149 23,729 Surplus for Year (Deficit) 64,428 39,393 52,934 Net Assets (Market) 446, ,51 541,15 Net Outstanding Claims 312, , ,1 Forecast Additional Calls Free Reserves (Inc. Forecast Supplementary Calls) 133, , ,5 Entered Tonnage (GT) Owned / Mutual 4,, 43,6, 48,3, Chartered / Fixed 1,, 1,6, 12,4, Total 5,, 54,2, 6,7, Calls and Premiums Gross Paid Claims Total Tonnage (GT) Net Underwriting Development Premium per Entered Ton Net Claims per Entered Ton Assets and Free Reserves Total Tonnage (GT) Tonnage Distributions by Vessel Type Bulk Carrier 3 Others 1% Tankers 33% General Cargo 3% Container / RoRo 19% S&P Rating A-* A* A* -3 99/ /1 1/2 2/3 3/4 4/5 5/6 Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) 99/ /1 1/2 2/3 3/4 4/5 5/6 Net Assets (Market) Free Reserves Net Outstanding Claims 54 Willis P&I Review 26/7 Willis P&I Review 26/7 55

30 Shipowners Highlights Total entered tonnage increased by over 16 percent Paid premiums increased by 6.6 percent Reductions in gross and net paid claims of 7.7 and 4.6 percent respectively Paid operating surplus improved by nearly USD 12 million Investment return of approximately 6 percent contributes to the overall surplus Assets increased by just over 2 percent Continued increase in outstanding claims estimates. Since 23 outstanding claims have increased by 47 percent Despite the latest year 23 percent increase in outstanding claims estimates, Free Reserves also increased by nearly 18 percent Gross Underwriting Development Entered Tonnage (GTm) Premiums per GT Entered Tonnage Net Claims per GT USD/GT Entered Tonnage (GTm) Tonnage Distributions by Nationality of Management Europe 28% Far East & Australasia 41% Middle East & Africa 1% Latin America 9% North America 6% Other 6%. Consolidated Financial Year Summary (USD s) 23/4 24/5 25/6 99/ /1 1/2 2/3 3/4 4/5 5/6 Calls and Premiums Gross Paid Claims Total Tonnage (GT) Premium per Entered Ton 99/ /1 1/2 2/3 3/4 Net Claims per Entered Ton 4/5 5/6 Total Tonnage (GT) Calls and Premiums 9,829 97,999 14,489 Reinsurance Premiums -14,985-15,77-15,492 Operating Expenses -13,58-18,86-14,886 Operating Income 62,336 64,26 74,111 Gross Paid Claims 52,971 5,843 46,911 Net Paid Claims 36,39 44,562 42,495 Operating Surplus (Deficit) 25,946 19,644 31,616 Investment Income 27,593 6,136 13,21 Surplus for Year (Deficit) 53,539 25,78 44,826 Net Assets (Market) 194,93 22, ,58 Outstanding Claims 94, , ,6 Forecast Additional Calls Free Reserves 1,42 17, ,98 Entered Tonnage (GT) Owned / Mutual 9,137,54 9,96,61 11,537,74 Chartered / Fixed 345, ,236 47,187 Total 9,482,747 1,258,837 11,944,927 S&P Rating Api Api Api Net Underwriting Development / /1 1/2 2/3 3/4 4/5 5/6 Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) Assets and Free Reserves / /1 1/2 2/3 3/4 4/5 5/6 Net Assets (Market) Free Reserves Net Outstanding Claims Tonnage Distributions by Vessel Type Passenger 6% Fishing 9% Dry Cargo 11% Tankers 13% Inland 6% Offshore 16% Harbour 11% Barges 28% 56 Willis P&I Review 26/7 Willis P&I Review 26/7 57

31 Skuld Highlights Nearly 3 percent increase in total entered tonnage Paid premiums increased by nearly 5 percent Net paid claims reduced by almost 24 per cent USD 27 million improvement in paid operating surplus Investment return of 6.6 percent Assets increased by 11.4 percent Outstanding claims estimates stable, allowing 33 percent increase in Free Reserves Gross Underwriting Development Entered Tonnage (GTm) Premiums per GT Entered Tonnage Net Claims per GT USD/GT Entered Tonnage (GTm) Tonnage Distributions by Nationality of Management Scandinavia 3 Americas Far East 3% Europe (excluding Scandinavia) 28% Other 2% Consolidated Financial Year Summary (USD s) 99/ /1 1/2 2/3 3/4 4/5 5/ / /1 1/2 2/3 3/4 4/5 5/6 23/4 24/5 25/6 Calls and Premiums 127, , ,976 Reinsurance Premiums -23,34-19,931-16,88 Operating Expenses -28,377-28,469-32,92 Operating Income 75,694 93,922 99,194 Gross Paid Claims 18, ,482 74,455 Net Paid Claims 13,57 92,735 7,752 Operating Surplus (Deficit) -27,813 1,187 28,442 Investment Income 28,162 9,24 21,427 Surplus for Year (Deficit) 349 1,427 49,869 Net Assets (Market) 347,59 358, ,26 Net Outstanding Claims 265, ,59 248,317 Forecast Additional Calls Free Reserves (Inc. Forecast Supplementary Calls) 81, ,65 15,79 Calls and Premiums Gross Paid Claims Total Tonnage (GT) Net Underwriting Development Premium per Entered Ton Net Claims per Entered Ton Assets and Free Reserves Total Tonnage (GT) Tonnage Distributions by Vessel Type Bulk Carrier 2 Others 3% Passenger 4% Entered Tonnage (GT) Owned / Mutual 26,68,185 26,2, 31,48, Chartered / Fixed 25,287,847 26,, 36,31, Total 51,896,32 52,2, 67,79, Tankers 43% General Cargo 12% Container 13% S&P Rating BBB* BBB+* BBB+* -1 99/ /1 1/2 2/3 3/4 4/5 5/6 Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) 99/ /1 1/2 2/3 3/4 4/5 5/6 Net Assets (Market) Free Reserves Net Outstanding Claims 58 Willis P&I Review 26/7 Willis P&I Review 26/7 59

