Investment income helps Britannia to increased free reserves

The Britannia Steam Ship Insurance Association Holdings Ltd (Britannia) booked a $32m increase in free reserves for the policy year to February 20th 2020, helped by investment income of $61.87m, up from a loss of $2.64m the previous year.

KPIs $000s 20/2/20 20/2/19 20/2/18
calls and premiums 201,185 204,415 208,147
net claims incurred (111,667) (119,599) (93,552)
investment income 61,868 (2,643) 48,626
net operating expenses (31,891) (28,649) (25,666)
net income after taxation 56,427 (9,296) 80,615
free reserves* 422,088 390,661 429,957
net loss ratio 79.9% 83.8% 61.4%
average expense ratio 11.50% 10.90% 9.73%
Surplus Assets In Boudicca 172,300 196,900 211,600

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

  20/2/20 20/2/19 20/2/18
Entered tonnage (owned) 117.5 111.9 107.0
Entered tonnage (chartered) 45.0 19.0 20.0

In a considerably more granular report than its “review of the year” in May (IMN, May 18th 2020), Britannia said that tonnage growth during the year was strong, which resulted in additional premiums being earned, and the impact of churn was negligible. The cost of retention claims in the 2019/20 policy year after 12 months’ development was lower than in the prior year – $132.3m against $152.0m.

The number of claims in total was also lower, but the number of large claims, those expected to cost $1m or more, was 20 compared to 18.

By contrast, claims on the Pool were higher. at the 12-month stage, Pool claims were at their highest level since 2012/13, Britannia said.

Claims within the retention and from the Pool in the older policy years developed positively (as is usual), which allowed the release of $67.2m from the claims provisions in those years.

As a result of these three factors, claims incurred in the financial year were $111.7m, 6.6% down from $119.6m in the prior financial year.

Britannia said that an increase in operating costs to $31.9m reflected a number of factors, including the continuing costs incurred in planning for the UK’s departure from the EU, plus the costs of IT development.

The balance on the technical account was a surplus of $29.3m, which Britannia termed “a satisfactory underwriting result for the year”.

The Group’s overall financial result for the year after tax was a surplus of $56.4m. The total capital of the Group rose by $31.4m after allowing for the $25m capital distribution.

Almost immediately after the year end, investment markets began to be impacted by the economic uncertainty caused by the coronavirus pandemic. Britannia said that much of the growth in the investment portfolio seen during 2019/20 had been reversed, but said that the Group was “in such a strong capital position that it is very well placed to weather this particular storm and to face a more uncertain global economy”. Britannia allocates 20% of its investment funds to equities, which are part of the 54% that is allocated to the “growth portfolio”.

Class 3 – P&I Claims

As of February 20th 2020 the total number of attritional claims notified in respect of the 2019/20 policy year was 4,175, slightly down from the 4,364 claims notified at the same time in the 2018/19 policy year. Britannia said that the total number of attritional claims had remained relatively consistent since the 2016/17 policy year, when 4,276 claims were reported, and well below the 7,351 claims notified for the policy year 2011/12.

Britannia said that this historical reduction reflected a number of factors, such as a number of liner operators moving to higher deductibles and the move to combined deductibles (which apply to the underlying claim, plus costs, fees and expenses). The aggregate cost of retention claims, including the estimates for outstanding amounts, was $132m as of February 20th 2020, down from $152m at the same stage in the prior year. Although high-value incidents are much less frequent than attritional claims, Britannia said that “they can have a significant impact on the outcome of a policy year”.

In 2019/20, 20 high value claims were reported, with a current estimate of $69.5m, compared with 18 claims estimated at $83.9m at the end of the 2018/19 policy year. Three claims for damage to property exceeded the Group’s $10m retention, while 10 significant cargo claims were also notified.

Pool claims

As of February 20th 2020, 18 Pool claims had been notified in the 2019/20 policy year, with an aggregate estimated cost of $355m. This compared to 18 notifications in 2018/19 at an aggregate cost of $304m. The largest claim relates to the grounding and capsize of a car carrier laden with over 4,000 vehicles off Brunswick, Georgia. Britannia did not give a figure estimate, stating only that “the wreck removal operation is expected to be complex and significant pollution prevention measures are needed to protect the environment”.

Class 3 Tonnage and Membership

The majority of this growth came from existing Members, particularly those who had joined in the last five years. Three new Members joined the Group during the 2019/20 policy year, while two were withdrawn. Six new Members joined at renewal on February 20th 2020. Owned tonnage was up on February 20th as a result of new Members and additions to existing fleets. The net tonnage gain at renewal was 2.2m gt.

The Group’s chartered entry grew by 3m gt during the 2019/20 policy year, with a further net gain of 23m gt at renewal. Britannia said that the very large gain at February 20th 2020 was primarily the result of the addition of several very large new Members, though there were also large increases from a number of existing fleets. The number of new vessels committed by existing Members for the upcoming policy year was “particularly positive”, said Britannia. More than 6.12m gt was expected to join the Group during the 2020/21 policy year. At the beginning of 2020/21 the Group’s owned tonnage totalled approximately 117.5m gt, a figure that was expected to increase as the new commitments come on risk.

European fleets (excluding Scandinavia) now make up 32.6% of the Group’s owned tonnage, with Scandinavia at 15.2%. Asia overall now represents 45.7%, with entries from Japan (18.9%), South Korea (9.5%) and Taiwan (7.7%) making up the largest share of Asian tonnage by country.