Britannia records $25.2m deficit after investment performance deteriorates

In its financial review and update for 2022 Britannia P&I Club reported a net deficit of $25.2m for the year to February 20th 2022, compared with a gain of $37.0m the previous year. Free reserves declined to $398.9m, from $449.1m 12 months earlier. However, the Club recorded significant growth.

KPIs

M GT 20 Feb 2022 20 Feb 2021 20 Feb 2020
Tonnage (owned) 134.7 125.2 117.5
Tonnage (chartered) 73.5 53.5 45.0

KPIs

$000s 20 Feb 2022 20 Feb 2021 20 Feb 2020
Calls and premiums* 216,931 200,086 201,185
Net claims incurred* (142,840) (118,257) (111,667)
Inv inc* 13,479 58,971 61,868
Net op exps* (38,802) (32,520) (31,891)
Net (deficit)/surplus * (25,160) 36,967 56,427
Free reserves** 398,895 449,055 422,088
IG avge exp ratio 12.98% 11.66% 11.50%
S&P rating A (negative) A (stable) A (stable)
Surplus assets in Boudicca† 189,000 177,800 172,300
Reins prems to Boudicca 31,000 31,000 28,250
Claims recoverable from Boudicca (22,049) (42,417) (78,165)

*These balances consist of The Britannia Steam Ship Insurance Holdings Ltd, The Britannia Steam Ship Insurance Association Ltd, The Britannia Steam Ship Insurance Association Europe, Universal Shipowners Marine Insurance Association Limited (USMIA) and Britannia’s Hydra Cell.

**The Group also retains the benefit of its reinsurance contract with Boudicca Insurance Co Ltd.

† Surplus investment assets in Boudicca available to meet future claims by the Group.

The Club reported 248 members in 31 countries, with 4,182 ships on its books weighing in at 134.7m owned gt and 73.5m chartered gt. The owned tonnage was up by 4.5% year on year.

The changes in tonnage were attributed to:

  1. commitments from the 2021 renewal coming on risk throughout the year coupled with further organic growth from existing Members during the policy year. In addition, six new Members joined the Group during the 2021/22 policy year;
  2. at renewal existing Members moving 207 ships from their other clubs to the Group, together with four new Members joining at renewal on 20 February 2022, including notable entries from Nakilat (1.2m gt) and Petrodec (300,000 gt).

The Group’s chartered entry grew by 20.0m gt during the 2021/22 policy year as a result of a very significant chartered entry from one new Member. Chartered tonnage now stands at 73.5m gt.

Almost 100 further owned ships, totalling 3.4m gt have been committed by existing Members to join in 2022/23.

Distribution (owned) %
Bulk carriers/OBO 35
Containers 24
Tankers (crude) 18
Tankers (others) 17
General Cargo 5
Others 1

The investment performance produced a much smaller gain than in the recent past, after some dramatic movements in markets during Q4.

Calls and premiums were higher than in the prior year, at $216.9m, compared with $200.1m the previous year. There was again no general rate increase at the 2021/22 renewal.

Reinsurance costs were higher, mainly due to restructuring and enhanced cover under the Group’s non-pool programme.

Claims incurred in the financial year were significantly higher than the prior year. Retained claims incurred in the 2021/22 policy year at the 12-month stage were $143.9m, slightly higher than the 2020/21 policy year at the same stage. Sixteen claims that were currently expected to cost more than $1.0m were reported, with an aggregate estimate of $46.4m. This was lower than the prior policy year, which saw 20 incidents reported, with an aggregate cost of $63.4m.

Pool claims had a spike in the first half of the year but settled down after that, albeit they stand at $487.0m which is a record high at the 12-month stage of a policy year, surpassing the 2020/21 total of $478.1m at the same stage. In total, 11 incidents had been reported, compared to 22 in the prior year.

The development of prior year claims had generally continued to see improvement, but the 2020/21 policy year had seen a number of late notifications that reduced the overall improvement and led to an increase in the net provision this year. Nevertheless, $36.9m was released from the claims provisions held in respect of those years.

