100921 ajg marine prerenewal market review 2016...

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01. MARINE P&I PRE-RENEWAL

REVIEW 2016

The World of P&I According to AJG ..... 04

Executive Summary ........................... 06

Financial Commentary .......................... 11

02. CLUB PAGES

Summary of Clubs Financial Position ... 22

American Steamship Owners .............. 24

Britannia Steam Ship ......................... 26

Assuranceforeningen

Gard Gjensidig .................................. 28

Japan Ship Owners ........................... 30

London Steam-Ship Owners ............... 32

North of England. .............................. 34

Assuranceforeningen

Skuld Gjensidig ................................. 36

Shipowners Mutual ........................... 38

The Standard Club ............................ 40

Steamship Mutual ............................. 42

Sveriges Angfartygs

Assurance Forening ........................... 44

United Kingdom Mutual ..................... 46

West of England ................................ 48

03. INDUSTRY STATISTICS

7 Year Combined Ratio ...................... 52

Premium & Claims per GT .................. 53

Free Reserves ................................... 54

Tonnage ........................................... 56

Comparative Growth Factors ............... 57

Market Share .................................... 58

General increases 2010-2016 ............ 59

Average expense ratio ........................ 60

7 Year Investment Return Summary .... 62

P&I Call History Statistics ................... 64

P&I Release Call Statistics .................. 65

Lay up returns .................................. 66

Ratings Agencies ............................... 67

International Group Reinsurance

Programme Structure & Rates ............. 68

Losses to pooling .............................. 70

Hydra Insurance Company Limited ...... 71

04. MAJOR LIMITING CONVENTIONS

AND STATUTES AFFECTING P&I RISKS

Developments in the past 12 months .. 73

05. CONTACTS

Marine Division Contacts.................... 88

Contents

Marine P&I Pre-Renewal Review, October 2016 32 Marine P&I Pre-Renewal Review, October 2016


Commercial P&I Market

Non-IG Mutual P&I Club

International Group P&I Club

USA, New YorkAmerican Club UK, London

Britannia P&I ClubLondon P&I ClubShipowners P&I ClubStandard ClubSteamship Mutual P&IThe UK ClubWest of England

UK, NewcastleNorth of England

Norway, OsloSkuld P&I

Sweden, GothenburgSwedish Club

Japan, TokyoJapan P&I Club

Korea, SeoulKorea P&I Club

China, BeijingChina P&I Club

Norway, ArendalGard AS

USA, New YorkEagle Ocean Marine

Greece, AthensAigaion Insurance Co. SA

UK, LondonBritish Marine (QBE Group)CarinaLodestar LtdNavigators P&IOsprey Underwriting AgencyCharterers P&I Club

Norway, BergenNorwegian Hull Club

Norway, OsloHydor AS

Russia, MoscowIngosstrakhRogosstrakh Ltd

Germany, HamburgHanseatic Underwriters

Netherlands, RotterdamRaetsMarine BVCharterama BV

The world of P&I according to AJG


The fi rst half of 2016 was dominated by the twin BR’s of BRexit (Britain’s referendum to leave the EU) and BRUK (the putative merger of the Britannia and UK Clubs), to such an extent that the 20th February 2016 Club results almost passed by unnoticed. It was, admittedly, on the face of it, a little uninspired – another $200 million or so again being added to Free Reserve, and a continued benign claims environment: but the devil, as we shall see, is in the detail.

This was the third consecutive year when overall profi ts contributed between $215 and $270 million towards Free Reserve development, a strange consistency in an otherwise volatile marketplace. The point to hand is that whilst 2013-14 and 2014-15 had collectively added $498 million to capital by the “conventional” route of breakeven underwriting and a solid investment income, 2015-16 achieved a similar overall result in the exact opposite way.

We saw a $408 million underwriting surplus in 2015-16 which overcame both negative investment income and foreign exchange losses to leave that consistent $218 million overall surplus. When one bears in mind that this underwriting surplus was after returning over $50 million of planned premium to members, this is still more extraordinary. We have only seen this magnitude of an underwriting gain once in the last twenty years – and that was in 2008-09 when excess calls inspired by investment losses distorted the real result.

So how did the Clubs achieve this landmark result – it wasn’t from current year underwriting as there is presently an underwriting loss on the immature 2015-16 policy year, although it may

well turn out to be ultimately profi table. It wasn’t from diversifi ed activities which appear to have contributed less than $50 million net to the coffers. It was however from back year development of the underwriting results of prior years’ - $365 million of positive back year development gains on the two open years alone. We can only speculate that there were further development gains from closed years.

Let me set that in context for a moment – the International Group Clubs collectively made $1 million every day during 2015-16 from the run off of just those two open years. Not from current trading, but from run off. Whilst all around them their members were going out of business or struggling to stay afl oat, the Clubs stashed away a million dollars run off underwriting profi t every day.

In all fairness, a chunk of this was down to late booked premium, but there was still more than $275 million favourable claims development. This may be in the form of IBNR redundancy or simple over conservative reserving on known claims, but, whichever, it is a lot of money.

Ultimately the claims will cost what the claims will cost, but remember this: an owner’s renewal premium is infl uenced in part by his own record, in part by the collective experience of his own club and, ultimately, all clubs via pooling. If that premium rating is being done with claims data that could contain signifi cant over reserving of recent claims, then that owner could be paying too much premium.

It then becomes an issue to be resolved by negotiation at subsequent renewals to remedy and, for example the 7% positive shift seen

in the 2014-15 claims fi gures may get undervalued or lost in that negotiation unless the third “BR” – the Broker is on the ball. It pays to use a good broker. Call us!

Turning to the other “BR”’s, the question of the potential merger of two of the bigger P&I Clubs, Britannia and the UK Club, vexed the market for four months between February and June. The eventual cessation of the merger talks will have pleased parts of the market and frustrated those others in the pro consolidation camp.

The intervening four months were however rife with rumours of other possible mergers as the remaining 10 Clubs, ignoring Gard for a moment, considered their options in a potential market with two dominant mega clubs. If all those rumours were to be believed, there would have been maybe just 4 remaining clubs sat on the event horizon of an internally collapsing market. Not a scenario that would create a better environment for the Shipowners to acquire their insurance in.

The whole period did however force a degree of introspection as to what the market might look like as we approach the 2020’s. At one extreme the International Group is but a large insurance pool, with 13 marketing arms: at the other it is a vibrant oligopoly with common interests but each with uniquely different qualities. But is the current 13 Club system sustainable, and good for the Shipowners. We do not have any ready answers to this question, but we can say this: every potential merger promulgated in the past 10 years has been rejected.

Consolidation may not be the answer, diversifi cation could be but it does dilute the essential beauty of the monoline mutual organisation. For sure the market will evolve and change in both complexity and complexion, but it now seems likely that diversifi cation will remain the preferred strategy over consolidation, for better or worse.

The fi nal “BR” – Brexit - lay at the core of the investment market and foreign currency volatility issues facing the Clubs last year, and indeed the early part of the 2016-17 policy year. If the expression “we live in interesting times” applied at the start of 2016, then those times became even more interesting with the June 23rd “out” vote. The uncertainty hanging over the investment markets deepened and the investments and forex markets went into a tailspin. The global markets fell by $2.1 trillion on Friday 24th, although this had more than been recovered by the end of July, unless you invested in UK banks!

At this stage it is too soon to consider what Brexit will mean for the Clubs who are in essence UK-centric international businesses. The government has not triggered exit yet and seem to be caught, rather like a rabbit in the headlights, in startled indecision. We can however note the following: if the UK leave the EU then there will be a major issue over “passporting” – the process which allows UK businesses to trade with the EU whilst being compliant with the regulations in just their home member state. Wider issues may well exist with global trading.

The second issue revolves around the fact that the majority of fi nancial services regulation is enshrined in the UK legal system via EU directives. It is thus ironic that Brexit has come in the same year as the long awaited advent of the EU inspired “Solvency II” regime. We will continue to monitor the impact of Brexit and, as it becomes clear what the particular implications for the P&I Clubs, and specifi cally their members, are, we will keep you advised.

Reverting to the matter of Solvency II, nothing has yet emerged into the public domain as a result of the reporting requirements, but the Clubs would all appear to be compliant with the regime, or, at least, those to whom it applies are. Next year we hope to be able to disseminate further useful data concerning the Clubs for your enlightenment.

As alluded to in our review of October 2015, the benefi ts of diversifi cation by the Clubs was at the very best unclear. Twelve months on, the position remains unchanged and we are arguably no closer to seeing clear direct benefi t to the members, our clients, from the programmes that have been embarked upon.

So why are such policies so fervently pursued? Whilst it is clear that historically such diversifi cation has paid dividends, not only fi nancially but also in terms of market presence, when we look at the Gard model of growth this, in part, relied upon capitalisation of an established and familiar market years in advance of their peers.

Times have changed, of course, but that is precisely the point. The feedback we are receiving from our clients is that patience is running out and that perhaps Managers should remain focussed on their core mutual service and duty to their members, rather than chasing a dream.

In closing, I call on the Clubs to display generous spirits at the forthcoming renewal. There appears to be no need for a general increase and in several cases there seem to be good justifi cation for returning funds to members. I recognise the continued volatile operating environment but now is the time to think outside the box and consider the needs of the members.

Malcolm GodfreyExecutive DirectorMarine Division, Speciality Risks

It seems like only yesterday that I was writing last year’s executive summary, but a lot has happened in a short time.

