October Review 2013

At this half year, free reserves remain at a healthy level of $473 million. The reduction of $21 million reflects the higher claims experience of 2013, offset to some extent by continuing improvement in the most recent policy years and a modest level of investment income.

At this stage in 2012, the Club signalled that it was experiencing a more elevated claims environment, with the value of claims below $0.5 million increasing slightly and a higher level of activity in notified claims in excess of $0.5 million.

This was in stark contrast to the exceptionally low claims experienced in the 2011 year, which enabled a mutual premium discount of 2.5% announced this time last year. In the Review of the Year, published in May, it was noted that 2012 was probably more representative of a normal claims year.

The unprecedented growth in size of the world fleet in the boom years and the impact on rates of the so-called ‘churn effect’ has resulted in a period of historically low levels of premium. The experience of 2012, and the early signs from 2013, suggest the bottom of the claims curve has been reached and claims are once again on the rise.

As reported elsewhere in this review, an even higher level of claims is now evident from the first six-month figures from the 2013 policy year. While slow economic activity is still reflected in the continuing low claims numbers, the Club has experienced an increased number of ‘larger’ claims within the retention and produced two of the claims notified to the Pool, so far this year.

The Club’s commitment to sound financial management is based on the twin principles of maintaining a prudent level of capital and free reserves that meets solvency and rating agency requirements, while ensuring a disciplined approach to underwriting to achieve balance over the cycle. It is therefore inevitable that premiums must be increased in line with the trend of rising overall claims that – 2011 aside – is now being confirmed.

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Staff Author

UK P&I

Date30/10/2013

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