YEAR BOOK Specialist professional indemnity insurance for transport professionals everywhere. ITIC IS MANAGED BY THOMAS MILLER

Transcription

1 SPECIALIST PROFESSIONAL INDEMNITY INSURANCE YEAR BOOK 2013 Specialist professional indemnity insurance for transport professionals everywhere. ITIC IS MANAGED BY THOMAS MILLER

2 FACTS AND FIGURES 2000 members l Worldwide insurance cover l US$ 50 million gross premium l US$ 91 million free reserves l US$ 70 million dividends paid back to Members over the last 18 years l Annual premium from US$ 1,500 - US$ 1 million l US$ 145 million of disbursements and commissions collected for members since 1992 l Backed by at least A rated security l Authorised by the Prudential Regulation Authority and Regulated by the Financial Conduct Authority and Prudential Regulation Authority

3 2013 CHAIRMAN S STATEMENT ITIC has maintained its premium income and continues to retain approximately 95% of its Members at renewal each year, which is a very high retention level. Dear Members The good news to report on the last policy year of 2012/13 is an improvement in both the level of claims and the investment return. ITIC continues to return premium to its Members via the continuity credit at renewal. The amount paid in 2012/13 was US$3.3m. Since the continuity credit payments began 18 years ago, I am pleased to report that more than US$72m has been returned to you, the Members. The improved claim and investment returns allowed the Board, at its meeting in March 2013, to retain the level of continuity credit for one year policies at 2.5% and to increase the level of credit on two year policies from 5% to 7.5%; this will apply from June 2013 onwards. The economic climate worldwide continues to remain difficult although there are increasing signs of improvement. In any recession, professional indemnity insurers tend to see a sharp increase in both the number and value of claims presented and this happened to ITIC in the years 2009 to As a result, a number of significant claims fell into the reinsurance layer relating to this period pushing up the cost of the reinsurance programme. This has meant that the Club pays both a relatively higher cost for its reinsurance and also retains more of each claim before its falls into reinsurance. It is, therefore, essential that the Club continues to act prudently on both its pricing and its appetite for risk. ITIC has maintained its premium income and continues to retain approximately 95% of its Members at renewal each year, which is a very high retention level. It is important to maintain the level of our free reserves and I am pleased to advise that the reserves have increased from US$78.4m to US$91.3m. Solvency II, the new regulatory regime with which all insurers within the EU will have to comply by 1st January 2016, will also have an impact on future capital requirements of the business. However, it is pleasing to note that the Club s current level of free reserves is higher than any present or anticipated regulatory requirement. The investment return for 2012/13 was 7.5% which will help to fund the increased levels of continuity credit agreed by your Board for 2013/14. The Club s reserves are invested in a wide portfolio of assets designed to match any currency exposure that the Club may have to existing claims (which are mostly in US dollars), whilst also balancing the ability to yield a return based on an acceptable level of risk. The Club offers valuable support to its Members with their claims, debt collections (where applicable) and also in providing general or loss prevention advice on a wide range of issues both directly and via the ITIC website at The accounts and financial highlights for the period from 1st June 2012 to 31st May 2013 will also be available on the website after the AGM in September In common with previous years, the Board has decided to close the 2011/12 policy year, meaning that no additional premium can be requested from Members for this or any earlier year. The only full year that remains open is 2012/13. The Club has never requested additional premium for any policy year. Looking forward, ITIC will continue to provide competitively priced professional indemnity insurance (and related products) with loss prevention advice to businesses servicing the marine and transport industry through a mutual insurance company which maintains strong reserves and is supported by at least A rated security, sound risk management, quality service and competent staff. Peter French Chairman l International Transport Intermediaries Club Ltd 1 Year Book 2013

4 COMBINED ITIC AND TIMIA FINANCIAL HIGHLIGHTS For the year ended 31st May US$ 000s US$ 000s Gross premiums written 50,055 50,609 Continuity credit (3,320) (5,214) Reinsurance premiums (excess loss) (6,617) (6,406) Claims incurred less reinsurance recoveries (21,730) (21,702) Operating expenses (16,321) (15,542) Surplus for the year before investment result and exchange losses / gains 2,067 1,745 Investment result (realised and unrealised) 10, Taxation (250) (38) Exchange gains / (losses) 303 (3,261) Surplus / (deficit) for the year 12,902 (704) Free reserves brought forward at 1st June 78,469 79,173 Free reserves carried forward at 31st May 91,371 78,469 Free reserves: Funds available for outstanding claims and claims incurred but not enough reserved 149, ,071 Less: Estimate of outstanding claims net of reinsurance recoveries (including known and incurred but not enough reserved) (57,879) (50,602) Free reserves carried forward at 31st May 91,371 78,469 2 Year Book 2013