Welcome to the 2016 Arthur J. Gallagher Pre-Renewal P&I Review

MALCOLM GODFREYEXECUTIVE DIRECTOR


Timeline 2015-16 Aggregate Financial Year Results International Group Clubs

2015

October Britannia further reduces the deferred call for P&I on the 2014-15 policy year from 40% to 37.5%. The FD&D deferred call remains at a reduced 30% (initially 50%);

The American Club forms American Hellenic Hull Insurance Co ltd which it is intended will acquire the business of the Hellenic Hull Mutual Association plc;

The UK Club announce a mutual premium discount of 2.5% in respect of policy year 2014-15;

Skuld receive approval in principal from Lloyd’s to establish Special Purpose Syndicate 6126 to provide reinsurance for existing Syndicate 1897 and underwrite non marine business;

Thomas Miller, acquires a controlling shareholding in Osprey Holdings Ltd;

November General Increase season ends with an average P&I increase of just under 2%, varying between 0% and 5.0%. FD&D increase is somewhat lower at 0.7% with a range of 0% and 5%;

The Strike Club make a 10% excess call in respect of all classes for the 2015-16 policy year (ending February 1st 2016). An additional 5% is required for 2014-15;

The UK Club’s Hugo Wynn Williams is elected Chairman of the International Group of P&I Clubs to succeed Grantley Berkeley;

December The Shipowners Club amends its financial year to 31 December to better reflect the nature of its business;

2016

January Solvency II implementation date;

AM Best affirm its rating of A- for the Swedish Club;

EU and US sanctions against Iran are partially lifted under a Joint Comprehensive Plan of Action, however US insurers and reinsurers remain prohibited from providing services;

February Group excess reinsurance programme renews with reductions once again being seen across all vessel categories including passenger vessels. Individual Club retentions rise to $10 million and Hydra again increases its participation on the first excess layer slightly;

The Britannia and UK Clubs announce that they are in merger discussions, both at Club and manager levels;

Francis Sarre succeeds Matheos Los as Chairman of the West of England;

March EU agree new Guidelines on Places of Refuge for ships in need of assistance;

April The International Group purchase Euro 100 million fallback cover designed to respond where US domiciled reinsurers are unable to respond to claims due to continuing sanctions;

May Once again, Gard forego $37.0 million of call income by reducing the deferred call on the 2015-16 policy year from 25% to 15%;

Skuld sign a letter of intent to acquire SMA/Gerling Norway and the renewal rights of its Hull & Machinery book;

June Britannia and UK Club merger discussions are called off;

In a referendum the United Kingdom votes to leave the EU but, as at September, the mechanism for achieving this has yet to be set in motion;

Thomas Miller form a new MGA, Thomas Miller Specialty, which will both incorporate the recently acquired Osprey Underwriting Agency marine and satellite business and other new Speciality Lines business;

July American Hellenic Hull Insurance Co Ltd gains its licence in Cyprus and commences underwriting;

Ulrich Kranich is appointed Chairman of the TT Club in succession to Knud Pontoppidan;

August The UK Insurance Act comes into force, directly impacting 8 of the Clubs, who contract out of many aspects of the Act;

Standard & Poor’s raise the interactive rating of Steamship Mutual to A stable;

September The Swedish Club announce six monthly figures to 30 June 2016: an $ 11.2 million increase in Free Reserves to $194.2 million featuring a small underwriting surplus of $ 2.4 million;

Skuld announce half year results to 20 August 2016: a $ 29 million increase in Free Reserves to $ 379 million underpinned by a bounce back in investment income which offsets an underwriting loss for the period;

At the same time Skuld confirm that the 2.5% premium credit for mutual members in respect of the 2015-16 will be allowed against the November premium instalment;

Standard Club and Korean P&I Club announce joint venture to offer US$ 1 billion of fixed P&I cover.

The following table shows the composite results of the International Group Clubs for the last 3 years. Figures include the pledged assets of Boudicca Insurance Co Ltd, with year-on-year movements in this amount treated as incurred losses. Figures for those Clubs who do not

report as at 20 February are included on the basis of their results for the nearest year-end to 20 February of any given year. No adjustment is made to eliminate inter-Club transactions, in particular pooling transactions.

For all years, figures above include the non P&I operations, assets and liabilities of all Clubs eg Gard Marine & Energy, Sunderland Marine, Skuld and Standard’s Lloyd’s syndicates etc. In 2014-15 North of England acquired Sunderland Marine which added $ 48.5 million to Free Reserves; in 2015-16 the American Club issued a long tern Surplus Note of $ 15.5 million which is considered capital for regulatory purposes. Figures reflect prior year application of changed accounting policies.

In ‘000s of US Dollars 2015-16 2014-15 2013-14

Call Income 4,199,090 4,350,060 4,109,703

Acquisition Costs 374,201 394,004 364,810

Reinsurance 864,464 892,248 840,200

Claims Incurred 2,363,845 2,708,747 2,732,847

Administrative Expenses 188,118 273,247 232,790

3,790,628 4,268,247 4,170,647

Underwriting Result 408,462 81,814 (60,944)

Investment Income (103,935) 286,796 337,204

Exchange Gains / (Losses) etc (72,127) (75,827) (25,483)

Taxation (14,252) (23,152) (22,951)

(190,314) 187,717 288,770

Overall Result 218,148 269,531 227,826

Cash and Investments 11,310,204 11,196,945 10,804,092

Other Net Assets 189,633 182,295 200,254

11,499,837 11,379,240 11,004,346

Net Outstanding Claims 6,653,156 6,770,579 6,714,204

Free Reserves 4,728,112 4,509,964 4,191,804

Debt Capital 118,569 98,697 98,338


International Group Clubs Aggregate Policy Year Results

Development of key figures at the end of 12, 24 and 36 months respectively on the open policy years at 20 February 2016 are as follows.

at 12 months at 24 months at 36 months

2015-16 3,417,108 - -

2014-15 3,490,495 3,596,454 -

2013-14 3,392,786 3,481,906 3,501,301

2012-13 (closed) 3,137,020 3,225,740 3,205,656

2011-12 (closed) 3,159,933 3,218,603 3,204,954


2015-16 2,431,861 - -

2014-15 2,529,918 2,349,732 -

2013-14 2,609,200 2,550,414 2,453,001

2012-13 (closed) 2,653,824 2,597,481 2,560,522

2011-12 (closed) 2,535,437 2,421,466 2,350,344


2015-16 (192,078) - -

2014-15 (267,218) (2,322) -

2013-14 (406,097) (238,794) (136,860)

2012-13 (closed) (583,623) (437,951) (419,749)

2011-12 (closed) (369,065) (186,748) (130,722)


2015-16 (111,733) - -

2014-15 (170,342) 91,405 -

2013-14 (223,473) (65,488) 32,893

2012-13 (closed) (357,097) (215,690) (186,214)

2011-12 (closed) (207,504) (31,624) 28,345

1. Call Income In ‘000s of US Dollars

2. Claims Incurred In ‘000s of US Dollars

3. Underwriting Result In ‘000s of US Dollars

4. Overall Result In ‘000s of US Dollars

Financial Commentary

2015-16 saw a continuation of improved underwriting results, but taken to extreme levels, as a financial year underwriting profit of $408.5 million arose. This contrasts favourable to the previous year’s adjusted profit of $81.8 million and is a far cry from the $296.9 million underwriting loss seen as recently as 2012-13.

As noted in our review last year, these surpluses are not attributable to substantial general increases, but rather to a real shift in the market dynamics. In the context of this statement however it should be note that this year’s result is heavily “subsidised” by favourable development on older policy years, including closed years.

Financial year claims are down by some $350 million in 2015-16 as compared to the prior year as this back year development has been released into the wild, but it also appears to be the case that there is a genuine reduction in claims on a policy year basis, which have fallen by some $ 75 million a year over the past 4 years at 12 month development point. That this period coincides with the recent depressed shipping market can be no

coincidence – and with such vast underwriting profits being earned whilst the underlying industry endures such poor conditions, we fully expect more of these gains to be rebated to owners later in the year in the name of mutuality.

On a policy year basis the 2015-16 year sustained an underwriting loss of $192.1 million, a 28% improvement on the loss in the preceding year at the same development point. The positive claims trend alluded to above is equally evident in the policy year results, where the 2015-16 claims incurred figure is already lower than that of the 2013-14 policy year, but has yet to benefit from the favourable development generally seen as the policy year matures.

The two older open policy years improved by over $ 365 million in terms of underwriting result, (that being $ 1 million per day!) with incurred claims on the 2014-15 year falling by 7.1% between 12 and 24 months, and those on the 2013-14 year also improving by a further 3.8% between 24 months and 36 months (6.0% since 12 month valuation). Both of these years have exhibited above average positive development and one is drawn to the conclusion that some of the Clubs’ reserving techniques may be excessively conservative in the current trading environment, notwithstanding claims severity issues still being seen. How this impacts individual owners’ premium rating is a point worthy of examination.


11 of the 13 Clubs achieved underwriting surpluses on a financial year basis, as opposed to 8 in the preceding year and 5 in the previous year to that. On the other hand 2 of them incurred underwriting losses with only the American Club repeating. Interestingly the aggregate underwriting result for the last 5 years (including under and over calling) is just plus $595,000: mutuality appears to be working just perfectly across the period, if perhaps volatile from year to year!

70% of the underwriting profit was earned in just 3 Clubs – Gard, North of England and Steamship: the latter producing an exceptional result for the second consecutive year, on the back of consecutive combined ratios (on a financial year basis, of 76% and 78% respectively. In both cases much of this gain arose from back year releases of reserve redundancy.

The figures for Gard include the result of the Marine & Energy portfolio which is consolidated with the P&I result - segmental analysis shows that the Marine & Energy business contributed an underwriting gain of $28.5 million. Additionally the result benefited from a reduction in estimated pension liabilities of $16.9 million, which reverses the trend in previous years. Finally the result was achieved after a $37 million reduction in the P&I ETC.

