Shipowners’ Club free reserves rise by $39.1m in 2020

In its annual report for 2020 Shipowners’ Club has reported increased member, vessel and tonnage numbers, as well as a positive investment return.

Unlike most of its International Group peers, Shipowners’ Club runs its financial year from January 1st to December 31st, as opposed to the February 21st to February 20th policy adopted by most other clubs, to link in with the policy year.

For the 2020 year of account the Club has reported an on-budget underlying combined ratio of 101.0%. Member numbers rose by 3.8% to 8,182. The Club’s investment return of $49.8m contributed to an overall surplus in 2020 of $39.1m.

The Club ended the year with $379.1m of net assets. Its A (stable) rating was reaffirmed by Standard & Poor’s.

Total entered tonnage rose from 27.1m gt to 27.8m gt.

There were 33,831 entered vessels, up from 33,301 in 2019.

Earned premiums net of reinsurance were $207.1m, up from $ the previous year.

Income and expenditure 2016 to 2020

$m 2016 2017 2018 2019 2020
NEP 201.1 186.6 195.0 200.0 207.2
Net claims (149.1) (136.1) (151.0) (156.5) (154.0)
Op Exps (49.2) (48.7) (52.2) (53.8) (55.2)
Underwriting result 2.8 1.8 (8.2) (10.3) (2.0)
Net inv result 11.9 45.9 (29.7) 46.4 48.1
Free reserves +/- 14.7 47.7 (37.9) 36.1 39.1
Combined ratio 98.6% 99.1% 104.2% 105.1% 101.0%

Geographical distribution

  Members Tonnage Vessels
North America 360 1.21m 2,770
Cent & S America 936 2.64m 3,288
Europe 3,917 5.32m 10,913
Africa 198 0.42m 722
ME & India 304 2.87m 2,440
SE Asia/ Far East 1,102 14.22m 8,914
Aus/NZ & Sth Pacific 1,365 1.14m 4,784

Vessels by sector

Harbour 8,492
Barge 6,072
Passenger 4,709
Fishing 5,136
Offshore 3,767
Yachts 2,897
Dry Cargo 1,285
Tankers 1,443
Autonomous 30

Chairman Philip Orme said that his thoughts first went out to members who had lost loved ones over the past year and a bit. “As a mutual organisation we all share your sense of loss”, he said.

He said that the Club had to adapt to an extraordinary working culture, “alien to a Club which has been built on strong personal and face-to-face relationships with members, brokers, correspondents, reinsurers and all other stakeholders”.

Orme noted that in his previous report he had said that the “single and absolute priority” during the pandemic would be to settle and pay claims promptly in order to ensure that members’ cash flows were supported. “We have done this”, he said.

Orme noted that three years ago the Board looked at the difficult times and trading conditions facing members and decided on a programme of supporting them by accepting a loss on the technical account for the following three years. “We were able to do this off the back of the strong reserves of the Club. We therefore record a loss on the technical account for the third year which is totally in line with what we had budgeted”, Orme said.

Orme said that the Club had made “huge steps” in its IT development, including a new underwriting operating system. “We recognize the importance of being a leader not a follower in this area and as such have elevated the role of Chief Information Officer (CIO) to the Board of the Management Company and believe that Mark Hamblin, our CIO, will have a key role in the Club’s development and success in the years to come”, Orme said.

Following several retirements, Orme will propose at the AGM in May the appointment of two new directors, both of whom were co-opted to the Board in November 2020. Jan Vermeij of long standing Member Ultratug, Chile, and Peter Sydenham, recently retired from Swiss Re, bring vast experience to their positions.

CEO Simon Swallow said that the past year had “not always been easy”, but that “like so many organizations we came to recognize the advantages of the new mediums of communication. Video conferencing software became our new best friend, allowing colleagues across all of the Club’s offices to keep in touch and most importantly, enabling them to respond to the needs of our members and brokers, regardless of proximity”.

He noted that, coinciding with the global pandemic, there had been a general hardening of the marine insurance market. “We are acutely aware that shipowners are also facing increases in their insurance premiums, especially for Hull & Machinery risks”, Swallow said.

