UK P&I Club has reported and underwriting surplus of $28m for the policy year 2017/18, described by chairman Alan Olivier as “the largest in recent years”. An investment return of more that $43m helped deliver a total surplus of $72m.
The combined ratio for the financial year was 90%, which Olivier said was “a very creditable result in the prevailing soft market conditions”. The average combined ratio over the past five years has been 99%.
“Once again, we experienced a decrease in claims frequency and a further reduction in the cost of our attritional claims, which was the lowest we had seen in 10 years. The cost of the larger claims above $500,000, which are much less predictable, was broadly in line with the experience of the past few years”, said Olivier.
For the second year in a row the Board elected not to announce a general increase for all Members in advance of the renewal.
The Free Reserve rose by $82m to $540m after adjustment for forward currency contracts. The addition of the Club’s hybrid capital brings the Free Reserves and capital to $640m.
There was a decrease in claims frequency and a further reduction in the cost of attritional claims (those claims costing less than $500,000) to the lowest level seen in 10 years. The cost of the larger claims above $500,000 was broadly in line with the experience of the past few years. Olivier said that the Club needed to be careful to avoid complacency, with underlying P&I claims inflation hovering around 4% per annum. “This has not come through in the claims figures because we continue to enjoy a period of low claims frequency. While there is an element of good fortune in that result, it is not purely a matter of luck”, said Olivier.
There was considerable turnover of tonnage during the year leading up to the renewal. Tonnage entered into the Club during the year totalled 15.2m gt and tonnage leaving the Club through sales and scrapping totalled 10.5m gt. This represented the highest turnover in the Club’s recent history.
Mutual-owned tonnage now totals 139m gt.
Combined mutual-owned and chartered tonnage is around 239m gt.
UK Club’s sector share by gt is:
- Bulk carrier – 37%
- Tanker – 28%
- Gas – 13%
- Container – 12%
- Other – 10%
Geographically by gt it is split 54% EMEA, 35% Asia-Pacific and 11% Americas.
Olivier said that “the renewal itself was tough but by the 20th February the tonnage in the Club was a little up on the tonnage at the end of last year at around 139m gt”. Premium on renewing business was down by around 4%, reflecting market conditions and the improving loss records of the majority of the Members.
Olivier said that Brexit and its impact on the Club’s ability to trade in Europe still loomed large in the club’s planning. with access of UK Financial Services firms to the EU single market remaining uncertain. UK Club is moving to form an insurance company in the Netherlands, based in Rotterdam, which will also front for most of the other Thomas Miller managed businesses trading in Europe. This company will be ready for business at the end of March 2019 for the start of the planned transition period.
As part of the Club’s long-term management succession planning, Hugo Wynn-Williams will step down as CEO at the end of May and be succeeded by Andrew Taylor, currently the Club CFO. This will be Olivier’s last Chairman’s Statement as he will be completing his five year tenure at the AGM in October 2018.
Hugo Wynn-Williams, Chief Executive of Thomas Miller P&I, the UK P&I Club’s managers, said that “we have come a long way in the past decade. Ten years ago, the Board embarked on a journey to strengthen the financial position of the Club. In 2008 the Club became the first in the International Group to raise capital in the financial markets, and in 2010 a comprehensive reinsurance programme enhanced stability in the Club’s underwriting results.
“After nearly 10 years at breakeven underwriting, the financial strength of the Club today is amongst the best in the industry. Over that period, the Club has developed an internal model which has regulatory approval for modelling of underwriting risks. It has also enabled us to develop a reinsurance programme which is one of the most comprehensive in the market. In looking at our plan for the next five years, we were very conscious that many of the challenges since the financial crash of 2008 remain today. We need to maintain underwriting discipline and to enhance our already strong service offering to the Club’s Members”, said Wynn-Williams
Underwriting result for the financial year (excluding mutual premium discounts).
| Year to 20/02/2018 | Year to 20/02/2017 | |
| Loss ratio | 76.1% | 89.7% |
| Expense ratio | 14.4% | 14.3% |
| Combined ratio (excl fx movements within claims) | 90.5% | 104.0% |
| Currency* | 7.1% | (3.6%) |
| Combined ratio (incl fx movements within claims) | 97.6% | 100.4% |