At North of England the underwriting result was also impacted by diversified operation (see table below) but the result for Sunderland Marine comprised a loss of $ 3.2 million. It too benefited from a favourable measurement gain on its pension fund of $ 14.1 million.

All 3 of these clubs incurred significant exchange losses through their other/investment income which in part explains their above average underwriting results, since exchange gains would have arisen on their claims liabilities which in turn would have reduced incurred claims.

We examine the underwriting results of each Club in greater detail on the Club pages later in this document.

With increased diversification (see table later in this section) any analysis of the components of the underwriting result becomes increasingly complex.

The data in the table to the right summarises the components of the result, but does not seek to fully reconcile those results to the overall financial year underwriting result of $408.5 million. The biggest intangible is the result attributable to closed year policy year development which, this year in particular, would seem to be very influential.

The above analysis shows the results in other classes which do not flow through the P&I policy year statements, to the extent that they are disclosed – be that on a policy year or financial year basis. In some cases disclosures are inconsistent. It also incorporates an estimate of results for the FD&D class which was again very profitable due, in particular, to lower time charterers’ disputes arising: with the turmoil caused by the collapse of Hanjin Shipping this year, that result may reverse in 2016-17.

The 2013-14 P&I policy year underwriting result improved by $102.0 million: Claims incurred improved by $97.4 million, whilst gross premium also increased by $19.4 largely due to exchange differences at the Japan Club. A further $11.7 million of reinsurance cost and minor changes to administrative costs meant that the year reached interim maturity with a $32.9 million overall surplus, after an allocation of $169.8 million investment income.

P&I policy year 2014-15 has improved at underwriting level by $ 264.9 million: Claims incurred fell by $ 180.2 million and $ 106.0 million of additional net retained premiums arose, as the Japan Club deferred call and the American Club unearned premium were taken into account. Additionally there seems to be a trend of premium being taken into account later at, in particular the diversified North of England and Skuld Clubs. Reinsurance costs rose by some $13.2 million, as did administrative costs by $8.0 million and acquisition costs were broadly unchanged. The policy year is presently running at an $91.4 million surplus after an investment income allocation of $93.7 million.

On an overall basis, aggregate Free Reserves continue their inexorable rise, with a $ 218.2 million overall surplus pushing them up to $ 4,846.7 million after incorporating a $ 19.5 million Surplus Note, repayable in 2040, by the American Club. These figures assume that we accept that both the American Club’s and the UK Club’s debt capital is quasi Free Reserve, and that Boudicca’s net assets can be attributed to Britannia.

On this basis, Free Reserves thus rose by some 5.2% in contrast to entered owners GT which rose 2.0% (total tonnage 2.4%) and projected policy year premium which fell by 1.88%. In this context the increase in Free Reserve continues to seem out of line, but with diversification continuing to drive the Clubs’ premium base forward, the Free Reserve has to cover greater risk that is not represented by entered tonnage. With the introduction of Solvency II disclosures before next year’s review, we may be better positioned to assess capital adequacy in the future. As will be seen later, the general increase once again should have led to a greater growth in premiums.

Investment income was, for the first time since 2008-09, negative and dragged down the underwriting result by some $ 103.4 million, and the overall result was further diminished by a net $ 86.4 million in exchange losses, taxation and other items. As noted above, much of this exchange loss arose on investments which would have been matched to same currency claims liabilities. Some clubs net the gains and losses on the matched assets and liabilities off against one another, but equally others show the outcome on a gross basis with a corresponding credit against incurred claims, thus creating the apparent paradox of exchange gains and losses arising in a hedged environment. Subsequent to the year end, significant recoveries have been seen in the investment markets, as at the end of August, and we are presently seeing strong investment income in Club interim reports.

2015-16 2014-15 2013-14 2012-13 2011-12 Cumulative

American -1,966 -6,512 -10,936 -21,719 - 10,359 -51,492

Britannia* inc Boudicca -2,331 70,731 -13,326 -61,774 -29,832 -36,532

Gard* 112,669 35,515 -24,755 -61,342 -3,311 58,776

Japan 17,165 706 13,308 -26,797 3,957 8,339

London 15,319 -29,915 -18,736 -14,398 -16,731 -64,461

North of England 100,264 -59,783 -17,500 -9,830 -6,773 6,378

Shipowners 3,247 11,438 2,334 8,938 28,560 54,517

Skuld 22,070 -11,704 3,960 969 11,658 26,953

Standard 17,700 -400 -4,200 -39,600 -44,100 -70,600

Steamship 76,172 63,304 9,289 -33,775 -40,940 74,050

Swedish 184 18,692 8,084 -13,372 -12,893 695

United Kingdom* 17,820 -14,807 -7,069 -20,052 4,459 -19,649

West of England 30,149 4,549 -1,397 -4,136 -15,544 13,621

Aggregate 408,462 81,814 -60,944 -296,888 -131,849 595

Financial year Underwriting Result in ‘000s of US Dollars Components of underwriting result

Clubs with * under called in one or more of the years in question. Results incorporate the effect of pension fund adjustments necessary in a number of Clubs, applied retroactively where appropriate.

P&I Policy year U/W deficit 2015-16 (192,078)

Change in P&I policy year U/W result, 2014-15 264,896

Change in P&I policy year U/W result, 2013-14 101,934

M&E business U/W result 22,808

SMMI U/W result 764

Lloyd’s Syndicates U/W result (11,632)

Other Classes, eg FDD, War etc U/W result 23,058

“The 2013-14 P&I policy year underwriting result improved by $102.0 million: Claims incurred improved by $97.4 million, whilst gross premium also increased by $19.4 largely due to

exchange differences at the Japan Club.”


In current terms, premium income booked so far for 2015-16 stands at $3.5 billion but not all calls have been accounted for:

Premiums for the current year look likely to end up around 1.88% lower than the premium for the prior year, once under and over calls have been removed from the computation. The prior year projection of call income was a little under, as both Skuld and North of England policy year call income in 2014-15 increased by around $45 million in the period 12 to 24 months.

We have included an estimate for a similar amount of late development from these Clubs into this year’s projection but the ultimate level of policy year premium will be impacted by how much the Clubs decide to rebate to owners as either reduced deferred calls or return calls in November.

This increase does not reflect the impact of increased tonnage entered. In the case of owners entries this was some 1.99% in 2015-16, or 2.44% if one includes growth in chartered entries. So we estimate that ultimately planned premium per ton will be approximately 4.21% down on the previous policy year, as opposed to the weighted average 3.14% general increase sought at renewal of that year. These figures compare to a 0.40% decrease in premiums per GT in 2014-15 contrasted to a 7.84% weighted general increase.

The green line shows the change in actual policy year premium income per GT, as adjusted to negate the impact of over and under calling, which would have not been factored in to the original rating exercise. The blue line shows the weighted average general increase declared for the year.

The difference between the general increase target and the theoretical increase attained has stabilised between 6 and 8% for 5 years in a row, during which time the Clubs have made average general increase demands of between 3 and 8%. The two years before this saw an average difference of 15% at a time of turmoil in the global shipping industry. This is the so called “churn” at work – a combination of the effect of scrapping older vessels and replacing them with newer less highly rated vessels.

The stability of the churn rate in the 7% range over the last few years is something of a positive, but it reinforces the concept that the Clubs theoretically need a 5% general increase or more in order to stand still and offset the impact of the churn. This is before considerations such as claims inflation. However this scenario is appreciably better than the 15% average churn during the peak periods of the depressed shipping industry – and its inferences for the required general increases at the time.

What we clearly see here is the immediate impact of the severe shipping recession in the earlier years, followed by something of a settling down while the industry remains mired. The question remains when, and if the shipping industry returns to good health, how will these churn rates be impacted? Would we ever see “negative churn” as global trade picks up to such an extent that the older vessels (at least those that have not been scrapped) are called back into service at higher than average premium rates, albeit until newbuildings come on stream and reduce rates again? For so long as rates for newbuildings remain underpriced, the “churn” will be inevitable, notwithstanding substantive general increases being applied to long standing renewing vessels. Quite how fair and mutual this is remains a moot point.

Whilst an important factor in understanding the dynamics of the market, the “churn” can and does impact different Clubs in different ways, based on the type of vessels they insure, the trades and routes that they ply, the proportion of their book that is charterers business and so on. Certain Clubs continue to mention the negative impact on their own situations, but we do not feel entirely comfortable applying the methodology above on an individual Club basis, since the sample sizes are too small: at least applying it to the market as a whole should eliminate some of the variables in

portfolios of business. However as an example, Steamship sought a zero general increase in 2014-15, saw its entered tonnage rise by some 6% (mostly owners’ entries) yet its policy year premium fell by $12 million (3.7%).

It is generally believed that the “churn” is countered by reduced levels of claims incurred, or at least that is the oft cited logic behind the low premiums charged to newbuildings. The other market truism has it that poor trading conditions for shipping leads to lower frequency of claims. The recent steady decline in aggregate claims and claims per GT over the past 3 years (as seen later) lends credibility to this theory and to some extent allows the clubs to let premium drift down or to trade some of the premium increase for deductible increases. There is however a limit to the amount that deductibles can be traded away before the essential nature of the Club as a primary insurer becomes impacted: also there is an economic limit to the amount of premium dilution that can be accepted this way, as overhead absorption rates begin to bite.