32 Standard (Bermuda) Highlights Owned entered tonnage reduced by 4 percent Paid premiums increased by just over 4 percent Gross and Net paid claims stable Modest improvement in paid operating result Assets increased by nearly 8 percent Estimated outstanding claims increased by 6 percent Free Reserves increased by nearly 12 percent Consolidated Financial Year Summary (USD s) 23/4 24/5 25/6 Gross Underwriting Development / /1 1/2 2/3 3/4 4/5 5/ Entered Tonnage (GTm) Premiums per GT Entered Tonnage Net Claims per GT USD/GT / /1 1/2 2/3 3/4 4/5 5/6 Entered Tonnage (GTm) Tonnage Distributions by Nationality of Management USA 1 Northern/ Eastern European 27% Greece 1% Italy 1 Other 3% Asia / Pacific 19% Canada 11% Calls and Premiums 151, ,558 17,378 Reinsurance Premiums -3,431-28,4-3,746 Operating Expenses -17,86-19,869-2,386 Operating Income 13,36 115, ,246 Gross Paid Claims 117,132 12, ,18 Net Paid Claims 19, , ,119 Operating Surplus (Deficit) -6,224-1,188 6,127 Investment Income 76,672 38,317 37,77 Surplus for Year (Deficit) 7,448 37,129 43,24 Net Assets (market) 515,31 552,16 595,364 Net Outstanding Claims 351,264 38,251 43,87 Forecast Additional Calls Free Reserves (Excluding Forecast Supplementary Calls) 163, ,99 192,277 Calls and Premiums Gross Paid Claims Total Tonnage (GT) Net Underwriting Development Premium per Entered Ton Net Claims per Entered Ton Assets and Free Reserves Total Tonnage (GT) Tonnage Distributions by Vessel Type Bulk Carrier 2% Others 1% Tankers 29% Entered Tonnage (GT) Owned / Mutual 46,411,738 49,, 47,, Chartered / Fixed 21,897,86 18,, 17,, Total 68,38,824 67,, 64,, Passengers 4% Offshore 8% Container / General cargo 38% S&P Rating A* A* A* -4 99/ /1 1/2 2/3 3/4 4/5 5/6 Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) 99/ /1 1/2 2/3 3/4 4/5 5/6 Net Assets (Market) Free Reserves Net Outstanding Claims 6 Willis P&I Review 26/7 Willis P&I Review 26/7 61

33 Steamship Highlights Owned entered tonnage increased by 8.6 percent Paid premiums increased by nearly 4 percent Gross and Net paid claims reduced by 17 and 12 percent respectively Operating deficit turned around to a healthy paid surplus Investment return of nearly 5 percent adds to the overall surplus Assets increased by nearly 17 percent Despite large (15 percent) increase in outstanding claims estimates, Free Reserves also increase by over 14 percent Gross Underwriting Development Entered Tonnage (GTm) Premiums per GT Entered Tonnage Net Claims per GT USD/GT Entered Tonnage (GTm) Tonnage Distributions by Nationality of Management North America 8% Far East 34% Latin America 4% Middle East / Africa 11% European Indian Sub-Continent 8% Consolidated Financial Year Summary (USD s) 99/ /1 1/2 2/3 3/4 4/5 5/6. 99/ /1 1/2 2/3 3/4 4/5 5/6 23/4 24/5 25/6 Calls and Premiums 21, ,851 22,42 Reinsurance Premiums -46,69-28,15 24,843 Operating Expenses -3,653-31,8-3,734 Operating Income 132,91 134, ,151 Gross Paid Claims 24,36 189,18 155,33 Net Paid Claims 187,93 157, ,425 Operating Surplus (Deficit) -54,192-22,686 57,726 Investment Income 71,573 23,11 22,651 Surplus for Year (Deficit) 17, ,377 Net Assets (Market) 476, , ,683 Net Outstanding Claims 398, , ,9 Forecast Additional Calls 61,251 57,242 57,779 Free Reserves (Inc. Forecast Supplementary Calls) 139, , ,372 Entered Tonnage (GT) Owned / Mutual 38,, 38,2, 41,5, Chartered / Fixed 17,, 16,8, 2,5, Total 55,, 55,, 62,, Calls and Premiums Gross Paid Claims Total Tonnage (GT) Net Underwriting Development Premium per Entered Ton Net Claims per Entered Ton Assets and Free Reserves Total Tonnage (GT) Tonnage Distributions by Vessel Type Bulk Carrier 34% Others 2% Passenger 9% Tankers 26% General Cargo 9% Container 2% S&P Rating BBpi BBBpi BBBpi -1 99/ /1 1/2 2/3 3/4 4/5 5/6 Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) 99/ /1 1/2 2/3 3/4 4/5 5/6 Net Assets (Market) Free Reserves Net Outstanding Claims 62 Willis P&I Review 26/7 Willis P&I Review 26/7 63