5 GROSS PREMIUM INCOME US$ 000s The following graph shows the growth in premium income of ITIC ,702 23,865 19,189 19,577 18,243 17,769 17,013 50,055 50,609 46,923 48,211 47,254 42,963 39,260 36,002 33,864 29,470 FREE RESERVES DEVELOPMENT US$ 000s The reserves of the combined club continue to grow through a strong investment performance and stable underwriting ,479 26,192 19,379 20,391 17,311 13,889 12,658 10,433 67,391 58,104 64,631 64,742 50,708 42,024 78,469 79,173 91,371

6 UNDERWRITING COMMENTARY Positive Signs One of the unfortunate effects of a period of economic instability is that companies can lose money, to which a common reaction is to try to find another party to blame. The result is that professional indemnity insurers see a rise in both the number and value of claims, and this has been ITIC s experience in the years 2009 to Encouragingly, there are now positive signs that the steps taken in response to this recent claims inflation are starting to appear in ITIC s financial statements. Combined with a 7.5% investment result for 2012, and the related two year policy continuity credit (or dividend) for 2013 of 7.5%, the indications are that we are now coming through this difficult period. Combined Ratio Development In the 2012 Year Book, we introduced readers to the combined ratio insurance statistic. This is always worth reviewing for any insurance company as a measure of overall performance as it is the proportion of top line premium income absorbed year on year by an insurer s claims and operating expenses. It is not uncommon for many insurers to operate permanently with a ratio exceeding 100%, using their financial reserves or investment income to make up any shortfall. This is not ITIC s underwriting strategy, where a more prudent approach is taken. A graph illustrating the trend of ITIC s combined ratio over the last five years is shown opposite. You will see that whilst the overall premium level remains stable, the combined ratio trend continues to fall, moving below 100% once again. Risk Sharing A part of ITIC s underwriting strategy over the last three years has been to ask those members unfortunate enough to have regular claims to retain some more risk themselves, or risk share, by taking a higher deductible. This mirrors what ITIC has done with its reinsurance, those insurance contracts purchased to protect ITIC against major claims, where ITIC s retention has risen steadily over the period As ITIC grows in size and strength, sharing some more risk so as to keep reinsurance costs at a reasonable level is only prudent. Loyalty It is only right and proper that members loyalty to ITIC through this difficult period is noted and recorded here. Your support, as well as that of the large number of your insurance brokers, has allowed ITIC to maintain, and develop, a strong solvency position well above any regulatory requirement. We are also quite rightly proud of the 95% of ITIC members who choose to renew their insurance every year, as well as the fact that 65% of ITIC members renew on a two year basis. Additional Products All members and insurance brokers should be aware that ITIC offers a range of insurance products in addition to specialist marine and transport professional indemnity insurance. Income protection for shipbrokers and ship managers; cash in transit or office and money insurance; legal costs cover relating to debt collection; and for more personal professional protection, directors and officers insurance, are all available from ITIC. Please do ask your insurance broker or ITIC underwriter for a quotation for one of these additional products. Thank you to all ITIC members, and their insurance brokers, for your ongoing support for ITIC in Year Book 2013

7 Five year ITIC combined ratio Vs gross ITIC premium (US$) 60, % 100% 50,000 90% 80% 70% 60% 30,000 50% 40% 20,000 30% 20% 10,000 10% 0 0% Gross ITIC Premium US$ ITIC Combined Ratio 2013 ITIC Combined Ratio Gross ITIC Premium US$ ( 000s) 40,000