2015-16 2014-15 2013-14 2012-13 2011-12 Cumulative

American -2,190 1,256 3,115 -5,990 -3,393 -7,202

Britannia* inc Boudicca -32,871 73,669 33,881 -22,960 6,869 58,588

Gard* 48,107 49,481 44,307 49,184 35,923 227,002

Japan 14,760 16,358 -1,534 -9,403 9,122 29,303

London 3,293 -3,230 6,615 9,360 -401 15,637

North of England 90,292 -22,694 38 -1,777 1,579 67,438

Shipowners -20,895 1,418 23,222 40,873 46,546 91,164

Skuld 13,035 647 26,123 16,996 24,933 81,734

Standard 9,800 11,800 5,900 10,000 2,900 40,400

Steamship 64,134 74,988 14,992 -9,631 -7,469 137,014

Swedish -1,061 19,377 16,444 6,417 -8,405 32,772

United Kingdom* -1,225 19,065 35,948 8,054 7,922 69,764

West of England 32,969 27,496 18,775 18,065 -3,308 93,997

Aggregate 218,148 269,631 227,826 109,188 112,818 937,611

Call Income in $ millions 2015-16 2014-15

Policy year statement after 12 months 3,417.1 3,490.5

Undercalls already levied therein (36.9) (47.1)

Deferred calls to be booked in future 57.1 44.7

Unearned premium adjustment 15.0 16.3

Under-calls to be booked in future 0.0 0.0

Excess calls to be booked in future 0.0 0.0

Natural in year development 60.0 45.0

Undercalls subsequently levied therein - (11.6)

Projected call income for year 3,549.2 -

Actual developed out - 3,596.5

Previously projected - 3,568.0

Overall result in ‘000s of US Dollars

Clubs with * under called in one or more of the years in question. Results incorporate the effect of pension fund adjustments necessary in a number of Clubs, applied retroactively where appropriate.

Theoretical premium rate achieved v General Increase (ignoring excess calls)

15.00%

10.00%

5.00%

0.00

-5.00%

-10.00

-15.00

2006-07 2010-112008-09 2012-13 2014-152007-08 2011-122009-10 2013-14 2015-16

Weighted Average GI Change in Calls per GT


In the above discussion we have focussed on policy year premium income, however, with increased diversification, most clubs now have revenue streams arising from outside their core owners P&I activity. Whilst it is not possible to split owned and chartered P&I premium in all cases, we can reasonably estimate the impact of diversification on financial year premium income:

29% of Skuld’s financial year P&I premium income is in respect of fixed premium business, mostly their charterer’s book; 13% of the Japan Club premium is fixed, split approximately 2/3rds coastal craft and 1/3 charterers business. The proportion of premium attributable to diversified operations is likely to rise over the next few years as the impact of recent developments settle in.

Most clubs report that 2015-16 has been a benign year for claims overall, although some describe it as merely normal. The UK Club describe it as one with the lowest number of claims for a decade and almost as good as their 2011-12 policy year which was excellent.

Again the focus is on the large claims – wreck removal, collision or other major claims, the frequency of which can make or break a year. The standard Club viewed 2015-16 as a benign year after 6 month vis a vis large claims, but then saw that opinion changed during the second half of the year, following a few major incidents including an expensive and complex wreck removal claim.

2015-16, on a policy year basis, saw claims per GT continue to fall, assuming even the most modest development on the year. This continues the decline first seen in 2013-14. At this early stage 2015-16 claims look likely to be at the lowest levels per GT since the turn of the century.

On a financial year basis, claims also fell quite dramatically in parallel, largely down to the performance of the two older open years, although as noted elsewhere in this report diversification is making the financial year trends more difficult to interpret than the more pure P&I only policy year trending. We have excluded losses incurred on Gard’s M&E book from the financial year figures.

The linear trend still shows that claims per ton are declining since the beginning of the decade – by some 15% on a policy year basis and 27% on a financial year basis. The severe spikes seen in the early to mid naughties seem a long time ago.

Whilst the trend over the last few years is of decreased claim frequency and increased claims severity, if one looks at a stratification of claims some interesting insights emerge. For reasons of consistency and comparability we will look more closely at the experience of 3 clubs. This is not to invalidate observations made by other clubs, but the three example clubs continue to give an interesting perspective on the market trends:

Attritional claims are slightly differently defined by different clubs but they tend to be those between 0 and $ 250 or 500,000. As a rule the frequency of these claims have been, and continue to be, falling, as deductibles increase, older ships are taken out of service and trading activity remains depressed. In contrast to this trend, Britannia noted a 6.5% increase in attritional claim frequency, although this comes after a massive decline in such claims seen in the preceding year. Severity is generally noted as steadily increasing. Our three example Clubs point to the consistent experience being seen across almost all Clubs:

• The UK Club comment that attritional claims inflation is now running at 4%, but these type of claims are continuing to decline. Only one in every 100 claims costs in excess of $ 500,000 and personal injury claims are assuming less significance. Overall the reduced number of claims and slightly

increased average claims cost broadly offset each other and the cost of attritional claims is more or less static;

• Steamship note that attritional claims were largely unchanged both in terms of frequency and severity, with the overall cost just 2.7% more than the prior year. The size of the average attritional claim rose 5% pointing to a small reduction in frequency;

• The London Club comment that recent changes to the members’ deductible structures have resulted in falling frequency and cost of high frequency attritional losses.

Higher value claims / large losses however continue to demonstrate a mixed trend. The consensus is that severity is increasing and, whilst acknowledging the more random nature of these claims, frequency shows an unpredictable trend with North of England having only 19 large claims in excess of $1 million compared to 50 last year, whilst the London Club report 4 this year compared to 14 in 2014-15. Conversely SOP incurred 10 claims between $ 1 and 5 million as opposed to 6 in the prior year, pointing to offshore vessels as the primary culprit. It may be that the number of global large claims is fairly stable, but the distribution of these claims between clubs is random. Our three guinea pig Clubs above all support this contention with 2 enjoying good fortunes, and one less so:

• Whilst less than 1% by number, large claims cost the UK Club up to 50% of its incurred claims expense. Frequency and total cost was high in 2013-14, resulting in almost $ 100 million of claims incurred, but, such is the random nature of these claims, this figure has fallen back significantly over the last two years and now stands at under $ 40 million;

• Steamship’s experience continues to yo-yo with large claims severity/inflation running at 30%, although there were fewer claims. Last year large claims’ cost fell 23% and in the year prior to that it rose 27%. The majority of these shifts occur in claims between $1.8 million and $ 9,0 million, but, unlike most clubs, the large claims this year stem from crew and passenger risks;

• Last year, the London Club reported 14 large claims (up from 6 in 2013-4). In 2015-16 this number dropped to 4. It is no coincidence that their underwriting result was a loss of $ 29.9 million in 2014-15 and a profit of $ 15.3 million in 2015-16. The link between large claim incidence and underwriting profit is all too plain to see.

Financial Year Premium Income P&I FD&D/War M&E Lloyd’s Other Total

American 93,508 3,996 - - - 97,504

Britannia 251,591 8,681 - - - 160,272

Gard 607,260 - 290,026 - - 897,286

Japan* 224,521 1,759 - - - 226,280

London* 98,671 11,401 - - - 110,072

North of England 329,796 23,177 - - 136,837 489,810

Shipowners 209,881 - - - - 209,881

Skuld* 293,174 19,486 - 97,320 - 409,980

Standard 334,500 13,400 - 6,400 - 354,300

Steamship* 350,329 315,399 - - - 350,329

Swedish 110,113 6,470 63,819 - - 180,402

United Kingdom 385,360 - - - - 385,360

West of England 216,090 11,524 - - - 227,614

Aggregate 3,469,864 134,824 353,845 103,720 136,873 4,199,090

Proportion 82.63% 3.21% 8.43% 2.47% 3.26% -

*In certain cases premium income is interpolated from policy year information

Claims incurred in US $ per GTE – all Clubs

2.30

2.10

1.90

1.70

1.50

1.30

2015-16 2014-15 2013-14 2012-13 2011-12 2010-11 2009-10 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02

Linear (Financial Year)

Policy YearFinancial Year Linear (Policy Year)


2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

1200000 20000001600000 24000001400000 22000001800000 2600000 2800000

@36 months @24 months @12 months

Across the board it still appears, unsurprisingly, that collision, FFO and wreck removal incidents remain central to the larger more severe claims. The human error factor in navigational incidents continues to be a significant cause of loss, despite the less busy shipping lanes seen in today’s depressed trading environment. Mixed reports point to the impact of cargo claims as being both up and down, and there is a suggestion that crew and passenger claims continue to make a significant contribution to large claims for those Clubs which underwrite passenger vessel risks.

As regards pooling, only 15 claims have been reported to the pool for 2015-16, in comparison to 17 for the previous year. Total pool claims thus continue to run at lower levels that the three years preceding 2014, which were blighted by massive claims such as the MV Rena and the Costa Concordia. The vast majority of these claims stem from human error, poor bridge management and navigational errors.

An examination of claims development during the first 36 months of the policy year shows how certain years have developed better than others. The development of the 2014-15 year, favourably by 7.12%, between 12 month and 24 month valuation points is appreciably above average which stands at a shade over 2% since the turn of the century. Similarly the 2013-14 year developed favourably in financial year 2015-16, giving a total positive development of 6% compared to an average of 4%. The performance of these 2 older years has underpinned the substantial underwriting surplus for the year in review.

The “most improved” year, 2009-10, showed an improvement of almost 12% after 36 months, when compared to the initial claims estimates at 12 months, but this must now be seen as something of a freakish result. The period between 2004-05 and 2006-07 saw all three years actually deteriorate across the 3 years of development, this being a period when the shipping industry was in good shape. Conversely the six years since the crash of 2008 have all seen healthy favourable claims development, but the 2014-15 interim outcome is still nonetheless comparatively remarkable.

