No. 14 2012/2013 - Class 1 (P&I) Policy Year Balances and Mid-Year Financial Update August 2012
Dear Sirs
CLASS 1 (P&I) POLICY YEAR BALANCES AND MID-YEAR FINANCIAL STATEMENT AT AUGUST 2012
At their meeting on 19 September 2012 the Board reviewed the Club’s overall financial position at mid-year including its operating and investment results and Class 1 policy year balances as at 20 August 2012.
MID-YEAR FINANCIAL RESULTS
The positive financial progress consistently reported since February 2011 has continued during 2012.
Further reductions in incurred claims costs across a number of years over the past six months have again enabled ultimate claims projections to be reduced, this time by more than USD 10 million in aggregate. Claims frequency has also fallen to a level for 2012 which is the lowest at the six month stage for many years continuing a positive trend which started in 2009.
Over the same period sustained improvements in overall operating performance have resulted in a further reduction in the combined ratio to less than 105% compared with 108.7% for last year.
The Club’s investment return earned for the year to date is approximately 2%.
As a result of all these factors the Club’s free reserve has increased as at 20 August 2012 to USD 189.1 million compared with USD 179.4 million at February 2012.
This satisfactory mid-year result for the Club continues a trend that has now been evident for some time.
Mutual entered tonnage has in the meantime remained substantially unchanged.
Nevertheless, the Board is concerned that the current state of the world’s shipping market remains difficult for most sectors, and claims volatility continues to be evident from claims involving the International Group’s Pool particularly for the past twelve months. Little can be done about these factors, but in June the Club’s strategic investment policy was further modified so that the Club’s investment portfolio now consists of approximately 48% fixed income, 38% cash or equivalent, with the remainder in equities and absolute return. This strategic reduction in exposure to risk assets is calculated to lessen the likelihood of an investment loss in the future as uncertainties in the financial and investment world remain unresolved. As importantly, the reduction in risk assets also helps to optimise the Club’s capital structure in relation to the forthcoming requirements of Solvency II.
CLASS 1 (P&I)
CLOSED POLICY YEARS (2009 AND PRIOR)
The 2009 year was closed in May 2012. As noted, all closed years are developing positively which has enabled an overall reduction to be made to ultimate projections.
OPEN POLICY YEARS
2010/2011
The year continues to develop well within projections. The net incurred cost of claims taking account of the Club’s retention reinsurances is unchanged from the figure as at 20 February 2012.
No further call is forecast and the year is scheduled to be closed in May 2013. The release percentage of 15% remains unchanged.
2011/2012
As a result of changes in the business underwritten for this policy year and the consequential reduction in exposure to long tail personal injury claims, particularly in the United States, claims overall for 2011 have been expected to develop to conclusion more quickly than for prior years. At 18 months from inception this certainly appears to be the case as incurred claims have developed to significantly lower levels since year end than for any year since 2000. Claims frequency is also very low with fewer higher value claims than for 2010. The development of other Clubs’ Pool claims since 20 February has been within expectations. The net liability to Group Clubs of the two claims, “RENA” and “COSTA CONCORDIA”, that adversely affected the Pool at the end of the year is effectively capped by the Pool’s reinsurance programme.
The forecast additional call of 30% was charged in August 2012. No further call is forecast and the release percentage remains unchanged at 30% of the advance call.
2012/2013
Mid-year figures for Members claims remain within forecast for the current policy year, and claims frequency is at a lower level than for 2011. Pool claims from other Group Clubs are however higher than for previous years at so early a stage of development, but as usual it is too early to predict what claims patterns may emerge in the remaining months of the year.
The forecast additional call of 30% is scheduled for payment in August 2013. The release percentage remains unchanged at 30% of the advance call.
Yours faithfully
For: West of England Insurance Services (Luxembourg) S.A.
(As Managers)
P E Spendlove
Managing Director