8 CLAIMS COMMENTARY The graph opposite shows the number of claims reported to ITIC in policy years 2004 to Indemnity files are those claims upon which ITIC may pay both a claim and the related legal fees. This cover represents ITIC s main insurance taken out by all members who join the Club. Debt collection files are only for members who buy Rule 10 Additional Legal Expenses Insurance and Debt Collection. These are typically shipbrokers and agents. The cover is for the legal fees incurred in collecting the monies owed. The claims situation in the last 12 months has been encouraging with a fall in the number of indemnity files reported. These peaked in 2008 and then fell by 20% over the next two years. There was an increase in 2011 to about 90% of the 2008 level. That rise proved short lived and in the last year there has been a considerable fall in the number of indemnity claims. The number of debt collection files followed the same pattern as indemnity files with a peak in 2008 followed by two years of reduced levels. The rise in 2011 was however more pronounced and the number of claims in that year exceeded the figure for Unlike the position with indemnity files the growth in the number of debt collection files has been continued in A factor that has influenced the rise in debt collections in the 2012 policy year is the number of members who are filing claims in some large insolvency proceedings. Thirty-one claims have been opened in respect of one bankruptcy in Korea. The financially troubled owner is a real risk for ITIC s ship agent members. In one case the principal s ship needed main engine repairs. The agent had ensured that the disbursement account was paid regularly as they realised that the owners had financial problems. The port authorities demanded that the berth be vacated and the ship moved to a layby. This required three tugs. In this particular country the agent had to provide the port with a bond which the port authority would draw upon if the principal did not pay. ITIC was able to assist the agent to secure their position. Fraud is always seen in economically difficult times. Claims arising from fraudulent acts have continued to be seen in the last 12 months. These claims include both situations in which the members own staff have been the perpetrators as well as scams by third party criminals. Third party claims have arisen from the theft of freight by parties posing as brokers and liner agency staff being taken in by forged bills of lading. For the first time in recent years ITIC witnessed the return of the problem of ship agents being used by unscrupulous migrant smugglers to move illegal immigrants around the world. The basic pattern is for owners/ managers to approach the agent asking for the agent to attend the ship s call including giving assistance with a crew change. The call is bogus but the agent has provided cover for the migrants arrival in the country. The migrants will disappear and the agent will be left with unpaid hotel bills and can face fines from immigration authorities as well as being liable for detention and repatriation costs if the migrants are caught. A circular was sent to all agents reminding them to be particularly vigilant when being approached by owners or crew managers, who are unknown to them, requesting a crew change. A copy of the circular is available on the ITIC website, at: Indemnity claims arise from a wide variety of causes but many are simply caused by human error. A common source of claims from liner agents involves documentary mistakes relating to the temperature settings on reefer containers. The number one claim against tanker brokers remains demurrage claim documentation that has not been passed on by the broker within the time permitted in the charterparty. Often this is nothing more than a missed . 6 Year Book 2013

9 Claims by ship owners against their managers frequently involve an allegation that the manager failed to maintain the ship over a period of time. Successfully defending these claims can require the production of vast amounts of documentary evidence. If not properly managed legal and expert costs can become disproportionately high. ITIC s claims team has worked with ship managers to handle the burden of litigation and effectively resolve such disputes. ITIC has dealt with a number of highly technical claims against the range of transport professionals it insures including marine surveyors and naval architects. Often by the use of technical expertise such claims can be resolved quickly, privately and without the damage to commercial relations that result from litigation. The role of ITIC is not however restricted to handling claims. Loss prevention is an important part of ITIC s work. In the last year ITIC has issued a number of circulars. Surveyor members are sometimes asked by a ship owner to sign an indemnity before they are granted access to the ship. ITIC has published advice and a suggested wording for Surveyors to use in these circumstances. Guidance on switch bills of lading has been provided for agents and others involved in the issue of bills of lading. Finally, ITIC s e learning seminar on bills of lading has been refreshed and relaunched. It will be available on ITIC s website in early October. We would encourage all members who have any dealings with bills of lading to remind themselves of what can go wrong, if thought is not given to the bill of lading. This graph shows the number of claims reported to ITIC in policy years 2004 to Policy Year Number of indemnity files Number of debt files

10 We are always interested in your views and thoughts on ITIC s cover, services and performance. There is a feedback area in the Contact Us section of ITIC s website, available to anyone who would like to send a query or make a comment. Rather than wait for you to contact us, a qualitative member and broker survey was undertaken in the summer of 2012 and reported to the Board of ITIC in September The 2013 ITIC Yearbook is the first opportunity we have had to share these findings with the membership. A qualitative survey tends to be more in depth and is addressed to a smaller number of participants, than a quantitative survey (which is the wider type of question and answer survey that you are sometimes sent by or may find in magazines). As such, fifteen members and ten insurance brokers were selected by insured service and geographical area. They were either interviewed face to face or by telephone by an independent market research and insight company. ITIC MEMBER AND BROKER SURVEY 2012 Understand our business priorities The members generally saw ITIC in a very favourable light, particularly commenting on the wide role of the account executive which encompasses underwriting, claims and marketing. Members commented positively on the dual capabilities of ITIC, valuing not only the general management and account handling, but the legal support offered and the presence of an onsite, dedicated, claims team. The insurance brokers view of ITIC was unprecedentedly favourable. They said that they liked the friendly, personable, professional experts in the ITIC team. The insurance brokers advised that ITIC executives were good in front of clients and respected the broker s position. The insurance brokers did consider that ITIC s price was an issue on occasions, but acknowledged that whilst there are cheaper options that value was often compromised. Despite this comment, the insurance brokers asked ITIC to be more flexible and to sharpen pencils, but also said that more of the same will certainly serve ITIC well. These comments have been listened to and acted on, where appropriate. 8 Year Book 2013