It must be borne in mind that the development shown in the graphic is only up to 36 months, and further development (be it favourable or negative) that takes place after the year is formally closed cannot be determined from public data.

Total incurred P&I claims at development points

It seems likely that, as claims are becoming more severity led, as opposed to frequency led, and with deductibles increasing, the typical club claim will be bigger and more complicated: but there will be less of them. The clubs are becoming more commercial, and less an extension of the owner’s office: owners will have to handle more of their own incidents, which in the past would have been handled by the clubs, because they fall below deductible. The imposition of fee deductibles and combined deductibles will have a further impact on the incidence of lower value claims.

The last three years have illustrated the growing emphasis on large claims as clubs’ risk profiles have changed to be less first dollar, with higher deductibles. There was a degree of sense in doing this as a lot of the attritional losses amount to little more than dollar swapping with a handling cost attached, but at the same time it moderates the service culture offered by the clubs, who had traditionally been involved in more day to day contact with owners.

This shift increases claims volatility and will no doubt impact on the Clubs internal risk models and ultimately their capital requirements under Solvency II. Claims may be falling per GT but at the same time those claims assume a greater degree of volatility. With the recent increase in LLMC limits, the introduction of the Nairobi Wreck Removal protocol and planned amendments to the Maritime Labour Convention, claims severity seems certain to be on the rise, and there is only so much that can be done with claims frequency (particularly of large losses) that can abate this severity increase. The greatest volatility of all would seem to be in the field of wreck removal where the complexities and sheer cost of such exercises make accurate claims reserving extremely difficult.

It is refreshing to see a number of years of relatively low claims cost, but the sceptic will wonder if it is sustainable. The volatility and severity issues that surround large losses mean that it will only take a few more incidents in any one year to significantly change one or more Clubs’ fortunes.

5 year Development of Reserves 2011 to 2016 (Financial Year Basis)

Outside funding in the table above is defined as both excess/return call income and other Free Reserve growth caused by injections of loan capital in the case of the American and UK Clubs. It also includes the beneficial impact of accounting or structural/acquisition changes (North of England, and Standard). The underwriting result column is also adjusted to reflect the effect of returns of premium as well as excess calls for premium.

Free Reserves continue their seemingly inevitable rise towards $ 5 billion, reaching $ 4.85 billion at 20 February 2016. Based on early half year results, which are showing a sizeable recovery in investment income, the target of $ 5 billion has probably already been reached in August 2016. The 5 years above comprise the first time in the history of this review that there have been no excess calls involved in the funding of reserve growth. In fact a total of $ 183 million has been returned to members in this period. It would seem likely that further funds will be returned as part of the November general increase deliberations, but in all probability next year’s review will be discussing an industry with a net worth in excess of $ 5 billion.

$1.04 billion has been added to Free Reserves in the last 5 years and the underwriting result, after allowing credit for return calls, is almost breakeven. The early part of the 5 year period saw high severity and frequency of claims

and high pool claims impact the figures adversely, but the last 3 years reversed these heavy underwriting losses, as benign claims experience influenced the outcome.

Diversification has made it increasingly difficult to assess what level of Free Reserve is necessary for the market overall, still more so at individual club level. Instinctively one feels that the market is overcapitalised, especially when compared to other classes of insurance and, indeed, the shipping industry that it protects. Next year we may have further tools to hand based on the Pillar 3 requirements of the Solvency II regulations. These came into force in January 2016 but the initial disclosures are limited to reporting to the regulator. Nonetheless we should, by next year’s review, have had the opportunity to review the “public data” stemming from the regime and assessed its usefulness in considering the capitalisation of today’s new style, multi-faceted, P&I Club.

We have yet to be convinced as to how useful that the disclosures will be, as they will be keyed off a different balance sheet, which will be based on different statutory valuation rules. Furthermore the disclosures may be made at a different entity level, depending on the capital structure and the domicile of the various component parts of each club, but for now we are optimistic that we will be in a position to provide a better insight into club finances this time next year.

We do not expect that all the mysteries of the individual capital models will be revealed, or to be able to identify “redundant capital”, but we may be in a better position to rebut claims from club managers that they cannot reduce premiums or return surplus funds to members because of the hitherto “behind closed doors” solvency requirements.

“$1.04 billion has been added to Free Reserves in

the last 5 years and the underwriting result, after

allowing credit for return calls, is almost breakeven.”

Returning to the overall financial strength of the Clubs, and how they got there, the following table demonstrates the sources of balance sheet growth in the last 5 years:

Club In $ ‘000s Underwriting Result Investment Income Other Income Surplus/Shortfall Outside Funding Reserve Change

American (51,492) 46,321 (2,031) (7,202) 19,500 12,298

Britannia* ( 23,432) 104,585 (9,465) 71,688 (13,100) 58,588

Gard 212,949 266,422 (98,196) 381,175 (154,173) 227,002

Japan 8,339 47,700 (26,736) 29,303 - 29,303

London (64,461) 80,737 ( 639) 15,637 - 15,637

North of England 6,378 69,847 (8,787) 67,438 48,529 115,967

Shipowners 54,517 91,270 (54,623) 91,164 - 91,164

Skuld 26,953 79,554 (24,713) 81,794 - 81,794

Standard (70,600) 127,700 (16,700) 40,400 32,908 73,308

Steamship 74,050 82,627 (19,663) 137,014 - 137,014

Swedish 695 37,319 (5,242) 32,772 - 32,772

United Kingdom** (4,049) 107,637 (18,224) 85,364 (16,306) 69,058

West of England 13,621 101,560 (21,184) 93,997 - 93,997

Total 183,468 1,243,279 (306,203) 1,120,544 (82,642) 1,037,902

* Boudicca change has historically been included as underwriting result except 2015-16 ** UK outside funding change comprises amortisation of subordinated loan of $ 100 million


I&E Account - All Classes American Britannia Gard Japan London North of England SOP Skuld Standard Steamship Swedish UK West of England Total US$M US$M US$M US$M US$M US$M US$M US$M US$M US$M US$M US$M US$M US$M

ETC Calls 97.5 263.3 934.2 226.3 110.1 489.8 209.9 414.4 354.3 350.3 180.4 393.7 227.6 4,251.8Additional Calls 0.0 (3.0) (36.9) 0.0 0.0 0.0 0.0 (4.4) 0.0 0.0 0.0 (8.3) 0.0 (52.6) 97.5 260.3 897.3 226.3 110.1 489.8 209.9 410.0 354.3 350.3 180.4 385.4 227.6 4,199.2Total Expenditure (99.5) (262.6) (784.6) (209.2) (94.8) (389.5) (206.6) (387.9) (336.6) (274.1) (180.2) (367.6) (197.5) (3,790.7)Underwriting (Deficit) / Surplus (2.0) (2.3) 112.7 17.1 15.3 100.3 3.3 22.1 17.7 76.2 0.2 17.8 30.1 408.5Investment Return 0.4 (29.3) (23.8) 6.9 (11.5) (9.5) (7.0) (13.9) (5.2) (2.5) (2.9) (16.1) 11.0 (103.4)Exchange 0.0 0.1 (30.9) (9.5) (0.4) (11.4) (15.5) 6.0 (3.6) (9.5) (2.2) (1.5) (7.3) (85.7)Tax etc (0.6) (1.4) (9.9) 0.2 (0.1) 10.9 (1.7) (1.2) 0.9 0.0 3.8 (1.0) (0.8) (0.9) (2.2) (32.9) 48.1 14.7 3.3 90.3 (20.9) 13.0 9.8 64.2 (1.1) (0.8) 33.0 218.5 P&I Class Only

2015/2016 POLICY YEAR US$M US$M US$M US$M US$M US$M US$M US$M US$M US$M US$M US$M US$M US$M

ETC Calls 80.5 253.9 638.4 193.6 98.7 311.1 243.3 277.2 339.4 315.4 110.0 391.9 214.8 3,468.2Additional / Return Calls 15.0 (36.9) 59.7 37.8 95.5 253.9 601.5 253.3 98.7 311.1 243.3 277.2 339.4 315.4 110.0 391.9 214.8 3,506.0Total Expenditure (87.8) (319.4) (636.4) (213.8) (104.7) (292.4) (247.4) (295.5) (365.7) (328.1) (116.4) (388.3) (227.5) (3,623.4)Underwriting (Deficit) / Surplus 7.7 (65.5) (34.9) 39.5 (6.0) 18.7 (4.1) (18.3) (26.3) (12.7) (6.4) 3.6 (12.7) (117.4)Reserve Transfer - 32.9 32.9Investment income allocation 1.7 35.7 0.0 9.0 16.4 10.4 0.0 (6.3) (6.6) 26.1 3.8 (7.3) 5.0 87.9 9.4 (29.8) (34.9) 48.5 10.4 29.1 (4.1) (24.6) (0.0) 13.4 (2.6) (3.7) (7.7) 3.4 2014/2015 POLICY YEAR US$M US$M US$M US$M US$M US$M US$M US$M US$M US$M US$M US$M US$M US$M

ETC Calls 112.7 272.0 666.3 212.3 100.0 366.6 247.0 307.7 343.4 327.5 106.0 405.4 207.5 3,674.4Additional Calls (13.1) (37.3) (8.3) (58.7) 112.7 258.9 629.0 212.3 100.0 366.6 247.0 307.7 343.4 327.5 106.0 397.1 207.5 3,615.7Total Expenditure (126.3) (285.8) (610.1) (195.7) (130.8) (377.0) (251.5) (303.2) (343.8) (297.7) (104.4) (394.8) (196.7) (3,617.8)Underwriting (Deficit) / Surplus (13.6) (26.9) 18.9 16.6 (30.8) (10.4) (4.5) 4.5 (0.4) 29.8 1.6 2.3 10.8 (2.1)Reserve Transfer 18.0 (14.1) 3.9Investment income allocation 3.2 20.0 0.0 9.8 12.3 11.0 0.0 16.1 14.5 (1.4) 3.1 3.3 5.0 96.9 (10.4) (6.9) 18.9 26.4 (0.5) 0.6 (4.5) 20.6 (0.0) 28.4 4.7 5.6 15.8 98.7 2013/2014 POLICY YEAR US$M US$M US$M US$M US$M US$M US$M US$M US$M US$M US$M US$M US$M US$M

