Revenue up at Japan Club, but combined ratio rises

Japan Club’s combined ratio increased to 95.0% for the year to March 31st, from 89.8% the previous year, despite a fall in net claims in the policy year. The rise was mainly a result of an increase in provision for outstanding claims and provision for catastrophe reserve caused by foreign exchange fluctuations.

Total operating income for business year 2018 was ¥19,130m ($181.8m), up 10% year on year. This rise was mainly due to foreign exchange fluctuations and an increase in net premiums written, caused by a decrease in reinsurance premiums ceded.

Operating costs and expenses totalled ¥16,650m, up ¥1,130m on the previous year, despite a decrease in net claims paid. The rise was mainly the result of an increase in provision for outstanding claims and provision for catastrophe reserve caused by foreign exchange fluctuations.

The Ordinary surplus increased by ¥800m to ¥2,480m and the surplus after income tax was ¥1,780m. The Reserve amount increased by ¥2,340m ($22.2m) to ¥26,410m ($250m).

Combined Ratio, Year to March 31st 2018 2019
Including currency movements in claim reserves 89.8% 95.0%
Excluding currency movements in claim reserves 85.7% 100.5%

Yukikazu Myochin, elected as Chairman of the Association on July 18th, said that the Japanese economy remained resilient. Demand for marine transport gradually increased. The balance between supply and demand in the dry bulk and container ships sectors showed recovery trends. However, he said that the business environment remained challenging.

He said that the response to the stricter environmental regulations for ship fuels, which will come into effect in January 2020, was a major issue.

There was concern at a gradual increase in claims since 2017 for all IG Clubs, including Japan Club, and in claims amounts as well, due to an increase in ship size and environmental awareness.

At the end of March 2019 Japan Club had 3,221 Members, 4,234 entered vessels and a total tonnage of 96.3m gt.

Hiroshi Sugiura, Director General, said that claims were rather high in 2018 policy year. For Japan Club, although the number of claims decreased in 2017 and 2018 policy year, the level of some claims was high. He said that “close attention therefore should be paid to the development of these claims”.

Japan Club applied a nil general increase to all classes of entries at the 2019 renewal.

The credit rating of BBB+ with S&P Global Ratings was maintained, with the rating agency revising its outlook on the Association to Positive from Stable.

During 2018 policy year, there were new entries of 199 vessels, 8.8m gt, for owners’ entries and 97 vessels, 200,000 gt for Naiko Class entries (Japanese coastal vessels). The new entries were contributed mainly by existing Members, (new-builds and second-hand vessels purchased).

At the conclusion of the 2019 renewal the Association’s entered tonnage amounted to 92.9m gt for owners’ entries and 2.6m gt for Naiko Class entries, up by 1.8m gt and 0.1 million gt respectively compared to last year. Chartered tonnage rose by 1.6m gt to 13.7m gt.

Bulk carriers have constituted the majority of Japan Club’s entries for many years, but Myochin said that the percentages of container vessels and LPG/LNG tankers were gradually increasing. At the end of the 2018 business year to March 31st there were 4,234 vessels entered, comprising 2,322 for owners’ entries and 1,912 for Naiko Class entries. The total amount of entered tonnage was 96.3m gt, consisting of 93.7m gt for owners’ entries and 2.6m gt for Naiko Class entries.

In 2018 policy year some 4,200 claims were received for ocean-going vessels and Naiko Class combined. The Paid and Reserve amounted to $68m for ocean-going vessels and ¥1,500m ($14.25m) for Naiko Class. In 2017 policy year there were two ocean-going vessel incidents which led to claims exceeding $10m (thus being shared by the Pool), In 2018 policy year there was one incident exceeding $10m for ocean-going vessels. There were no large claims for Naiko Class (above £300m ($2.85m)).

Cargo damage claims accounted for 55% of claims over the past five years. The next most frequent category was crew claims, which accounted for 26%. Casualties such as collision, stranding, sinking, fire, and oil pollution accounted for 2%. Myochin noted that, although the proportion of the number of casualty claims was small, the insurance money for each case was high, therefore accounting for 22% of the total of Paid and Reserve since 2014.

For Naiko Class over the past five years Fixed and Floating Objects (FFO) damage claims were the most frequent, accounting for 44% of total claims. Paid and Reserve for FFO claims in 2018 policy year amounted to ¥800m, the highest figure for five years and making up 53% of claim amount in policy year 2018.

The annual average number of casualty claims was twenty-four, some 8% of total Naiko Class claims of the past five years. However, these accounted for 24% of the total of Paid and Reserve.

The pool claims trend for 2017 policy year was similar to 2015 policy year as the number of pool claims of the International Group of P&I Clubs increased, and some large claims of more than $100m occurred. However, the contribution to the pool by Japan Club for that year remained at $13m due to a decrease in the pooling percentage applicable to its contributions. Although the number of pool claims did not significantly change in 2018 policy year compared to the previous four years, half those claims exceeded $20m, and the claims amounts were generally high in 2018 policy year. The contribution to the pool by Japan Club for that year was $15m, substantially higher than the $9.5m average for the same period between 2014 and 2017 policy years.

Interest and dividends received during the year decreased by ¥564m to ¥845m (down $5.36m to $8.03m)m representing an investment return of 1.49%. Bonds are the main area of Japan Club’s investments.

The total value of investments held by the Association increased by ¥2,945m to ¥62,561m ($594.8m).

https://www.piclub.or.jp/attachment/about_annual-report/2019_Annual%20Report.pdf