London P&I Club booked an operating surplus after tax of US$6.6m for the financial year to February 20th 2018, its report on the policy year reveals, wholly attributable to a strong investment performance.
Free reserves rose to $194.6m. Gross written premiums, were $101.7m slightly down year on year.
The Club said that its fixed premium offerings, and in particular its fixed premium P&I product for the owners of smaller ships, experienced another year of strong growth, in both business volumes and earned revenues.
Net incurred claims of $83.9m recognized during the year were up by $14.4m on the prior year.
The Club said that there were, as ever, many differences in the composition of claims costs across business lines year-on-year, but the most notable difference was an increase in claims activity from the International Group Pool.
Investment returns were 5.5% net of investment management expenses. This contributed $18.9m to the operating performance in 2017/18 and there was a further $2.0m gain as a result of a restatement of the Club’s UK property asset into US dollars.
|20 years +||13%|
In Class 5 – P&I Claims, the expected cost of net incurred claims at expiry of the 2017/18 policy year was $62.1m, a rise of just under $12m year on year.
At $28.8m, the aggregate cost of the three lowest claims bands was not materially different to the two prior policy years; the $12m rise in net retained claims was the result of a $3m increase in the cost of high severity claims and a $9m increase in the cost of other Group clubs’ pool claims.
Claim types which featured most commonly in the high severity band were Collisions, Fixed and Floating Objects (FFO) and GA & Salvage.
The cost of Collision claims in 2017/18 rose only very slightly YOY, despite an increase in the number of claims. The cost of GA & Salvage claims decreased significantly, from $13.2m to $3.9m. The fall was partly because the cost of GA & Salvage claims in 2016/17 was unusually high, the result of a Pool claim arising from the grounding of 42,700dwt bulk carrier Benita (IMO 9172961) in Mauritius in June 2016, which was refloated, but then sank at the end of July while en route to the demolition yard. There was no equivalent Pool claim for last year.
The $3m increase in the aggregate cost of high severity claims was the result of a $13m increase in the cost of Fixed and Floating Object claims. Three high severity claims contributed significantly to this, with the largest of the three expected to cost just under $6m.
The Club noted that this claim had close connections to two of the claims contributing to the increased cost of Other Clubs’ Pool Claims. On August 23rd 2017, typhoon Hato swept across Hong Kong and Guangzhou. Many of the ships anchored in the area were caught out by the strength of the typhoon, including an entered bulk carrier which was in a so-called typhoon anchorage, waiting to load.
Multiple ships dragged anchor in the onshore winds and London Club noted that. two of other Group Clubs’ Pool Claims were typhoon Hato wreck-removal cases.
The entered ship made heavy contact with an oil terminal on Taiwan-administered Guishan Island. The dock damage claim alone was expected to be in the region of $12m, and the “inevitable” business interruption claim would add to this, the Club said, while noting that Chinese legal advice was that the entered ship was entitled to limit liability to around US$5.5m. ‘Although this is clearly an expensive claim, and is expected to be the most expensive P&I claim of the 2017/18 policy year, the cost has in fact been mitigated significantly by the relatively helpful applicable limit of liability”, said the Club.
Chairman John Lyras commented that there was “evidence of increased claims activity within the Association’s retention layers and particularly on the International Group Pool. The move in the claims environment came when P&I rates remained under intense pressure, and the combination of these factors had a negative impact on our underwriting performance”.
He said that the Club’s underwriting strategy had also been refined to deliver controlled growth in the size and spread of our Membership – “and so it was pleasing to see a year-on-year increase in the Association’s mutually entered tonnage of over 5% following the 2018 renewal”.
Lyras observed that during the year under review detailed consideration was given to Brexit contingency planning. “Although it now appears highly likely agreement will be reached over a transition period to provide an extension to the current passporting regime, the Board’s priority is to ensure the smooth and secure functioning of the business, whatever form Brexit takes”, Lyras said. London Club’s EU subsidiary will be in Cyprus.