34 UK Club Highlights Owned entered tonnage increased by just over 4 percent Paid premiums increased only marginally, by nearly 5 percent Modest reduction in gross paid claims The fluctuation in reinsurance costs in 24 and 25 due to the timing of premium application of the Club s arrangement with Swiss Re. The full premium for the 25 year and the previously accrued cummutation premiums were applied to a claim recovery and charged as premium in the 25 year. The corresponding USD 56 million recovery is reflected in the reduction in net outstanding claims Investment return of 6 percent mitigates the overall deficit Assets reduced by just over 4 percent Outstanding claims estimates reduced by nearly 7 percent allowing Free Reserves to increase by just over 5 percent Gross Underwriting Development / /1 1/2 2/3 3/4 4/5 5/ Entered Tonnage (GTm) Premiums per GT Entered Tonnage Net Claims per GT USD/GT / /1 1/2 2/3 3/4 4/5 5/6 Entered Tonnage (GTm) Tonnage Distributions by Nationality of Management Asia-Pacific 28% Americas 12% European 6% Calls and Premiums Gross Paid Claims Total Tonnage (GT) Premium per Entered Ton Net Claims per Entered Ton Total Tonnage (GT) Consolidated Financial Year Summary (USD s) Net Underwriting Development Assets and Free Reserves Tonnage Distributions by Vessel Type 23/4 24/5 25/6 Calls and Premiums 287,843 32,35 334,943 Reinsurance Premiums -75,43-19, ,56 Operating Expenses -36,314-45,717-44,294 Operating Income 176, ,49 162,89 Gross Paid Claims 262, , ,948 Net Paid Claims 247, ,17 251,144 Operating Surplus (Deficit) -7,95-27,121-89,55 Investment Income 126,8 4,479 48,535 Surplus for Year (Deficit) 55,895 13,358-4,52 Net Assets (Market) 952, , ,226 Outstanding Claims 732, ,293 78,167 Forecast Additional Calls Free Reserves 219,674 26, ,59 Entered Tonnage (GT) Owned / Mutual 97,6, 11,, 15,4, Chartered / Fixed 3,, 5,, 5,, Total 127,6, 151,, 155,4, / /1 1/2 2/3 3/4 4/5 5/6 1,2 1, / /1 1/2 2/3 3/4 4/5 5/6 Bulk Carrier 2 Others 1% Tankers 46% Container / RoRo 12% Passenger 9% Other Dry Cargo 7% S&P Rating A* A* A* Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) Net Assets (Market) Free Reserves Net Outstanding Claims 64 Willis P&I Review 26/7 Willis P&I Review 26/7 65

35 West of England Highlights Owned entered tonnage increased by 6.5 percent Paid premiums increased by nearly 6 percent Slight reduction in gross paid claims but 1 percent increase in net paid claims Operating result deteriorated by nearly USD 1 million Investment return of approximately 7 percent allows USD 11 million overall surplus Assets increased by nearly 2 percent Free Reserves reduced by 1.3 percent as a result of 3 percent increase in outstanding claims estimates Gross Underwriting Development Entered Tonnage (GTm) Premiums per GT Entered Tonnage Net Claims per GT USD/GT Entered Tonnage (GTm) Tonnage Distributions by Nationality of Management Middle East, Asia & Australasia 3% Americas 14% Africa 2% European (incl. Russia) 54% 5 1 Consolidated Financial Year Summary (USD s) 99/ /1 1/2 2/3 3/4 4/5 5/6. 99/ /1 1/2 2/3 3/4 4/5 5/6 23/4 24/5 25/6 Calls and Premiums 196, ,29 237,44 Reinsurance Premiums -39,37-41,7-45,875 Operating Expenses -31,835-35,161-38,164 Operating Income 125,69 147, ,41 Gross Paid Claims 255, ,312 24,12 Net Paid Claims 163, ,437 17,341 Operating Surplus (Deficit) -37,587-7,89-16,94 Investment Income 64,794 27,398 28,16 Surplus for Year (Deficit) 27,27 2,39 11,22 Net Assets (Market) 51, ,87 524,861 Net Outstanding Claims 379,934 47,39 419,428 Forecast Additional Calls 23,45 26,53 27,15 Free Reserves (Inc. Forecast Supplementary Calls) 145, ,38 132,538 Entered Tonnage (GT) Owned / Mutual 49,7, 56,5, 6,2, Chartered / Fixed 18,6, 16,, 19,9, Total 68,3, 72,5, 8,1, Calls and Premiums Gross Paid Claims Total Tonnage (GT) Net Underwriting Development Premium per Entered Ton Net Claims per Entered Ton Assets and Free Reserves Total Tonnage (GT) Tonnage Distributions by Vessel Type Bulk Carrier 29% Others 4% Ferries / Passenger 8% Tankers 32% General Cargo 11% Container / RoRo 16% S&P Rating BBBpi BBBpi BBBpi -6 99/ /1 1/2 2/3 3/4 4/5 5/6 Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) 99/ /1 1/2 2/3 3/4 4/5 5/6 Net Assets (Market) Free Reserves Net Outstanding Claims 66 Willis P&I Review 26/7 Willis P&I Review 26/7 67

