Shipowners’ Club terms results “resilient” and reports increased tonnage

Shipowners’ Club has reported a combined ratio of 104.2% for the year ending December 31st 2018, slightly better than the budgeted 105%.

Tonnage increased by 6.9% to 27.3m tonnes, while insured vessel numbers increased by 3.5% to 34,094. There was a reduction in capital and free reserves of $37.9m, bringing net assets to $303.8m, from $ 341.7m as of December 31st 2017.

7,444 total members, of which:Location
47%Europe
17%Aus NZ and South Pacific
15%Southeast Asia and Far East
10%Central & South America
5%Middle East & India
4%North America
2%Africa

 

34,094 total vessels (up from 32,932 the previous year), of whichType
28%harbour
20%barge
14%passenger
12%offshore
9%fishing
7%dry cargo
6%yachts
4%tankers

Also 10 autonomous vessels.

 

Total tonnage 27.25m (up 6.9% from 25.5m gt year on year), of whichLocation
49%Southeast Asia and Far East
20%Europe
11%Central and South America
10%Middle East & India
5%North America
4%Aus NZ and South Pacific
1%Africa

 

Earned premiums, net of reinsurance, were $195.0m. Incurred claims were $151.0m, There was an underwriting deficit $8.2m. Investments returned an overall deficit of $29.7m net of tax.

Chairman Philip Orme highlighted that “the Club anticipated the difficult trading conditions that continue for many of our Members and, in the spirit of mutuality, chose to budget for a small underwriting deficit, rather than seek additional premium from Members”.

He emphasized that “whilst the underwriting deficit and the negative investment yield reduced the Club’s net assets, the Club remains well capitalized”. He also reported that Q1 2019 had seen an upturn in investment markets, to the extent that the Club had substantially recovered the 2018 investment deficit.

“Low risk fixed-income investments are barely making money and equity markets have recorded swings of 20%, even in developed markets”, Orme noted. He also made particular mention of Jason Cudlipp and his team at Willis Re Specialty “for the excellent service they continue to provide on our reinsurance programme”.

Shipowners’ CEO Simon Swallow said that the soft insurance model was “no longer sustainable” and felt it inevitable that the market would change.

He observed that the Club had seen growth in vessel numbers, tonnage and Member numbers during 2018. During 2018 the number of new business quotes increased by 7% year on year, with the number of quotes converted into new entries up by 39%. The number of declined enquiries also rose, by 34% year on year. “A larger number of new enquiries were also declined where we did not believe that the standard of operation was such that it could contribute positively to the overall Membership”, Swallow said.

Overall there was an increase in income from every vessel sector apart from Offshore (which was down 2.5% year on year).

In offshore, despite the rise in oil price, the level of activity remained subdued, and as a result many of Shipowners’ members in this sector continued to have their vessels laid up.

The biggest growth came in yacht, dry cargo and fishing, which all increased by about 10%.

In the yacht sector there were two serious windstorm events (typhoon Yutu hitting Saipan, and the storm that hit many yachts in Rapallo, Italy). A spate of H&M fires impacted the yacht sector for 2018.

Swallow noted that dry cargo had been a focus for fixed premium P&I in recent years. It was in this sector that Shipowners’ saw the highest number of new enquiries, and also the highest rate of declined business.

$m20172018
Earned premiums net of reinsurance186.6195.0
Incurred claims net of reinsurance(136.1)(151.0)
Operating expenses(48.7)(52.2)
Underwriting result1.8(8.2)
Investment result net45.9(29.7)
Change in free reserves45.9(29.7)

At the end of 2018 financial year, the Club had been notified of just over 2,800 claims which were valued at just over $96m – down 7% in terms of frequency, but up by 20% in terms of value. Shipowners’ said that the trend was particularly apparent in the bands above $1m, despite the fact that there was ongoing stability in the low number of claims. “It is apparent that the marked increase in the value of these claims has been driven by a number of additional factors coalescing to enhance the wreck removal exposure. Principally among these has been the remote geographical location of the incidents, combined with the increased intervention of local authorities”, said Swallow. The club noted that three of the four largest wreck removals in 2018 had been in remote parts of the Pacific Ocean.

Shipowners’ only notification to the IG pool in 2018 related to the capsize of a jack-up barge in the South China Sea. “Notwithstanding the high value of the barge, the remote location of the incident was a contributing factor in the salvors invoking the SCOPIC clause under Lloyd’s Open Form salvage agreement. This was also a factor in the barge ultimately being declared a constructive total loss, thereby crystalizing the SCOPIC and wreck removal exposure”.

Two noted emerging trends were a marked increase in the number of claims for damage to subsea cables, predominantly in Europe. Shipowners’ believed that one factor in this was the greater propensity for the owners of the cable to identify and pursue the owners of the alleged responsible vessels. “Our experience in handling these claims has also revealed that the liability position is not straightforward, with significant variances between jurisdictions”.

The second trend was the increased number of claims for damage to coral reefs, particularly in South East Asia “where authorities and local landowners are becoming more alive to the prospect of compensation following incidents in areas of coral reef, even if the percentage of coral reef cover is minimal”.

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