Operating costs were up at $38.8m. Most of the Group’s operating costs are in GBP and its strengthening against USD in the year had driven 40% of the increase. The remaining increase in operating costs was due to a higher management fee on increased tonnage.

The Group’s investment portfolio performed well for much of the year and the return was above the longer-term rate of return – until Q4, during which there was a big fall because of worries about inflation, rising interest rates and finally Russia’s stance towards Ukraine. (Russia’s invasion of Ukraine came days after the end of the financial year, and caused further market declines).

In October 2021 the Board agreed a further capital distribution of $25.0m to be made to Members with mutual P&I tonnage on risk at that date. In the same month Standard & Poor’s confirmed the Group’s credit rating as A (Strong) but assigned a negative outlook, referring to large Pool claims and the need to raise rates, both being challenges for all IG Clubs.

Britannia noted that S&P now has eight out of the 13 IG Clubs on negative outlook and had downgraded one club. The Club said that “the negative outlook for Britannia is being addressed, starting with the announced 12.5% target increase in ETC at the 2022/23 renewal”.

P&I Claims

The Club noted that there had been steady increases in the number of attritional claims since 2019, although largely this reflected the corresponding increase in tonnage entered with the Club within that period. A total of 359 claims associated with the Covid-19 pandemic were notified during the 2021/22 policy year, an increase of 220 claims compared with the same time in the 2020/21 policy year. Claims arose mainly from crew illness, medical repatriations and ship diversions. The aggregate cost of retention claims for the current policy year, as at 20 February 2022, including the estimates for outstanding amounts, was $143.9m. This compares with $136.6m and $132.3m at the same stage in the 2020/21 and 2019/20 policy years respectively.

The high-value incidents in excess of $1m, though much less frequent than attritional claims, have a significant impact on the outcome of a policy year. In 2021/22 there were 16 high-value claims reported, with a current estimate of $46.4m. This compares with 20 claims estimated at $63.4m and $69.5m at the same stage at the end of both the 2020/21 and 2019/20 policy years.

As at 20 February 2022 there were 11 incidents resulting in Pool claims notified by the International Group clubs for the 2021/22 policy year, with an aggregate estimated gross cost of $652.6m from the ground up and $487.0m to the Pool. This compared with 18 incidents with an estimated cost to the Pool of $478.1m that were notified in the 2020/21 policy year at the same stage.

The largest claim in 2021/22 involved the fire onboard the container ship X-Press Pearl, resulting in the loss of cargo, including plastic nurdles, which polluted around 300km of Sri Lanka’s coast. Significant claims have been made for clean-up, environmental damage and wreck removal. There was also the fire on car carrier Felicity Ace on 16 February 2022, carrying approximately 4,000 vehicles shipped by VW from Germany bound for ports in the US. On 1 March 2022 the ship sank some 220nm from the Azores outside territorial waters.

FD&D

The number of Class 6 claims that had been notified after 12 months of the 2021/22 policy year was slightly higher than in the previous year, though somewhat lower than in 2019/20. However, the aggregate value of claims was about 40% less than in 2020/21 and, indeed, was significantly lower than in any recent year.

The most obvious reason for this is that there have been very few high-value Class 6 claims. In fact, as at 20 February 2022, there were no claims with a value greater than $50,000. Britannia said that this might change as cases develop. “However, even after only 12 months of the policy year, it would be normal for there to have been a number of higher value matters in which relatively substantial costs have already been or are expected to be incurred, but that is not the case”.

The Club said that it was not clear why there were so few high value Class 6 claims in 2021/22 and, “indeed, it is a little surprising”.

Freight rates and bunker prices displayed volatility throughout the year as maritime trade continued to be affected by the COVID-19 pandemic, which on the one hand led to boom conditions in some markets, but on the other hand resulted in significant port congestion and delays in various parts of the world. Usually, this degree of instability might be expected to have led to more disputes between shipowners and charterers but this did not appear to have happened.

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