11 There are others we could go to but ITIC is the strongest and best respected ITIC has 90% of the marine business here which could lead to complacency. In their case it hasn t There is no alternative to ITIC. A longstanding friend of the family

12 The interviews, more specifically focused on renewals, claims, underwriting, relationships, communications, loss prevention, finances, website and service culture which are reported in the following paragraphs. Renewals All parties questioned generally saw ITIC renewals as being quick and easy. Many liked the 2 year deal options, the transparency and flexibility of renewal negotiations. Any disagreements sorted out easily by phone they are plain dealers Claims ITIC staff were reported as providing logical and sensible advice, although the speed of response was an issue. Sometimes a little slow to get started. Once underway it s fine Other comments were: In house lawyers know how to handle claims better and more professionally Many claims go direct between member and club without the broker s intervention - unless things get messy Underwriting Both members and brokers were very positive about underwriting standards. The fact that ITIC underwriters were also involved with claims was useful as it provided fewer knee jerk reactions at renewal and generally through the year. Supportive when I need to cut a deal. They listen Relationships This was viewed as one of ITIC s genuine strengths and was widely cited as a crucial attribute, with local offices, representatives and correspondents being equally applauded. Annual visits to overseas locations were appreciated and felt to be valuable. Relationships are one of their genuine fortés Communications The consensus of the survey suggested that the content and media were fine and that volume/frequency is well judged. Seminars are appreciated and attended wherever possible. Case study material is felt to be particularly valuable, although you said that more could be made of this. Loss Prevention: ITIC s risk management was considered to be very well done and differentiated ITIC from other insurers. Some members questioned were able to give good examples of actions taken as a result of reading ITIC s loss prevention material. how to sign off purchase orders so that the owner will not transfer payment liability to the ship management co. As a result the company developed set stamps for contract sign off Website The updated website received praise, however many questioned were unaware of the archive that exists on the website, which can be accessed by all through The Knowledge Zone. Clear, comprehensive. You have all you need there Huge improvement over what went before Some users believe that there is still more that could be featured. ITIC has lots more information not released Service Culture ITIC was praised for its service culture, which was termed by some as a partner culture being inclusive and supportive. I feel that we are part of their culture and they are part of ours The ITIC advisory and consultative support was thought to be key in relationship building and contributed to ITIC s service strength. For some ITIC is worn like a badge of quality. We feature the ITIC logo on our website we re proud of the association. 10 Year Book 2013

13 The findings of the Member and Broker Survey were mostly positive, although there were some recommendations made such as To keep an eye on speed of response To be as flexible as possible To embrace localism, language usage We have listened to the comments and views and are aware that there is always room for improvement. We always endeavour to reply to any s or phone calls as quickly as we can. Obviously, some situations do involve the consideration of often large amounts of information, which can take some time. However, if you are feeling that you need an answer more quickly, please let us know. We also try to be flexible on providing the best insurance terms that we can depending on the activities requiring insurance. We also try to be flexible and commercial in our claims handling. Again, if you think we could improve on a specific request, please ask. Finally, to assist any ITIC members or insurance brokers, who do not have English as their first language, the ITIC team speak French, Spanish, German, Italian and Japanese. The ITIC website has the Rules, Proposal Forms and Fact Sheets available in Chinese, French, German, Italian and Spanish. Furthermore, the website is also currently being translated into German, Spanish, French and Italian. Some of these will be accessible from October Our message to all Members and Brokers is to thank you for the time and effort that you put into this survey. The ITIC team were thrilled with the results, but would ask that you: visit and use the ITIC website continue to ask us questions tell us when you think that we could do better