36 Liverpool & London The Swedish Club Highlights Highlights Club in run-off Continuing positive developments in open years Nearly 2 percent reduction in estimated outstanding claims 8 percent reduction in Net Assets 9 percent increase in estimated Free Reserve Free Reserve at 2 February 26 estimated at nearly USD 37 million Consolidated Financial Year Summary (USD s) 23/4 24/5 25/6 Calls and Premiums 1, Reinsurance Premiums Operating Expenses -2,662-2,586-2,36 Operating Income -2,237-2,522-1,629 Gross Paid Claims 7,627 2,484 8,251 Net Paid Claims 6,1 2,979 6,3 Operating Surplus (Deficit) -8,238-5,51-7,632 Investment Income 5,28 2,143 1,36 Surplus for Year (Deficit) -3,3-3,358-6,596 Net Assets 85,952 82,88 76,212 Outstanding Claims 56,191 48,992 39,215 Forecast Additional Calls Free Reserves (Inc. Forecast Supplementary Calls) 29,761 33,816 36,997 Entered Tonnage (GT) Owned / Mutual na na na Chartered / Fixed na na na Total na na na S&P Rating na na na Paid Premiums and Gross Paid Claims / /1 1/2 2/3 3/4 4/5 5/6 Calls and Premiums Net Underwriting Development Assets and Free Reserves Gross Paid Claims 99/ /1 1/2 2/3 3/4 4/5 5/6 Operating Surplus (Deficit) Investment Income Surplus for Year (Deficit) 99/ /1 1/2 2/3 3/4 4/5 5/6 The Swedish Club writes P&I, FD&D and Hull and Machinery (H&M) Classes of business. The Club provides separate summary financial statements for the P&I and FD&D technical account, but it does not allocate administrative costs, investment income or total reserves of the Club across all the different Classes written. It is therefore difficult to produce meaningful financial comparisons with other P&I Clubs. Combined Club Financial Highlights Across all Classes (H&M, P&I and FD&D) the Club had a gross premium income of USD 114 million in 25. This is a 14 percent increase on the previous year (USD 99.9 million in 24). Entered tonnage increased by 9.5 percent over the same period. Underwriting deficit on the H&M Class mitigated somewhat by an increased surplus on the P&I/FD&D Class. Overall combined operating deficit (including administrative expenses) worsened from USD 2.2 million in 24 to USD 8.2 million in 25. Investment income reduced from USD 15.6 million in 24 to USD 4.2 million in 25. Investment income insufficient to prevent an overall deficit of USD 4 million for the 25 year across all Classes (down from an overall surplus of USD 13.4 million in 24). This overall deficit led to a 4.2 percent reduction in combined Free Reserves between 24 and 25 (from USD 94.9 million to USD 9.4 million). The only financial figures published by the Swedish Club separating out the P&I and FD&D Classes relate to premiums, claims and reinsurance costs. The P&I / FD&D gross premium for 25 was USD 48.3 million (up from USD 42.4 million in 24). In terms of premium income the Swedish Club continues to be the smallest Club in the IG (roughly half the premium income of the next smallest Club). Overall claims levels reduced from USD 28.7 million in 24 to USD 24.6 million in 25. This helped the P&I / FD&D Classes show a surplus of paid claims compared to net income. This surplus of USD 11.9 million in 25 is a material improvement on the USD 5.7 million surplus in 24. This positive underwriting result however excludes operating expenses and investment income, which as mentioned above are not broken out for the P&I / FD&D Classes. The Club has developed a much more international P&I Membership over the last decade. Swedish tonnage now represents only 8 percent of their portfolio, compared with around 5 percent ten years ago. Entered Tonnage (GT) Owned / Mutual 14,6, 17,1, 19,6, Chartered / Fixed 1,6, 1,8, 1,1, Total 16,2, 18,9, 2,7, S&P Rating Owned / Mutual BBB* BBB-* BBB* Tonnage Distributions by Nationality of Management Asia 36% Sweden 8% Northern Europe 26% Southern Europe 3% Tonnage Distributions by Vessel Type Container / Roro 51% Bulk Carrier 24% Others 2% Passenger 2% Tankers 18% General Cargo 3% Net Assets (Market) Free Reserves Outstanding Claims 68 Willis P&I Review 26/7 Willis P&I Review 26/7 69

37 » Supplementary Call History The following pages provide comparative information on the supplementary/deferred call history of the market.

38 Supplementary Call History Introduction The following pages provide comparative information on the supplementary/deferred call history of the market. There has been a trend over the last five or six years towards the use of the phrase deferred premium rather than supplementary call. Similarly instead of estimated total call ( advance call + supplementary call ) a number of Clubs have introduced their own terminology such as mutual premium, estimated total premium etc. These changes in terminology have no impact on the underlying principle. All the International Group Clubs remain mutual insurers and have the ability to charge additional premiums or allow rebates on originally estimated premiums. In the following pages we have tried to compare like with like regardless of the actual terminology used by individual Clubs. The analysis is broken down as follows: Table with Basic Data The main reference table below shows in actual figures the original and final/current estimates for the supplementary/deferred calls of all the Clubs from 1993/94 to 26/7. Graphical Depiction of Individual Clubs Results The data from the main reference table is displayed graphically without any analysis for each Club. The graphs show the original estimated supplementary call and the actual call for each Club over the period 1992 to 26. The intention of displaying the graphs together is to allow easy comparison of individual Club supplementary call trends. Direct Graphical Comparisons of Individual Club Results (Percentage Variation from initial Estimated Total Call) Pages provide a more direct comparison of all the Clubs supplementary call results. Each graph shows the percentage variation from original estimated total call for each Club over the period 1992 to 26. The graphs are on the same scale and provide a direct comparison of the individual Clubs supplementary call performance and trends over the period. Market Comparison of the Average Variances over Fifteen, Ten and Five Years The three graphs on pages 83 and 84 provide a summary of the average supplementary call performance of all the Clubs. The three graphs provide snap shots of the average performance of each Club, compared to the market, over fifteen, ten and five year periods. The aim of the progression in the graphs is to provide an easy overview of the relative supplementary call performance of each Club over the last fifteen years. The best performing Clubs are shown to the left of the graphs, with those over-budget towards the right of the graphs. NB: Percentage Variation from original Estimated Total Call This is a direct comparative measure of the Clubs supplementary call performance. It is necessary for clear comparison, as individual Clubs use a wide range of original estimated supplementary calls. A zero percentage variance from estimated total calls signifies that the Club has charged exactly what it estimated for that year. A negative percentage variance shows that the Club charged less than it originally estimated for the year in question. A positive variance highlights that the Club actually charged more than was originally estimated for the year. Policy Year: 1993 / / / / / / 2 Supplementary / Deferred Call Estimate: Original Final Original Final Original Current Original Current Original Current Original Current Original Current American Club Britannia British Marine Mutual Gard Japan Club Liverpool & London London Steamship Newcastle n/a n/a n/a n/a North of England Ocean Marine n/a n/a Shipowners Skuld Standard (Bermuda) Standard (London) Steamship Swedish -1 UK West of England Where Clubs charge on an Estimated Mutual Basis. The supplementary / deferred call figure provided refers to the percentage charged after expiry of the policy period (relative to the premium charged during the policy year). These are shown in red. 2 / 21 21/22 22/23 23/24 24/25 25/6 26/7 Policy Year: Original Current Original Current Original Current Original Current Original Current Original Current Original Current Supplementary / Deferred Call Estimate: American Club Britannia fixed fixed fixed fixed fixed fixed fixed fixed fixed fixed fixed fixed fixed fixed British Marine Mutual Gard Japan Club n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Liverpool & London London Steamship n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Newcastle North of England n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Ocean Marine Shipowners Skuld Standard (Bermuda) Standard (London) Steamship Swedish UK West of England = closed = open 72 Willis P&I Review 26/7 Willis P&I Review 26/7 73

