UK Club Report: decline in free reserves continues, but slows

UK Club has released its directors’ report & financial statements for the year ended February 20th 2022

The Club’s free reserves fell slightly, with its investment returns insufficient to offset underwriting losses. The Club’s deficit of $19m was an improvement on the deficit of $52m. The Club’s free reserves declined to $488m, from $507m 12 months earlier.

The Club noted that “through careful risk selection and safety improvements within the Club’s Membership”, the number of attritional claims (sub $0.5m) reported to the Club had fallen by 60% over the last 10 years. It said that the increase in both frequency and severity seen in the current year had been entirely due to Covid-19 related claims.

For the 2021/22 policy year, the Club benefited from a benign large claims (more than $0.5m) experience.

The Club said that it was “well-positioned to meet the challenges and exploit the opportunities of the future”. It noted that its capital position was “among the best in the industry providing the necessary financial resilience even in the most extreme scenarios”.

Chairman Nicholas Inglessis noted that the sanctions imposed by western states upon Russia had affected trade dramatically. In March 2022 the Club resolved to withdraw cover from all Russian-flagged or beneficially owned tonnage, “bringing to an end a long association with the Russian market that had spanned several decades”.

While the events in Ukraine had overshadowed the Covid-19 pandemic, the disruption to the industry from Covid-19 remained significant in certain parts of the world. He said that the pandemic continued to impact the Club’s underwriting performance.

“The Club received a significant number of enquiries from Members of every trade throughout the year facing crew illness, port delays and quarantine. Although most claims were individually small, the frequency was sufficient to increase the total cost of Covid-19 related claims to approximately 8% of mutual premium income for the 2021 policy year”, he wrote.

Inglessis said that the recovery effort and subsequent negotiations following the grounding of the Ever Given (entered with UK Club) in the Suez Canal had been both high-profile and complex. “The Club’s contribution to a speedy and satisfactory resolution was first class and demonstrates the expertise and experience available to Members, particularly in the event of a major catastrophe”, Inglessis said.

Inglessis warned that the increasing cost associated with large claims was one factor in the inadequacy of premium rates across the market. He noted that the Club had “made significant progress over the last two years towards correcting premium rating and stabilizing the underwriting result”, and that the combined ratio for the year ended February 20th 2022 of 115% represented a significant improvement over last year’s result and that it was in line with the Club’s longer term improvement plan to reach underwriting breakeven.

Like all clubs with a February 20th financial year-end, UK Club suffered from the market correction just before the Club’s year-end, as the likelihood of conflict in the Ukraine increased dramatically.

Inglessis reported that 99% of all Members renewed for a further year. The mutually grew by nearly 10% over the previous year.

At the start of 2022 the Club expanded its fixed premium P&I insurance offering through a partnership with Thomas Miller Specialty. This expansion, along with the growth in mutual tonnage, will significantly increase the Club’s premium income for the coming year.

KPIs

$000s 2022 2021
GPE 336,044 286,376
Outward reinsurance premiums (106,331) (76,624)
Net earned premium 229,713 209,752
Other insurance income 3,632 1,647
Inv return 19,576 53,434
Total income 252,921 264,833
Net claims incurred (217,668) (272,506)
Net op exps (50,826) (43,843)
Total expenses (268,494) (316,349)
Balance on technical account (15,573) (51,516)
Total comprehensive income/(loss) after tax (19,092) (51,796)

The combined ratio for 2021 was 115%, down from the 140%-plus the previous year. The investment return was 1.9%. Total ship count was 5,965 (4,241 above 1,500 gt). Mutual tonnage was 150 gt, up from 140 gt the previous year.

Allocation by type was:

Bulk carrier 34%
Tanker 27%
Container 15%
Gas carrier 13%
Other 12%

The Club allocates 24% of its investment to equities and alternatives, 53% to government bonds, 9% to corporate bonds and 15% in cash.

https://www.ukpandi.com/media/files/uk-p-and-i-club/report-and-accounts/2022-directors-report-and-financial-statements.pdf