ETC Calls 110.8 274.8 621.9 226.7 96.6 346.3 243.5 308.3 326.2 304.5 100.0 399.2 195.9 3,554.7Additional Calls (34.8) (34.8) 110.8 274.8 587.1 226.7 96.6 346.3 243.5 308.3 326.2 304.5 100.0 399.2 195.9 3,519.9Total Expenditure (120.1) (324.2) (565.7) (221.7) (115.7) (339.5) (221.9) (297.0) (376.9) (302.4) (116.5) (439.6) (216.8) (3,658.0)Underwriting (Deficit) / Surplus (9.3) (49.4) 21.4 5.0 (19.1) 6.8 21.6 11.3 (50.7) 2.1 (16.5) (40.4) (20.9) (138.1)Reserve Transfer 42.5 42.5Investment income allocation 5.0 18.7 0.0 11.4 22.1 14.7 0.0 24.5 8.2 19.4 2.9 17.4 20.9 165.2 (4.3) (30.7) 21.4 16.4 3.0 21.5 21.6 35.8 (0.0) 21.5 (13.6) (23.0) 0.0 69.6 Other Years Balances 0.0 223.0 0.0 148.7 133.3 0.0 0.0 0.0 307.4 168.3 0.0 0.0 129.9 1,110.6Other Reserves 61.2 336.2 1,011.8 (52.9) 0.0 301.8 266.4 326.4 0.0 171.4 194.6 468.9 66.0 3,151.8Other Funding 19.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 99.1 0.0 118.6P&I Class Reserve 75.4 491.8 1,017.2 187.1 146.2 353.0 279.4 358.2 307.4 403.0 183.1 546.9 204.0 4,552.7Other Class Surplus Etc 0.5 20.9 0.0 0.0 14.5 75.4 0.0 (10.0) 82.7 37.3 0.0 0.0 72.7 294.0Total Free Reserve 75.9 512.7 1,017.2 187.1 160.7 428.4 279.4 348.2 390.1 440.3 183.1 546.9 276.7 4,846.7 P&I CLASS FREE RESERVE US$M US$M US$M US$M U$M US$M US$M US$M US$M US$M US$M US$M US$M US$M

20-Feb-10 47.2 372.3 557.5 134.3 130.9 226.3 135.3 201.5 222.5 236.7 121.4 409.3 149.9 2,945.120-Feb-11 61.5 448.2 790.2 157.8 132.9 300.9 188.2 266.4 297.0 287.6 150.3 477.9 166.6 3,725.520-Feb-12 58.4 449.7 826.1 166.9 131.5 293.2 234.8 291.4 304.3 280.0 148.3 485.9 179.6 3,850.120-Feb-13 53.4 423.2 895.3 157.5 141.3 286.1 275.6 308.4 313.6 265.7 148.3 493.9 179.6 3,842.120-Feb-14 56.9 452.8 919.6 150.4 147.2 281.6 298.9 342.0 299.9 272.4 164.8 528.3 196.6 4,111.420-Feb-15 57.9 522.3 969.1 172.4 143.8 265.7 300.3 338.2 298.6 349.1 184.1 547.8 174.6 4,323.920-Feb-16 75.4 491.8 1,017.2 187.1 146.2 353.0 279.4 358.2 307.4 403.0 183.1 546.9 204.0 4,552.7 % MOVEMENT IN FREE RESERVES

2009-2010 34% 39% 41% 8% 20% 14% 41% 40% 38% 36% 15% 32% 4% 30%2010-2011 30% 20% 42% 17% 2% 33% 39% 32% 33% 22% 24% 17% 11% 26%2011-2012 -5% 0% 5% 6% -1% -3% 25% 9% 2% -3% -1% 2% 8% 3%2012-2013 -9% -6% 8% -6% 7% -2% 17% 6% 3% -5% 0% 2% 0% -0%2013-2014 7% 7% 3% -5% 4% -2% 8% 11% -4% 3% 11% 7% 9% 7%2014-2015 2% 15% 5% 15% -2% -6% 0% -1% -0% 28% 12% 4% -11% 5%2015-2016 30% -6% 5% 9% 2% 33% -7% 6% 3% 15% -1% -0% 17% 5% Last 7 years 60% 32% 82% 39% 12% 56% 107% 78% 38% 70% 51% 34% 36% 55%Last 5 years 29% 9% 23% 12% 11% 20% 19% 23% 1% 44% 23% 13% 14% 18%Last 3 years 33% 9% 11% 24% -1% 25% -7% 5% 3% 48% 11% 4% 4% 11% Notes Inc. UEP in 2015-6 Inc. Boudicca Inc. FD&D & Accrued for Inc. non core Inc. non core and Inc. non core and Inc. H&M and P&I and Surplus Note in “other” M&E operations supplementary operations as “other” Lloyd’s operations Lloyd’s operations Reserves as “other” as “other” call in 2015/6 PY as “other” as “other”

Summary of Clubs Financial Position at February 20, 2016


14% Container / General Cargo

During the year the Club chose to diversify into the hull & machinery market. It formed a subsidiary, American Hellenic Hull Insurance Company Ltd in Cyprus and parachuted in the portfolio of the Hellenic Hull Mutual Association plc once AHHIC was authorised by the local regulators.

As part of this exercise the Club issued, in a private placement, a $19.5 million 8% Surplus Loan Note due 2040. Repayment of principal and interest can only be made with the approval of the New York State regulator and any amounts due under the Note are subordinate to all other liabilities. In this review the Note is treated as Free Reserve.

The Club state that the level of claims for their own account in policy year 2015 was the lowest since 2002, which is all well and good, but cold comfort since the Club made an excess call on that policy year!

The Club was one of only three which generated an investment surplus on the year, albeit well down on recent years. Their relatively high proportionate investment in equities has held them in good stead over his period, although it remains a more risk intensive strategy.

American Steamship Owners Mutual P&I Association Incwww.american-club.com

31st Floor, 1 Battery Park Plaza, New York, NY 10004, USA, Tel: +1 212 847 4500 Fax: +1 212 847 459S&P Rating: (last change: BBB- from BB+ in 2013) BBB-

55%Europe

29%Asia Pacifi c

3% Rest of the World

13% Americas

GeographicalSpread of Business

40% Tanker / Gas Carrier

44% Bulker

2% Other

Type of Entered Vessel

2015-16 2014-15 2013-14 2012-13 2011-12

Owned Tonnage 13.7 16.5 15.6 15.1 16.1

Chartered Tonnage 0.7 0.5 0.3 0.3 0.3

Tonnage

2016-17 2015-16 2014-15 2013-14 2012-13

Forecast Call 0% 0% 0% 0% 0%

Latest Estimate 0% 0% 0% 0% 0%

Call History

2016-17 2015-16 2014-15 2013-14 2012-13

On Advance Call 2.5% 4.5% 10.0% 10.0% 31.3%

On ETC 2.5% 4.5% 10.0% 10.0% 5.0%

General Increase

2015-16 2014-15 2013-14 2012-13 2011-12

Call Income 80.5 112.7 110.8 108.5 115.2

Incurred Claims 44.8 69.2 66.6 65.1 68.8

Total Outgoing 87.8 126.3 120.1 118.4 116.7

Underwriting Result -7.3 -13.6 -9.3 -9.9 -1.5

Call Income/OGT 6.63 6.63 6.97 7.05 7.02

Claims Incurred/OGT 3.11 4.07 4.19 4.23 4.20

Policy Year Data

2015-16 2014-15 2013-14 2012-13 2011-12

P&I Class 55.9 57.9 56.9 53.5 58.4

Other Class 0.5 0.7 0.4 0.7 1.8

Unallocated 19.5 0.0 0.0 0.0 0.0

Total Free Reserve 75.9 58.6 57.3 54.2 60.2

Free Reserves

2015-16 2014-15 2013-14 2012-13 2011-12

Return on Total Assets 0.14% 2.93% 5.03% 5.31% 2.44%

Investment Income

Return on Total AssetsCall Income/OGT

20

11

-12

20

11

-12

20

11

-12

20

13

-14

20

13

-14

20

13

-14

20

12

-13

20

12

-13

20

12

-13

20

14

-15

20

14

-15

20

14

-15

20

15

-16

20

15

-16

20

15

-16

10.00

8.00

6.00

4.00

2.00

0

5.00

4.00

3.00

2.00

1.00

0

6.00

4.00

2.00

0

-2.00

-4.00

Claims Incurred/OGT



The Club briefl y turned the market on its head in February 2016 by announcing that merger talks were in progress between itself and the UK Club and additionally its management company, Tindall Riley and the UK’s Thomas Miller. Four months later it was announcement that both merger talks had been terminated.

The Club appear to be refocussing their interest on the Greek market with the recruitment of Greek expert Simon Williams from the North of England; this complements its small vessel sibling company, Carina’s, relationship with Greek insurer Aigaion.

Britannia were the only Club to report a fi nancial year underwriting loss in the year, albeit a loss of just $ 2.3 million including Boudicca’s result. They did however further

reduce the 2014-15 deferred call during the year, in absence of which they would have recorded a small fi nancial year underwriting surplus. It was one of the few clubs to report an increased number of “large claims” in the 2015-16 policy year, which rose from 15 to 20.