39 Comparison of Original and Actual Supplementary Calls American Britannia London North of England 12% 12% 12% 12% 1% 1% 1% 1% 8% 8% 8% 8% 6% 6% 6% 6% 4% 4% 4% 4% 2% 2% 2% 2% % % % % -2% % % % Original Supplementary Call Estimate Actual Supplementary Call Original Supplementary Call Estimate Actual Supplementary Call Original Supplementary Call Estimate Actual Supplementary Call Original Supplementary Call Estimate Actual Supplementary Call Gard Japan Shipowners Skuld 12% 12% 12% 12% 1% 1% 1% 1% 8% 8% 8% 8% 6% 6% 6% 6% 4% 4% 4% 4% 2% 2% 2% 2% % % % % -2% % % % Original Supplementary Call Estimate Actual Supplementary Call Original Supplementary Call Estimate Actual Supplementary Call Original Supplementary Call Estimate Actual Supplementary Call Original Supplementary Call Estimate Actual Supplementary Call 74 Willis P&I Review 26/7 Willis P&I Review 26/7 75

40 Comparison of Original and Actual Supplementary Calls Standard (Bermuda) Steamship West of England Liverpool & London 12% 12% 12% 18% 1% 1% 1% 16% 14% 8% 8% 8% 12% 6% 6% 6% 1% 8% 4% 4% 4% 6% 2% 2% 2% 4% 2% % % % % -2% % % % Original Supplementary Call Estimate Actual Supplementary Call Original Supplementary Call Estimate Actual Supplementary Call Original Supplementary Call Estimate Actual Supplementary Call Original Supplementary Call Estimate Actual Supplementary Call Swedish UK Club Newcastle Ocean Marine 12% 12% 18% 18% 1% 1% 16% 14% 16% 14% 8% 8% 12% 12% 6% 6% 1% 1% 8% 8% 4% 4% 6% 6% 2% 2% 4% 4% % % 2% % 2% % -2% % % % Original Supplementary Call Estimate Actual Supplementary Call Original Supplementary Call Estimate Actual Supplementary Call Original Supplementary Call Estimate Actual Supplementary Call Original Supplementary Call Estimate Actual Supplementary Call 76 Willis P&I Review 26/7 Willis P&I Review 26/7 77

41 Percentage Variation from Initial Estimated Total Call American Britannia London North of England 8% 8% 8% 8% % 2% 2% 2% -1% -1% -1% -1% % % % % Percentage Variation from Estimated Total Call Percentage Variation from Estimated Total Call Percentage Variation from Estimated Total Call Percentage Variation from Estimated Total Call Gard Japan Shipowners Skuld 8% 8% 8% 8% % 2% 2% 2% -1% -1% -1% -1% % % % % Percentage Variation from Estimated Total Call Percentage Variation from Estimated Total Call Percentage Variation from Estimated Total Call Percentage Variation from Estimated Total Call 78 Willis P&I Review 26/7 Willis P&I Review 26/7 79

42 Percentage Variation from Initial Estimated Total Call Standard (Bermuda) Steamship West of England Liverpool & London 8% 8% 8% 14% % 1% % 6% 2% 2% 2% 4% 2% -1% -1% -1% % % -4% % % % Percentage Variation from Estimated Total Call Percentage Variation from Estimated Total Call Percentage Variation from Estimated Total Call Percentage Variation from Estimated Total Call Swedish UK Club Newcastle Ocean Marine 8% 8% 14% 14% % 12% 1% 1% 3 3 8% 8% 2% 2% 6% 4% 6% 4% 2% 2% -1% -1% % % % -2% -4% % % % Percentage Variation from Estimated Total Call Percentage Variation from Estimated Total Call Percentage Variation from Estimated Total Call Percentage Variation from Estimated Total Call 8 Willis P&I Review 26/7 Willis P&I Review 26/7 81

