Tysers and Gallagher individual club summaries: UK Club

In the recently published reports on the Group P&I scene, brokers Gallagher and Tysers both issued commentaries on the individual Group Clubs. IMN has, for the purposes of brevity, to report the two brokers’ commentaries into a series of articles, one per club. In alphabetical order, we come to:

The United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Ltd

Manager:      Thomas Miller

Gross Tonnage

Owned 144,000,000
Chartered 100,000,000

Free reserves*

2019 504,793,000
2018 539,980,000
2017 458,377,000
2016 447,844,000
2015 449,069,000
Standard & Poor’s Rating A

*Excludes $100m hybrid capital

Tysers opined that “2018/19 was not a good year for the Club”, noting that a combined ratio of 114% and an investment return of $6m (1.4%) saw free reserves drop by nearly $35m to just under $505m.

Owned tonnage rose by 5m to 144m gt, while chartered tonnage remained stable at around 100m gt.

At less than $500,000, attritional claims had fallen in number and value to total around a third of the total claims cost when compared with 50% of total claims cost 10 years ago.

New Chairman Nicholas Inglessis has noted that this change in profile left UK Club more exposed to an increase in large claims, and in the 2018 policy year the Club suffered 12 claims of more than $3m (of which only one hit the International Group Pool). This compared with an average of six per year. These large claims added 15pp to the combined ratio. Inglessis said that “although the cost of large claims may be exceptional, it highlights the need for future action on premium rates.”

Tysers observed that many Clubs, including UK, had an “abatement layer” whereby claims within the Club retention of $10m but over a certain limit (with UK, $2.5m) were shared among all the members; each member’s premium including an element to cover the expected cost of the abatement layer for each policy year.

Tysers said that it assumed that the Club was referring to the fact that this element of premium would need to rise in line with the increase in large claims.

Premium income for the financial year was down almost $40m at $322m.

UK Club has pointed out that, although the last eight years had produced an on- target average combined ratio of 100%, members had enjoyed significant premium reductions over the same period, with premium rates now at historically low levels.

Gallagher noted that In July 2018 the Club’s hybrid capital of $100m was redeemed. The loan carried an interest rate of 7.5% per annum for the past five years and 9% for the five years prior to that. “Thus the capital has cost the Club $82.5m over its 10-year life, whilst never having been explicitly called upon”.

The Club said that it had earned $27m on the underlying funds invested over the past 10 years. Gallagher also referred to the somewhat oblique statement that the existence of the bond had allowed UK Club to take on greater investment risk across its entire investment portfolio, thus enhancing yields by a further $31m.

That would mean that the net cost of the issue had been $24.5m, or around 2.45% per annum.

Tonnage By Vessel Type (Tysers)

Tankers/Gas 41%
Bulkers 35%
Container 13%
Other 11%

Tonnage by Vessel Type (Gallagher)

Tanker/Gas carrier 41%
Bulker 37%
Container/General Cargo 12%
Other 10%

Tonnage by Geographical Area (Tysers)

Europe/Middle East/Africa 54%
Asia-Pacific 36%
Americas 10%

Tonnage by Geographical Area (Gallagher)

Europe 54%
Asia/Pacific 35%
Americas 11%
Year 2019 2018 2017 2016 2015
Calls/Premium 322,398 361,793 376,170 385,360 408,059
Reinsurance Cost 64,860 65,119 81,082 81,414 88,969
Net Claims (incurred) 250,941 225,700 273,619 241,252 289,936
Operating Expenses 43,654 34,542 51,310 43,378 49,522
Net Underwriting Result (37,057) 36,432 (29,841) 19,316 (20,368)
Gross Outstanding Claims 984,145 986,236 924,537 969,305 978,931
Total Assets 1,506,871 1,640,168 1,515,268 1,550,462 1,554,953
Average Expense Ratio 11.09% 10.31% 10.22% 10.28% 9.66%
Solvency Margin 1.53 1.66 1.64 1.60 1.59
Reserves/GT Ratio $3.51 $3.88* $3.30* $3.32* $3.54*

All figures $’000

*Excludes $100m hybrid capital