One of the Club's most important objectives has been to maintain underwriting discipline in order to deliver a predictable and consistent financial result for our Members.
Over the past eight years this focus on stability of underwriting result has produced an average combined ratio of approximately 100%. This has been achieved despite changes in the claims profile.
In recent years, generally favourable claims experience and rising capital levels have depressed premium rates across the market, exposing the underwriting result to increases in claims activity. In the past that exposure would have come from the generality of all claims but, over the past ten years, the shape of the Club's claims profile has changed. The attritional claims (those with a cost below $0.5m) have dropped dramatically in number and in cost and now represent a third of the total cost of claims as opposed to half ten years ago. This change in the claims profile means that the Club is now much more exposed to even a moderate increase in the number of large claims. 2018 has seen just such an increase in both the Club's own claims and the cost of the Pool.
Twelve claims, each with a cost over $3 million, have been notified to the Club during the 2018 policy year compared to an average of six over the previous ten policy years. The cost associated with the six additional claims above the average was nearly $40 million or 15% on the combined ratio.
This additional cost increased the combined ratio for the financial year to 114%. This is above the Club's acceptable range and, although the cost of large claims may be exceptional, it highlights the need for future action on premium rates.
Strong capital position
The underwriting result for the year demonstrates the importance of scale and strong capital. The Club remains financially strong with free reserves of $505 million even after allowing for the cost of the 2018 year and repayment of the hybrid capital in August 2018. The Club has retained its S&P rating of A (Stable).