43 Supplementary Call History Summary Market trend The average supplementary call performance of the combined market is shown in the graph below. This overall market performance is shown from 1986 to 26. The graph highlights the market wide problems from 1987 to 1991 when the vast majority of Clubs were forced to charge substantial over-budget supplementary calls. This pattern improved dramatically in subsequent years. The trend since 1991 is one of only relatively isolated problems against a backdrop of stability. The main Clubs over-calling in the mid 199 s were the Liverpool and London, Newcastle and Ocean Marine. These Clubs were all subsequently forced to cease underwriting, either by a process of merging or entering run-off. The only Clubs forced to make unbudgeted calls in the last five years were the American Club, Skuld, Steamship and West of England. Three of these Clubs do not have signs of the fundamental / inherent problems that eventually led to the demise of the Liverpool and London, Newcastle and Ocean Marine. All four Clubs however face similar challenges in terms of competing in a wider market that is largely performing within budget. Variance between Clubs The divergence in the supplementary call performance of the Clubs is material. The three graphs on the following two pages show individual Clubs average supplementary call performance over the last fifteen, ten and five years. The time periods chosen emphasise the progression from a period (fifteen years ago) where most Clubs had some form of supplementary call problem; to the more recent periods where the majority of Clubs have performed on, or below, their budgeted levels. As mentioned above, only four Clubs currently involved in active underwriting have been forced to make excess supplementary calls in the last ten years. By poignant contrast to the Clubs mentioned above, we are now also moving into a market phase where the very strongest Clubs will be in a position to not have to charge their full estimated supplementary calls (evidenced by recent decisions of Britannia and Gard). Future trends As highlighted in our reviews in previous years, we do not expect that the recent over-budget performance of a minority of Clubs will spread to the majority of the market as it did in the late 198 s. This is not to say that localised problems are a thing of the past, as it would not take too much of a change in the investment and/or claims climate for a couple of the more vulnerable Clubs to have to find unbudgeted calls necessary. Specifically, as discussed more fully earlier in the Review, despite the West of England s recent announcement, we do not expect that there will be a widespread repetition of unbudgeted calls from other Clubs to comply with Solvency II (obviously subject to the final requirements of Solvency II in due course). The expectation for the market therefore continues to be a relatively stable supplementary call environment, punctuated at opposite ends of the market, with one or two specific isolated problems at the bottom contrasting with one or two isolated rebates at the top. Supplementary Call Accuracy: Market Average Market Percentage Variation from Estimated Total Call ( ) 6 Average variance in estimated total call % 2 % Shipowners Britannia Japan Gard Standard (Bermuda) United Kingdom Standard (London) London North of England Swedish Club Skuld West of England Steamship American Club Newcastle Ocean Marine Liverpool and London 82 Willis P&I Review 26/7 Willis P&I Review 26/7 83

44 Supplementary Call History Summary continued Market Percentage Variation from Estimated Total Call ( ) Shipowners Gard Britannia Standard (Bermuda) Japan United Kingdom London Swedish Club North of England Standard (London) West of England Skuld Steamship American Club Liverpool and London Ocean Marine % Market Percentage Variation from Estimated Total Call (2-25) ( Live Clubs Only) Shipowners Japan Britannia Gard London North of England Skuld Standard (Bermuda) Standard (London) Swedish Club United Kingdom West of England Steamship American Club % Willis P&I Review 26/7 Willis P&I Review 26/7 85

45 » Release Calls

46 Release Calls The intention of release calls is to remove any potential future liability for further calls to the Club, following the end of Membership in the particular Club. By paying the release call the Member is released from further obligation to pay future supplementary call contributions to the Club. In essence therefore the release call is intended to represent the Member s proportion of the Club s incurred but not reported (IBNR) claims for the open years outstanding. It is questionable however whether this original intent is mirrored in today s practice. We have included opposite a graph of the current release calls in force for all the Clubs. Clearly there is a wide range, from those Clubs like the Shipowners or the UK Club which have release calls set at 5 percent; to those Clubs like the Steamship or Swedish Clubs that set all three open years at 25 percent. The other Clubs fall at various intermediary levels. The lack of consistency in the range of release calls does not make obvious logical sense. For example, is it realistic to believe that the Steamship Mutual is five times more likely to make an unbudgeted supplementary call than the UK Club? Clubs have a wide variety of sophisticated modelling methods at their disposal. It is therefore curious that a Club (at the top end of the range of release calls) believes their claims may exceed expectation by a margin of 25 percent, even one or two years after the expiry of the policy year in question. Release calls are a significant cost in the transfer of business from Club to Club. The release call levels of some Clubs appear more like a penalty for moving, rather than a realistic assessment of the potential for unbudgeted supplementary calls. Release calls are a significant cost in the transfer of business from Club to Club. The release call levels of some Clubs appear more like a penalty for moving, rather than a realistic assessment of the potential for unbudgeted supplementary calls Market - Release Calls 2 1% American Club 1% 3.38% 6.53% 13.11% Britannia 1% 2 2 Gard Japan Club 2% 2% 2% London Steamship 1% 2% North of England Shipowners 1% 2% 2 Skuld 2% 2% Standard (Bermuda) 1% 1% 1% Standard (London) Steamship Swedish UK 1% 1 West of England /25 25/26 26/27 88 Willis P&I Review 26/7 Willis P&I Review 26/7 89

47 » P&I Fixed Premium Market The main theme of the last 12 months for the fixed premium P&I market has been a reduction in the number of insurers seeking to compete.