14 ADDITIONAL INSURANCES OFFERED BY ITIC ITIC provides the most comprehensive errors and omissions insurance for businesses involved in the transport industry worldwide. ITIC also offers a range of additional covers which complement the core cover. The chart below sets out the amount of additional insurances bought from which you will see that Additional Legal Expenses and Debt Collection is the most popular, followed by full loss of commission insurance and Directors and Officers cover. Information on each of these insurances can be found at Debt Collection Insurance: assists with the recovery of outstanding debts, commissions, brokerage and disbursement accounts. This cover pays for any legal costs incurred in the recovery of the debt, rather than the debt itself. ITIC s Commission Income Insurance: is tailored to meet shipbrokers needs. There are two levels of cover, actual and constructive total loss only, and full cover which covers a wider range of marine perils. Directors & Officers Insurance: protects companies and their directors, officers and senior managers against claims arising from their decisions and actions taken whilst managing their business. Cash in transit Insurance: ITIC offers a unique insurance package to its members. The combination of cash in transit and petty cash insurance offers members the convenience of a single policy at a competitive premium. Loss of Management Fee Insurance: A loss of income caused by a loss of management fee insurance is a vital cover for ship managers. This is offered as an endorsement to ship manager members existing professional indemnity and covers them if they are not paid their fees as a result of a ship under their management being lost through actual or constructive total loss. Additional Insurances bought by ITIC Members Total Loss Only commission insurance Full loss of commission insurance Debt collection insurance Directors and Officers Insurance Money insurance Cash in transit If you are insured with ITIC and would like further information, or a quote on any of these additional insurances, please ask your insurance broker or ITIC underwriter. 12 Year Book 2013

15 PROFESSIONAL INDEMNITY INSURANCE WITH ITIC ITIC is the world s leading insurer of professionals who provide services to the transport industry, with over 80 years experience of consistently providing comprehensive cover at cost effective premiums. Why choose ITIC? ITIC provides professional indemnity insurance at cost. ITIC is the mutual insurer of the transport industry with no external shareholders to take a profit from the business. ITIC pays dividends annually. Surplus funds have been paid out to the assureds in the form of continuity credits for the last 18 years. ITIC understands your business. ITIC s specialist knowledge of your business will make it quicker and easier for you to obtain advice and support on a claim under your professional indemnity insurance. ITIC is more than just insurance. As an assured at ITIC you will receive support from a team who understand the unique situations and liabilities that your business faces. ITIC will provide a sympathetic approach. ITIC understands that you will often have commercial relationships which will need preserving and will work with you to allow that business association to continue. ITIC s unique discretionary insurance cover could support any claim which may not normally be paid by another professional indemnity insurer. US$ 145 million of disbursements and commissions collected for members since 1992 ITIC Fact File Comprehensive professional indemnity insurance, and public liability, cover provided consistently for more than 80 years Worldwide insurance cover US$ 50 million gross premium US$ 91 million free reserves US$ 70 million dividends paid back to Members over the last 18 years Annual premium from US$ 1,500 up to US$ 1 million US$ 145 million of disbursements and commissions collected for members since ,000 members In more than 100 countries Backed by at least A rated security Authorised by the Prudential Regulation Authority and Regulated by the Financial Conduct Authority and Prudential Regulation Authority ITIC welcomes enquiries from all insurance brokers, or direct. ITIC is managed by ITIM Co Ltd, a subsidiary of Thomas Miller & Co Ltd. Thomas Miller manages a number of world-leading mutual and other insurance companies providing insurance for shipping, transport and professional indemnity risks, including UK P&I Club, TT Club, BLP, OPDU, Patent agents mutual and Bar Mutual. Thomas Miller & Co have offices in London, Shanghai, Beijing, Hong Kong, Singapore, Sydney, New Jersey, San Francisco, Bermuda and the Isle of Man.

16 SPECIALIST PROFESSIONAL INDEMNITY INSURANCE If the transport industry needs your services, then you need the services of ITIC. AVIATION MARINE RAIL TRANSPORT CLAIMS PROFESSIONALS Beijing Bermuda Hong Kong The Isle of Man London New Jersey San Francisco Shanghai Singapore Sydney For further information on any of the products, services or cover provided by ITIC contact Charlotte Kirk at: International Transport Intermediaries Club Ltd, 90 Fenchurch Street, London EC3M 4ST. Tel: + 44 (0) Fax: + 44 (0) ITIC@thomasmiller.com Web: International Transport Intermediaries Club Ltd ITIC IS MANAGED BY THOMAS MILLER