The Club suffered a slightly above average investment loss during the year and derisked some of their corporate bond and equity holdings into Absolute Return and Diversifi ed Risk funds in the fi rst quarter of 2016.

Britannia states that it has very substantial headroom over its regulatory capital requirements and will make its fi rst annual reporting under the Solvency II regime effective 20 February 2017.

The Britannia Steam Ship Insurance Association Ltdwww.britanniapandi.com

Regis House, 45 King William Street, London EC4R 9AN, UK, Tel: +44 207 407 3588 Fax: +44 207 403 3942S&P Rating: (Interactive rating granted in 2014) A Stable

41.10%Europe

51.20%Asia Pacifi c

2.40% Rest of the World



35% Bulker

1% Other


2015-16 2014-15 2013-14 2012-13 2011-12

Owned Tonnage 108.5 108.0 110.5 111.1 103.2


Tonnage

2016-17 2015-16 2014-15 2013-14 2012-13

Forecast Call 45% 45% 45% 45% 40%

Latest Estimate 45% 45% 37.5% 45% 40%

Call History

2016-17 2015-16 2014-15 2013-14 2012-13

On Advance Call 2.5% 2.5% 2.5% 12.5% 5.0%

On ETC 2.5% 2.5% 8.1% 10.5% 5.0%

General Increase

2015-16 2014-15 2013-14 2012-13 2011-12

Call Income 253.9 258.9 274.8 284.2 282.7

Incurred Claims 225.6 187.5 225.0 231.0 230.1

Total Outgoing 319.4 285.8 324.2 323.4 319.8


Call Income/OGT 1.87 1.98 2.03 2.03 2.08


Policy Year Data

2015-16 2014-15 2013-14 2012-13 2011-12

P&I Class 325.5 353.0 333.9 312.0 279.4

Other Class 20.9 18.3 19.1 14.8 11.3

Unallocated 166.3 174.3 118.9 111.2 170.3


Free Reserves

2015-16 2014-15 2013-14 2012-13 2011-12

Return on Total Assets -2.04% 0.60% 4.08% 3.44% 3.38%

Investment Income

5.30% Americas


20

11

-12

20

11

-12

20

13

-14

20

13

-14

20

12

-13

20

12

-13

20

14

-15

20

14

-15

20

15

-16

20

15

-16

5.00

4.00

3.00

2.00

1.00

0

6.00

4.00

2.00

0

-2.00

-4.00

20

11

-12

20

13

-14

20

12

-13

20

14

-15

20

15

-16

5.00

4.00

3.00

2.00

1.00

0

Claims Incurred/OGT



29% Bulker

Gard once more reduced the deferred call on the 2015-16 policy year, reducing expected call income by $ 37 million. This is the 7th year in a row that it has done this, with an aggregate reduction of members’ premium totalling $ 223 million.

Despite soft market conditions, the Club managed to achieve an underwriting profi t on both its P&I and M&E portfolios, although the result for the latter class fell from $ 52.9 million to $ 28.5 million.

The underwriting result was enhanced by a reduction in the provision for future pension liabilities of $16.8 million. as opposed to an increase in $25.9 million in the prior year charges. This latter amount is part of a total amount of $ 50.9 million charged against profi ts in respect of prior years.

The introduction of the Solvency II regime has created a tax issue for Gard. Previously the Club’s Free Reserve has comprised a capital buffer or contingency reserve which is deemed a liability in their Balance Sheet as opposed to part of equity. Under Solvency II, Norwegian accounting requirements have been revised such that this contingency reserve must be treated as equity, and so potentially tax could be payable on the contingency reserve. The matter is currently being negotiated between the Norwegian mutual P&I clubs and the Norwegian Ministry of Finance.

Assuranceforeningen Gard Gjensidigwww.gard.no

Kittelbuktveien 31, NO-4836, Arendal, Norway, Tel: +47 37 01 91 00 Fax: +47 37 02 48 10S&P Rating: (last change: increase to A+ from A in 2012) A+ Stable

62%Europe

27%Asia Pacifi c

11% Americas



3% Passenger /

Ferry

3% Other

11% Offshore


2015-16 2014-15 2013-14 2012-13 2011-12

Owned Tonnage 209.4 206.7 186.7 174.3 162.1


Tonnage

2016-17 2015-16 2014-15 2013-14 2012-13

Forecast Call 25% 25% 25% 25% 25%


Call History

2016-17 2015-16 2014-15 2013-14 2012-13

On Advance Call 2.5% 2.5% 5.0% 5.0% 5.0%

On ETC 2.5% 2.5% 5.0% 5.0% 5.0%

General Increase

2015-16 2014-15 2013-14 2012-13 2011-12

Call Income 601.5 629.0 587.1 532.6 502.3

Incurred Claims 457.4 418.0 378.2 508.2 393.3

Total Outgoing 636.4 610.1 565.7 702.3 526.9

Underwriting Result -34.9 18.9 21.4 -169.7 -24.6

Call Income/OGT 2.23 2.38 2.40 2.27 2.29


Policy Year Data

2015-16 2014-15 2013-14 2012-13 2011-12

P&I Class 0.0 0.0 0.0 0.0 0.0

Other Class 0.0 0.0 0.0 0.0 0.0

Unallocated 1017.2 969.1 919.6 875.3 826.1


Free Reserves

2015-16 2014-15 2013-14 2012-13 2011-12


Investment Income


20

11

-12

20

11

-12

20

11

-12

20

13

-14

20

13

-14

20

13

-14

20

12

-13

20

12

-13

20

12

-13

20

14

-15

20

14

-15

20

14

-15

20

15

-16

20

15

-16

20

15

-16

5.00

4.00

3.00

2.00

1.00

0

5.00

4.00

3.00

2.00

1.00

0

6.00

4.00

2.00

0

-2.00

-4.00

Claims Incurred/OGT


10.40% Container / General Cargo

59.80% Bulker

The fi gures presented for the Japan Club have to be considered in light of the signifi cant effect that the Japanese Yen: US Dollar exchange rate has had on them in the past few years. At the end of 2015-16 (in this case March 31st) the dollar was at Yen 112.68; 12 months prior to this it was at Yen 120.17 to the dollar and at 31 March 2014, Yen 120.17.

This volatility has a tendency to distort the policy year data where, in dollar terms, premium income and claims incurred are fl uctuating signifi cantly year on year although in Japanese Yen terms this trend is not evident.

A new Medium Term Operational Plan was implemented in the year, a main plank of which was to enhance “Competitiveness”.

This strategy includes evolving their underwriting schemes to suit new areas that their members trade in and an expansion of activities into new Asian markets. The introduction of a Gaiko Class entry is the fi rst example of this.

From a solvency perspective the Plan involves the enhancement of the Club’s ERM and the use of solvency margins to evaluate the Club’s fi nancial soundness.

Whilst the investment return fell from the levels of the past 3 years, it still remained positive, which is a characteristic most of the other group clubs would have only wished for. A slowly recovering Japanese economy and a statutory bar on equity investments helped keep the return positive.

Japan Ship Owners Mutual P&I Association www.piclub.or.jp

2-15-14 Nihonbashi-Ningyocho, Chuo-ku, Tokyo 103-0013, Japan, Tel: +81 3 3662 7213 Fax: +81 3 3662 7225S&P Rating: (increased to BBB+ from BBB in 2013) BBB+ Stable

100%Asia Pacifi c


18.90% Tanker / Gas Carrier

10.90% Other


2015-16 2014-15 2013-14 2012-13 2011-12

Owned Tonnage 92.2 93.1 92.0 90.2 89.9


Tonnage

2016-17 2015-16 2014-15 2013-14 2012-13

Forecast Call 40% 40% 40% 40% 40%


Call History

2016-17 2015-16 2014-15 2013-14 2012-13

On Advance Call 3.0% 3.0% 7.5% 5.0% 3.0%

On ETC 3.0% 3.0% 7.5% 5.0% 3.0%

General Increase

2015-16 2014-15 2013-14 2012-13 2011-12

Call Income 193.6 212.3 226.7 179.9 216.0

Incurred Claims 132.0 111.3 156.6 129.0 161.5

Total Outgoing 213.8 195.7 221.7 166.7 222.1

Underwriting Result -20.2 16.6 5.0 13.2 -6.1

Call Income/OGT 2.42 2.02 2.16 1.73 2.09


Policy Year Data

2015-16 2014-15 2013-14 2012-13 2011-12

P&I Class 187.1 172.4 156.0 157.5 166.9

Other Class 0.0 0.0 0.0 0.0 0.0

Unallocated 0.0 0.0 0.0 0.0 0.0


Free Reserves

2015-16 2014-15 2013-14 2012-13 2011-12


Investment Income


20

11

-12

20

11

-12

20

11

-12

20

13

-14

20

13

-14

20

13

-14

20

12

-13

20

12

-13

20

12

-13

20

14

-15

20

14

-15

20

14

-15

20

15

-16

20

15

-16

20

15

-16

5.00

4.00

3.00

2.00

1.00

0

5.00

4.00

3.00

2.00

1.00

0

6.00

4.00

2.00

0

-2.00

-4.00

Claims Incurred/OGT



The London Club is lagging behind its peer group when it comes to the question of diversifi cation but they are in the process of enhancing their charterers’ cover to suit the needs of the smaller vessel owner, and there are rumours of an imminent cooperation agreement with PICC to attract Chinese small craft business.

The lack of the grand scale of diversifi cation seen in other Clubs is not necessarily a criticism since it is clearly a strategy which the Board is most comfortable with. The Club has been considered by many to be the most “pure” of P&I Mutuals, and the most true to its roots which in many ways gives it its competitive edge.

