North predicts modest increase in free reserves at year-end

In its mid-year review (previously known as pre-renewal report) North of England P&I Club chairman Pratap Shirke said that the club had seen claims (particularly those in excess of $1m) increase to more typical levels in 2017. However, a positive investment return and a stabilization of the defined benefit pension schemes meant that the Club was projecting a modest increase in free reserves at year end, despite the likelihood that the combined ratio was likely to be above 100% for this year.

The Club would not be declaring any general increase at the forthcoming renewal, but, with a projected approx 100% combined ratio, the Club had decided not to make a return of premium to members at this time. The position would continue to be reviewed, particularly at year-end.

Investment returns were $219m at the half-year point (2.36%).

Employees in the club’s defined benefit schemes would no longer accrue new benefits, which would restrict the scheme’s future volatility. However, North retained exposure to its past obligations under the schemes and would work towards reducing it.

The Club said that there had been some further growth in owned tonnage by the half-way point this year, to just over 140m gt, with chartered tonnage is adding another 50m gt. Growth had been largely organic. Owned tonnage declared to the International Group clubs was about 1.178bn gt, of which North’s share was 12%.

Allocation by tonnage is:

·       Bulk carrier   39%

·       Tankers        27%

·       Container ships       19%

·       Others          4%

·       LNG   4%

·       Car carriers   4%

·       General Cargo        2%

·       Passenger    1%

Allocation by geography is:

·       Asia-Pacific   34%

·       Southern Europe     20%

·       Northern Europe     19%

·       Middle East   10%

·       Scandinavia  9%

·       North America         8%

The Club noted a recent increase in demolition activity, which it welcomed, although it also warned that this would exacerbate premium rating erosion through “churn”.

On Brexit, Shirke said that contingency planning for a post-Brexit business environment continued to be a key priority for the Club. Although a transitional arrangement involving a temporary extension of EU passporting rights for UK insurers remained a possibility. The club’s current expectations were that it would be necessary to establish a subsidiary company in the EU in order to maintain long term access to EU markets. The location and structure of any such subsidiary was currently subject to ongoing review. Shirke said that North expected to be in a position to make further announcements regarding this in the near future.