48 P&I Fixed Premium Market P&I Fixed Premium Market British Marine Luxembourg SA The main theme of the last 12 months for the fixed premium P&I market has been a reduction in the number of insurers seeking to compete. As a sign of how competitive the market had become both Axa (at the very end of 25) and Markel (in the fourth quarter of 26) announced they would be withdrawing from writing fixed premium P&I. It is not unusual in the world of fixed premium P&I for facilities to come and go relatively quickly, however the withdrawal of Axa and Markel does not appear to have deterred newcomers. The latest development is a new underwriting venture being planned by two Norwegian risk managers. Former Bergesen Worldwide insurance manager Terje Adolfsen is working with Kare Franseth, who was previously at Torvald Klaveness, to create a Hull and P&I underwriting venture believed to be named Vega Marine. It is understood Vega Marine will provide fixed P&I with limits of up to USD 1 billion aimed at financially strong Shipowners prepared to take significantly larger deductibles than normally seen in the P&I market. More complete details of the facility will become known in early 27. Fixed premium P&I insurers do not announce General Increases as such, however like the International Group Clubs the fixed premium underwriters are broadly seeking to push up premiums by a margin slightly greater than inflation. Despite the consolidation in the market however, competition remains intense and even modest increases can be difficult to achieve. British Marine Luxembourg SA (British Marine) completed a successful demutualization in February 2. The British Marine were then in turn bought by the QBE Insurance Group (QBE) in late 26. Following the acquisition, the British Marine has continued to operate in an almost unchanged way, despite now being part of a much larger Group. The existing brand and management team have all been retained. The British Marine try, mostly successfully, to combine a mutual style service, with a fixed premium product. They also have the ability to offer H&M and FD&D in addition to P&I. The British Marine s strategy is to concentrate on their traditional core book of smaller vessels up to a maximum of about 1, GT. Europe remains the main sources of business with dry cargo vessels representing the single largest class of vessel. 26 has been another positive year for the facility. The British Marine has grown by almost 1, vessels during the course of the year (from 6,982 vessels in 25 to 7,9 in 26). In tonnage terms this equates to a current overall gross tonnage of 8,8,. The British Marine can offer limits up to USD 1 billion each incident on a selective basis. Fixed Market Summary Facility Maximum Limit (USD) Standard and Poor s Rating Number of Vessels British Marine 1 billion A 7,9 Ingosstrakh 5 million BB+ 1,753 InterCoastal 1 million A (Fortis Corporate Insurance NV) 1,2 Navigators 25 million A 1,5 Osprey 25 million A (Lloyd s) N/A Other Mutual Facilities South of England 1 million Mutual / Unrated 543 British Marine Luxembourg SA By Nationality of Management Northern Europe 2 Other 1% Far East 17% Americas 3% Scandinavia 4% Eastern Europe 11% Southern Europe 2% Australasia 3% Middle East/India/Africa 16% By Vessel Type General Cargo 41% Others 17% Tugs 1% Bulker Fishing 8% Tanker 7% Unitised 12% Smoothwater 9% 92 Willis P&I Review 26/7 Willis P&I Review 26/7 93

49 P&I Fixed Premium Market continued Navigators Protection and Indemnity Osprey Underwriting Agency Ltd Following the movement of the team that set up Terra Nova P&I to Navigators Insurance Group (Navigators), the facility commenced underwriting on 1 January 24. The maximum limit offered is USD 25 million any one accident or occurrence. Navigators concentrate on vessels engaged in coast-wise, inland and short sea trades and seek only to insure vessels of 1, GT or less. The contraction in the market allowed a continued growth in business written by Navigators in 26. They currently insure over 1,5 vessels (up from 1, in 25) and project their income for 26 to be around USD 3 million (increased from USD 2 million in 25). At least 4 percent of the total tonnage insured originates from Europe. General Cargo vessels represent almost 7 percent of Navigators portfolio. Navigators do not write US Flagged vessels but can arrange COFR s for those vessels trading to the US. Although Navigators do not offer insurance for Freight, Demurrage and Defence risks, they are able to provide aid and advice to their assureds and can arrange fixed price legal aid and litigation support. Navigators are rated A by Standard and Poor s. Osprey Underwriting Agency was founded in 1991 as an agency underwriting on behalf of Lloyd s insurers. From the beginning Osprey sought to provide cover only to owners that they recognised as not requiring the limits offered by the mutual clubs. Consequently they concentrate on smaller vessels, usually with relatively limited trading. Unlike the other fixed premium facilities mentioned in this section, Osprey are also willing to insure US domiciled operators. In terms of premium income the US market represents more than 7 percent of their portfolio. Osprey currently provides cover for P&I risks up to a maximum limit of USD 25 million. As with the other fixed premium providers Osprey s P&I wording offers similar heads of cover as the mutual clubs. In addition to standard P&I, Osprey is also able to provide cover for: Maritime Employers Liability exposures, for those who do not own or operate vessels but whose employees work within the maritime industry. Third party liability coverage for owners and / or operators of shipyards, terminals, stevedores, wharfingers and other marine contracting companies. Osprey s policy forms are backed by Lloyd s security with an A rating from Standard and Poor s. Navigators Protection and Indemnity Osprey Underwriting Agency Ltd By Nationality of Management By Vessel Type By Nationality of Management By Vessel Type Europe 4% Caribbean 1% Central America Far East 17% Africa 1% Middle East 16% Southern America 11% Fishing 4% Bulk Carrier 6% Tugs & Barges Tanker 1% Passenger 2% Supply Offshore General Cargo 68% South America 2% Middle East 1% Europe 7% Caribbean 3% Asia 13% USA 72% Australia 1% Canada 1% Fishing 27% Others 3% Crew Only 18% Oil Field Passenger 6% General Cargo 7% Tug & Barge 34% 94 Willis P&I Review 26/7 Willis P&I Review 26/7 95