Reducing capacity had seen some marine insurance premiums increase substantially, including general liabilities, as traditional markets such as Lloyd’s of London started to address consecutive years of escalating claims. This had been fuelled by a general hardening of the reinsurance market. Additionally, the market had also looked to introduce new exclusions addressing pandemic and malicious cyber risks. This, said Swallow, had led to a challenging reinsurance market during the year. But despite such challenges, Swallow said that the Club remained grateful to its fundamental reinsurance partners, guided by Shipowners’ Club brokers Willis Re.

“We especially thank our reinsurance partners Swiss Re, Axis, Hiscox, and Convex, together with the many supporting syndicates for their trust and support of the Club throughout the year”, said Swallow.

Covid-19 claims

The club reported that additional claims directly arising from Covid-19 outbreaks on board vessels were offset by a lower level of member claims, which the Club attributed to reduced operations in certain sectors.

“The passenger excursion vessel sector was particularly badly hit in certain geographic areas with vessels unable to operate. Those that were able to operate did so with a much reduced passenger capacity, therefore lowering the associated risk”, the Club observed.

It said that “a sympathetic and supportive approach was taken to the provision of laid up returns and agreement to enter vessels on a fully laid up basis”. Even so, the Club saw some Members choose not to renew on a temporary basis, as there was no prospect of them operating in the current climate.

“We hope those Members will return to the Club as operations hopefully recommence in the coming months”, the Club said.

According to the Club Rules (Rule 33), if a vessel has been laid up for over six months a Condition Survey may be required. However, to proactively assist Members who had vessels returning to service after being laid up, due to the effect of COVID-19 on their operation, a reactivation declaration has been developed that may waive the survey requirement by declaring that aspects such as maintenance and certification have been continued during the period of down time, the Club said.

Challenges also resulted from delays in mobilization to undertake contracted work and requirements to quarantine crew, in some cases entire vessels, in order to mitigate the risks of Covid-19.

This lower level of overall activity resulted in a small reduction in claims frequency. Although Shipowners’ accepted that the impact of Covid-19 would continue into 2021, it hoped that members’ operations would return “to a more normal level of activity” but with that in mind the Club anticipated a higher level of claims.

Claim numbers for 2020 remained broadly stable overall when compared to 2019. This was despite a proliferation of Covid-19 claims, which accounted for more than 10% of the total claims for the year. Taking out Covid-19 related claims made apparent the other side of the coin; the restriction of marine activity caused by the pandemic. This reduction impacted the quantum of claims notified to the Club. In particular, the absence of claims notified over $5m was significant. However, claims between $1m and $5m were adversely impacted, not by the global pandemic, but by weather related incidents.

In particular, Cyclone Damien, which struck Western Australia in February and caused significant disruption to operations in the region. Typhoon Quinta, which occurred in October in the Philippines, also caused multiple extreme weather conditions and was particularly detrimental to the passenger vessel sector.

Several members incurred constructive total losses that required comprehensive wreck removal operations.

On average the Club was notified of approximately 30 Covid-19 claims per month across all branch offices. Due to the nature of the Club’s tonnage being smaller and specialist, the Club said that it was unsurprising that the bulk of these claims were below $50,000 and were settled within short time periods. However, Shipowners’ had not escaped larger claims completely, with the most significant occurring on an offshore pipelaying vessel operating off the coast of Brazil.

That saw more than 100 crew ultimately test positive for Covid-19.

In addition to claims directly related to Covid-19, other claim types had been adversely affected by the pandemic due to restrictions in the movement of vessels, crew and marine equipment, the Club said. This was also made apparent in the Club’s Condition Survey Programme, where over 80 inspections were affected due to surveyors being unable to attend or where Members were unable to supply their vessels with equipment required to rectify survey findings. By the end of 2020, the number of surveys effected had dropped to 41, showing that restrictions on movement had started to relax.

The Club’s inland tonnage also contributed to the large claims for 2020. Notably, in February an entered clean product tanker was subject to a lock failure on the River Rhône, which culminated in damage to the lock system, significant vessel damage and further difficulties resulting from the nature of the cargo. It was also the sensitive nature of this cargo that contributed to one of the Club’s largest cargo claims in 2020. In this case the refrigerated perishable cargo of squid was damaged due to issues with the on-board refrigeration system

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