Financial Update - Policy Year Ending 20 February 2013

CIRCULAR REF: 2013/020

CIRCULATED TO ALL MEMBERS, BROKERS AND DIRECTORS

The Board of Directors met on Wednesday 15 May 2013 and approved North’s financial statements for the year ending 20 February 2013.  Against the backdrop of continuing economic uncertainty, persistently recessionary markets across most shipping sectors and the continuing increase in both current and projected marine insurance claims, we are able to report a financially sound and satisfactory result, albeit with a small overall deficit of US$1.8 million for the financial year to 20 February 2013, which has led to a modest decrease in free reserves from US$314 million to US$312.2 million.

It has been another notable year for claims in the P&I industry, the Club’s own retained claims for the 2012 policy year were at a very high level at the 12 month point and all International Group clubs have been significantly affected by the performance of International Group Pool claims, the total value of which was at a record level at the year end.

Notwithstanding this, the Club’s overall performance has improved from the anticipated position in November 2012 and the combined ratio has reduced from a projected position of 112.5% to 104.4% (with a 5 year average of 92.4%).  This is largely as a result of more favourable claims developments during the last three months of the financial year, which was partially negated by a rather disappointing investment return of 1.6%, producing just US$8.5 million  of income (against a budget of US$20 million).

The Club continues to adopt a cautious financial approach, with a risk averse investment policy and a very cautious claims reserving methodology, which from a balance sheet point of view is at a conservative 95% confidence level.  The cautious financial approach is supported by the Club’s underwriting approach, which is evident in the strategy to consolidate the Club’s membership at the 20 February 2013 renewal, and to thereafter seek controlled membership growth in core business areas.  The Club’s membership at 20 February 2013 was 127 million GT of owned entries, 43 million GT of chartered entries and a total entered tonnage of approximately 170 million GT.

At the recent renewal the Club significantly increased Members’ premium, this was of course a difficult decision, particularly at a time of weak shipping markets.  However the overwhelming majority of the Club’s membership supported the financial strategy and in particular ensuring that the 22 year record of not burdening Members with unbudgeted supplementary premiums was maintained. As a result, the Club is in a confident position to face the possibility of a continuing period of adverse claims activity within the industry.  In recognition of the financial pressures in the shipping industry, the Club decided to assist Members and to defer payment of 30% of premiums for the 2013 policy year, until December 2014, at which time a final assessment can be made of whether the 30% deferred premium instalment is actually required in part or full.

Detailed financial statements and commentary will be published in the next few weeks.  The Club remains financially strong with regulatory capital well above prospective requirements and in January 2013 the Club maintained its Standard & Poor’s ‘A’ (stable) rating for the ninth consecutive year, with a recognition from the ratings agency that the Club is, “….taking a credible and realistic approach in response to the challenges facing the industry.”  The shipping environment is set for another challenging year and the Club’s strategic priorities are clear, to remain a financially strong and stable partner, responsive to our Members’ needs and providing the highest and most cost effective levels of service.

AA WILSON and PA JENNINGS

JOINT MANAGING DIRECTORS – North Insurance Management Limited

As Managers on behalf of The North of England P&I Association Limited