50 P&I Fixed Premium Market continued Raets P & I Raets P&I run four separate facilities with a head office located in Rotterdam, and branch offices in Singapore and Paris. The RaetsClub Marine Insurance BV commenced in 1994 writing charterer s liability business. For 26 the RaetsClub Marine expect a gross premium income in the region of USD 31 million. InterCoastal Shipowners P&I BV was set up in 1999 to underwrite owned P&I on a fixed premium basis. InterCoastal insure approximately 1,2 vessels equating to roughly 3 million GT. Like much of the fixed premium P&I market, InterCoastal focus on vessels which are less than 1, GT. Their preferred tonnage is dry cargo ships, but they will also consider tankers which do not carry persistent products. InterCoastal are restricted to those operators that do not regularly trade trans-atlantic, trans-pacific or to the USA. RaetsRiver P&I was established in January 23 to provide P&I cover to inland craft operators. The intention is to target inland craft owners, mainly in northern Europe. RaetsMultiModal P&I was established in the beginning of 26. RaetsMultiModal provides P&I cover to marine related companies such as stevedores, port authorities, container terminal operators, frieghtforwarders and shipping agents. The maximum limit of liability for P&I under the RaetsClub, InterCoastal and RaetsRiver policy is USD 1 million any one accident or occurrence. For FD&D cover the maximum limit available is USD 2 million any one accident or occurrence. All risks written by Raets P&I are 1 percent ceded to Fortis Insurance NV, in the Netherlands. Fortis Insurance NV are A rated by Standard and Poor s. Other Markets: There are a number of other facilities offering fixed premium P&I cover. Of these Ingosstrakh (previously the Russian State Insurance company for International business) is of note, particularly for Russian and ex-russian business. Ingosstrakh Insurance Co Ingosstrakh have been offering P&I Insurance for 3 years. Their current portfolio consists mainly of owners/operators from Russia and other Eastern European Countries. The remaining portfolio, whilst appearing to be of an international nature has in most cases some form of Russian or former Russian connection. Ingosstrakh cover is similar to that provided by the International Group Clubs. Historically limits of liability were provided up to a maximum of USD 1 million although the vast majority of Owners elect limits of no more than USD 1 million. From the 25 policy year Ingosstrakh have been able to offer limits up to USD 5 million. Ingosstrakh cover a wide range of ships, from very small inland operating vessels through to larger (in excess of 2, GT) ocean going vessels. Ingosstrakh will not write large tankers, cruise boats and USA registered or operated vessels. Ingosstrakh presently insure almost 2, vessels, with an annual premium income of about USD 23 million. Ingosstrakh are rated BB+ by Standard and Poor s and a National Scale rating of ruaa+. InterCoastal Shipowners P&I B.V. Ingosstrakh Insurance Co By Nationality of Management By Vessel Type By Size of Vessel (GT) By Vessel Type Miscellaneous Central/ South America Asia Pacific 2% Middle East including India 1% Europe 6% Miscellaneous Fishing 1% Tankers 1% Tugs/ Barges 1 General Cargo 6% Over 2,1 3% 15,1-2, 6% 1,1-15, 8% 5,1-1, 26% 3,1-5, 29% 1,1-3, 18% Below 1, 1% Bulkers 4% Tugs & Barges 8% Others 9% Passengers 1% Tankers 19% RoRo 1% Reefer 8% Fishing 9% General Cargo 41% 96 Willis P&I Review 26/7 Willis P&I Review 26/7 97

51 P&I Fixed Premium Market continued Southern Seas (Europe) Limited & South of England Protection and Indemnity Association (Bermuda) Limited (South of England) Brighton based Southern Seas changed their name from Southern Seas (UK) Limited to Southern Seas (Europe) Limited in 25. Southern Seas offer cover up to a limit of USD 1 million. Like most of the other fixed premium facilities it is aimed at operators of non-us vessels, particularly dry cargo, of up to 1, Gross Tons. For vessels that trade to the United States, they have an arrangement with Arvak for the provision of COFR s. The management behind Southern Seas created a separate mutual insurer, named The South of England Protection and Indemnity Association (Bermuda) Limited (South of England), which commenced underwriting on 2 February 24. The South of England offers cover to vessels up to approximately 25, GT. The focus is on vessels trading internationally but excluding those ships with a predominately US trading pattern or where vessels are US flagged and/or crewed. In accordance with the Bermudan regulatory requirements The South of England has an excess of loss reinsurance programme in place to protect the Club for USD 24,9, excess of USD 1, placed 1 percent with Lloyd s and other Standard & Poors A+ rated security. Additional reinsurance with Lloyd s security for up to USD 1,, can be purchased as necessary on an individual basis The South of England currently insures approximately 543 vessels. The South of England offers a top limit of USD 1 million any one accident or occurrence. It is expected that in 27 the founders of Southern Seas will integrate the current Southern Seas Fixed Premium programme into the South of England Protection & Indemnity Association (Bermuda) Ltd., as a separate Class of the Club. The South of England Protection and Indemnity Association (Bermuda) Limited is a mutual insurer unrated by any international rating agency. South of England Protection and Indemnity Association (Bermuda) Limited By Nationality of Management By Vessel Type China 24% Other 1 UK 2% Tawain 3% South Korea 3% Turkey 3% North Korea Hong Kong 6% Pakistan 8% Greece 9% Algeria 4% Italy U.A.E 13% General Cargo 2 Others 2% Container 3% RoRo Heavy Lift 1% Tankers 14% Reefers 1% Bulkers 49% 98 Willis P&I Review 26/7 Willis P&I Review 26/7 99