North reports premium growth of 5.6% for 2021-22 policy year, but free reserves decline

North of England P&I Club has released its full financial report for 2021-22, in which premium income grew to $429.0m for the year, and the underwriting result improved to a loss of $22.8m (2020-21, loss of $44.9m). However, the investment result deteriorated significantly to a loss of $19.8m (2021-21, gain of $64.5m). The pension scheme deficit declined (i.e. improved) by $26.0m on the year (previous year, deterioration of $11.4m) meaning that the net result was a $16.6m decline in free reserves to $433.7m (previous year, increase of $6.5m).

The combined ratio improved to 107.4%, from 113.7% the previous year.

North said that the 5.6% growth in premium income was “driven by a robust performance across all our businesses, particularly the North Hull and Machinery line and the Sunderland Marine fixed premium businesses”.

Referring to the underwriting loss, North said that it had entered the year “understanding that mutual premiums were too low to be sustainable even in the short term”, a situation that had developed from the record levels of pool claims at the half-year point. “However, there was some amelioration across the last two quarters of the year”, the Club said.

This was similar to the prior year’s position, with pool claims and North’s own underlying retained claims abating in the second half of the year.

The $30m in attritional Covid-19 claims “demonstrated both the value of P&I club support for shipowners and the financial cost of providing that support and assistance.”

In the prior four years the $23m underwriting deficit could have been met from investment returns – which exceeded $64m in each of the previous two years. Unfortunately, as had been cautioned throughout the year, “investment returns were unlikely to provide substantial relief”.

The investment loss of 1.75% on the Club’s portfolio translated into a loss of $19.8m. This was primarily a result of the performance of treasuries and corporate bonds, with little positive or negative impact across the diversified portfolio of risk assets. “The investment loss was more than compensated by improvements in the accounting position for our legacy defined benefit pensions schemes which improved by around $26m. This improvement was primarily driven by the market movements, which reduced the value of our bond portfolio and accordingly acted as a hedge against further fluctuations”, North said.

On the claims side, the number claims greater than $1m increased from 32 in 2020 to 37 in 2021 – 36% by value up to 44% by value. High-value admiralty claims accounted for the five largest claims in 2021, including the “A-Symphony” collision and pollution claim in China, one of two such claims declared by North to the International Group pool.

On the Pool claims side, 2021, despite improving in H2, remained the second-worst year for 20 years (beaten only by 2020).

Mutual tonnage grew to over 160m gt “despite very challenging renewal conditions”.

North said that its “continuing transformation from a traditional monoline P&I Club to a leading global marine insurer remains on course, with new income streams flowing from our prudent growth and diversification strategy”.

Reporting on the mutual business, the Club said that the challenges of securing the 15% budgetary increase, announced in November 2021 should not be underestimated, “particularly when travel restrictions prevented the usual face-to-face engagement with our Members and brokers”.

North noted that, with several other clubs reporting a lower required increase, the renewal market was highly competitive, with shipowners and brokers very sensitive to increasing costs. In addition, the rise in IG reinsurance costs of over 30%, reflecting recent expensive losses, compounded the price sensitivity in many shipping companies worldwide.

North said that the increase “was partially tempered with the inclusion of free and unlimited coverage for malicious cyber and pandemic risks and MLC exposures”.

The Club said that it was “unable to settle on mutually acceptable terms with a small number of Members”.

Overall, P&I owned and chartered tonnage grew slightly to 252m gt (162m gt owned, 90m gt chartered), in line with the Club’s business plan targets. FD&D owned and chartered tonnage grew by 3m gt to 190m (110m gt owned, 80m gt chartered).

North’s distribution (by tonnage) is 40% bulk carriers, 21% tankers, 23% container ships, and 16% others. Geographically the Asia Pacific region contributes 34%, while Europe in total contributes 51%. The Middle East adds 11%, and 4% comes from North America.

North noted that, since the conclusion of its renewal on February 20th 2022, “the rapid pace of change has continued unabated”, with the main focus being on the war between Russia and Ukraine and its major impact on the global supply chain and “an unprecedented swathe of global sanctions against Russia and its economy as previously stable international relations rapidly change”. North said that the developments were “likely to have lasting global political and economic consequences”.

North and Standard Club formally announced their proposed merger on March 14th 2022 and the proposal was overwhelmingly approved by the members of both clubs on May 27th 2022.