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Continued high levels of claims and a turbulent investment environment shaped the outcome of the UK P&I Club's financial results for the policy year 2007. Compared with the previous year, there was an increase in the claims retained by the Club and a slight reduction in those covered by the International Group Pool. However, the latter again had a huge impact on the Club's results.
Total funds $992 m
Net claims reserves $763 m
Free reserves $229 m
Investment return 6.5%
Free reserves were reduced by $34 million to $229 million.
Investment performance was above initial expectations at 6.5 per cent for the year compared to 9.7 per cent in the previous year. Most investment returns came from the fixed income portfolio of 8.45 per cent.
Great emphasis was placed on capital preservation during the second part of the financial year. In October, equity holdings were reduced from 19 per cent to 1.6 per cent and the proceeds placed in short-dated fixed income securities and bank deposits, substantially reducing the Club's investment risk.
Gross premium income was $386 million ($358 million in 2007). Fixed premium account business continued to be a strong contributor with time charter premiums accounting for more than $50 million.
The results were approved on May 8th by the UK Club's directors, meeting in Piraeus. Details have been set out in a Financial Highlights document distributed to members.
The sustained high level of large claims which shaped 2006 continued in 2007 with the impact on the Pool amongst the greatest in the past 15 years. The cost to the UK Club in the 2007 policy year could be as much as $77 million, based on its 14.5 per cent provisional share of the Pool. This compares with the Club's current projection of about $84 million for the 2006 Pool.
The Club's non-Pool record had improved since 2001 as the ratio between net premium and net ultimate claims for non-Pool claims by policy year had fallen. This reflected a relatively stable performance when combined with improved premium income.
However, twelve months into the 2007 policy year, retained claims (up to $7 million each) had increased from $139.3 million to $164.6 million - about 18 per cent above the average for the preceding five years.
The increase is largely attributable to collision and personal injury claims, contrasting with a slight decline in reported cargo claims.
The cost of routine P&I claims at lower levels was pushed up way above ordinary inflation. This reflected rapid increases in crew costs and commodity prices and the continuing devaluation of the US dollar.
In 2007, four significant collisions were reported, costing $28.5 million. This was nearly four times that of the preceding policy year and double the average of the preceding five years.
A steady upward increase in the cost of personal injury claims was linked to higher crew wages and compensation regimes, higher cost of medical care and better medical technology. The latter thankfully helps injured persons survive previously fatal injuries but adds to recuperation costs.
Despite sustained high commodity costs, cargo claims were lower than expected. Oil pollution liability was the lowest for the past five policy years.
At the 2008 renewal, the prospect of higher Pool claims was addressed by a separate Pool surcharge to support a general increase for ordinary claims for 2008. The targeted growth was 17.5 per cent renewing mutual entered tonnage with 16.5 per cent achieved before terms. According to the Financial Highlights: "Even though this increase was seemingly high, the wisdom of this course of action has been seen through the factors that continue to drive the level of Club and Pool claims higher."
Mr Biggi observed that "unfortunately, a significant increase in the cost of P&I insurance has again been required." However, members had appreciated the need for the premium increase at the last renewal, not least those with newbuilding programmes who had committed their new ships to the Club. "The actions the Board has already initiated to redress these adverse factors give me confidence that the Club remains on a sound financial footing for the future."
Total entered tonnage increased to over 110 million gross tons at 20th February 2008. More than half the Club's mutual tonnage is less than ten years old. The Club has a "A" strong rating with Standard & Poor's.
The UK Club recognises that "the evolving marine liability legal environment places greater liability on ship owners, which in turn drives claims costs higher over time. The myriad of unilateral state laws and the introduction of conventions on bunkers, wreck removal and periodic increases in compensation regimes mean that members should anticipate persistent claims cost inflation."
Mr Biggi concluded: "I expect P&I insurance will continue to become more expensive as the environment in which ship owners operate is ever less forgiving of accidents of any kind. We can do our best to avoid those accidents and the Board will, of course, seek to minimise the cost of P&I cover wherever consistent with maintaining the Club's strength and objectives."
For further information:
Hugo Wynn-Williams/Nick Whitear
Thomas Miller P&I Ltd
Tel: +44 (0) 20 7283 4646
Email: hugo.wynn-williams@thomasmiller.com
nick.whitear@thomasmiller.com
Issued by:
Martin Rowland
Dunelm Public Relations
Tel: +44 (0) 20 7345 5232
Fax: +44 (0) 20 7345 5234
Email: info@dunelmpr.co.uk
Website: www.dunelmpr.co.uk
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