Because of its size as one of the smallest Clubs, the London Club is more vulnerable than most to the frequency of large losses.

This was again exemplifi ed this year as the number of large losses fell by 10 to just 4. At the same time the underwriting result improved by $ 45 million and a substantial underwriting profi t arose for the fi rst time since 2002-03, ignoring the impact of supplementary calls.

In contrast, the Club suffered the worst investment return in the market in 2015-16 despite still having the best average return across the last 7 years. This, and the situation described above, does show the meaning of volatility in the context of a P&I Club.

As regards Solvency II the Club is well positioned to produce its fi rst publically available Solvency & Financial Condition report (SFCR) in June 2017. It has also successfully applied to be exempt from many of the quarterly regulatory reports.

London Steam-Ship Owners’ Mutual Insurance Association Ltdwww.lsso.com

50 Leman Street, London E18HQ, UK, Tel: +44 207 772 8000 Fax: +44 207 772 8200S&P Rating: (interactive rating granted in 2014) BBB Stable

63%Europe

34%Asia Pacifi c

3% Americas



57% Bulker


2015-16 2014-15 2013-14 2012-13 2011-12

Owned Tonnage 43.8 43.1 41.2 40.1 40.5


Tonnage

2016-17 2015-16 2014-15 2013-14 2012-13



Call History

2016-17 2015-16 2014-15 2013-14 2012-13

On Advance Call 5.0% 6.0% 10.0% 12.5% 5.0%

On ETC 5.0% 6.0% 10.0% 12.5% 5.0%

General Increase

2015-16 2014-15 2013-14 2012-13 2011-12

Call Income 98.7 100.0 96.6 91.5 98.5

Incurred Claims 73.6 97.8 84.6 87.4 80.9

Total Outgoing 104.7 130.8 115.7 117.7 110.3


Call Income/OGT 1.92 2.02 2.11 2.04 2.16


Policy Year Data

2015-16 2014-15 2013-14 2012-13 2011-12

P&I Class 146.2 143.8 147.2 141.3 131.5

Other Class 14.5 13.6 13.5 12.7 13.2

Unallocated 0.0 0.0 0.0 0.0 0.0


Free Reserves

2015-16 2014-15 2013-14 2012-13 2011-12


Investment Income


20

11

-12

20

11

-12

20

11

-12

20

13

-14

20

13

-14

20

13

-14

20

12

-13

20

12

-13

20

12

-13

20

14

-15

20

14

-15

20

14

-15

20

15

-16

20

15

-16

20

15

-16

5.00

4.00

3.00

2.00

1.00

0

5.00

4.00

3.00

2.00

1.00

0

6.00

4.00

2.00

0

-2.00

-4.00

Claims Incurred/OGT



After a number of years of “routine” underwriting results – distorted in 2014-15 by the impact of the requirement to refi nance its pension fund, the North of England made a spectacular return to profi t, logging a $100.3 million fi nancial year underwriting surplus, inclusive of a $ 14.2 million credit in respect of the pension fund.

This surplus and the enhanced capitalisation that it brings with it, have heightened the call for a return of premium and zero general increases in November, but the Club has traditionally been amongst the most conservative when considering these matters.

The integration of Sunderland Marine is now complete and the Club say that they now have a platform for further diversifi cation. SMMI did however deliver a small loss to the group.

The fi nancial year underwriting result is underpinned by a signifi cant reduction in large claims (over $1 million) which fell from 50 last year to just 19 this year. In a generally benign claims environment this major positive shift in a sensitive claims segment can and has made a big difference to the underwriting result.

The Club’s conservative investment policy saved it from the worst of the investment market traumas, but the overall return was only just above average and bettered by some Clubs with a heavier equity bias to their portfolios.

The Club states that it complies with the requirements of Solvency IIand comfortably meets the Solvency II capital requirements.

North of England Protecting & Indemnity Association Ltdwww.nepia.com

The Quayside, Newcastle upon Tyne, NE1 3DU, UK, Tel: +44 191 232 5221 Fax: +44 191 261 0540S&P Rating: (unchanged in last 7 years) A Stable

43%Europe

36%Asia Pacifi c




1% Passenger / Ferry

39% Bulker

8% Other


2015-16 2014-15 2013-14 2012-13 2011-12

Owned Tonnage 127.0 131.0 127.0 123.0 123.0


Tonnage

2016-17 2015-16 2014-15 2013-14 2012-13



Call History

2016-17 2015-16 2014-15 2013-14 2012-13

On Advance Call 2.50% 4.75% 7.5% 15.0% 5.0%

On ETC 2.50% 4.75% 7.5% 15.0% 5.0%

General Increase

2015-16 2014-15 2013-14 2012-13 2011-12

Call Income 311.1 366.6 346.3 332.3 318.1

Incurred Claims 176.6 251.4 215.4 246.5 237.6

Total Outgoing 292.4 377.0 339.5 368.9 344.3

Underwriting Result 18.7 -10.4 6.8 -36.6 -26.2

Call Income/OGT 1.83 2.04 2.04 2.05 1.95


Policy Year Data

2015-16 2014-15 2013-14 2012-13 2011-12

P&I Class 353.0 265.7 281.6 286.0 293.2

Other Class 75.4 72.4 30.7 26.2 20.8

Unallocated 0.0 0.0 0.0 0.0 0.0


Free Reserves

2015-16 2014-15 2013-14 2012-13 2011-12


Investment Income

7% Americas


20

11

-12

20

11

-12

20

11

-12

20

13

-14

20

13

-14

20

13

-14

20

12

-13

20

12

-13

20

12

-13

20

14

-15

20

14

-15

20

14

-15

20

15

-16

20

15

-16

20

15

-16

5.00

4.00

3.00

2.00

1.00

0

5.00

4.00

3.00

2.00

1.00

0

6.00

4.00

2.00

0

-2.00

-4.00

Claims Incurred/OGT



33% Bulker

Skuld confi rmed that it will be applying a 2.5% premium credit to mutual members’ November 2016 premium instalment. With some $ 210 million of mutual premium in 2015-16 this will cost the Club $5.25 million. Previously the Club announced that this would be based on 28% of Skuld’s commercial service offering.

By inference then, those commercial operations made a profi t of $ 18.75 million. With the Lloyd’s syndicate still losing money on a policy year basis, this points to the fi xed/charterers and FD&D books making an overall underwriting profi t in excess of $ 20 million to “cover” this rebate.

With an overall fi nancial year underwriting profi t of $ 22 million, it therefore seems probable that the mutual P&I business is at best breaking even.

The Club entered into an agreement to acquire SMA/Gerling Europe and fi nally became a member of the Nordic Association of Marine Insurers, CEFOR. SMA Gerling currently controls a $ 40 million book of hull & machinery business. Any business fl owing from this source would be underwritten on Skuld corporate paper and not fl ow through the Lloyd’s syndicate.

Whilst they have not commented about the Norwegian tax issue that Gard discusses in its statements, Skuld clearly faces similar issues with the advent of the Solvency II regime.

The Club has reported on its results for the 6 months to 20 August 2016. They have increased Free Reserves by $ 29.4 million based on a resurgent investment performance which generated a $ 34.8 million net income. A technical defi cit of $ 5.4 million offsets this gain.

Assuranceforeningen Skuld Gjensidig www.skuld.com

Russelokkveien 26, NO-0114, Oslo, Norway, Tel: +47 22 00 22 00 Fax: +47 22 42 42 22S&P Rating: (last change: increase to A from A- in 2012) A Stable

52%Europe

37%Asia Pacifi c




2% Passenger /

Ferry

12% Other


2015-16 2014-15 2013-14 2012-13 2011-12

Owned Tonnage 87.1 84.7 80.3 80.2 74.2


Tonnage

2016-17 2015-16 2014-15 2013-14 2012-13



Call History

2016-17 2015-16 2014-15 2013-14 2012-13

On Advance Call n/a n/a n/a n/a n/a

On ETC n/a n/a n/a n/a n/a

General Increase

2015-16 2014-15 2013-14 2012-13 2011-12

Call Income 277.2 307.7 308.3 271.9 263.0

Incurred Claims 196.1 193.3 192.3 190.5 181.4

Total Outgoing 295.5 303.2 297.0 274.8 264.1

Underwriting Result -18.3 4.5 11.3 -2.9 -1.1

Call Income/OGT 2.02 2.32 2.35 2.21 2.21


Policy Year Data

2015-16 2014-15 2013-14 2012-13 2011-12

P&I Class 0.0 0.0 0.0 0.0 0.0

Other Class 0.0 0.0 0.0 0.0 0.0

Unallocated 348.2 335.2 334.5 308.4 291.4


Free Reserves

2015-16 2014-15 2013-14 2012-13 2011-12


Investment Income

8% Americas


20

11

-12

20

11

-12

20

11

-12

20

13

-14

20

13

-14

20

13

-14

20

12

-13

20

12

-13

20

12

-13

20

14

-15

20

14

-15

20

14

-15

20

15

-16

20

15

-16

20

15

-16

5.00

4.00

3.00

2.00

1.00

0

5.00

4.00

3.00

2.00

1.00

0

6.00

4.00

2.00

0

-2.00

-4.00

Claims Incurred/OGT


14.17% Offshore

The Club has changed its fi nancial year end to 31 December, another step in its transformation in appearance from a mutual to a fi xed premium underwriter. Deferred calls are nil, release calls have been abolished and now the 20th February has been abandoned – how long will it be until the Club announces plans to demutualise?

As a result of the above, the 2015-16 fi nancial statements refl ect a shade over 10 months trading and the apparent 10% reduction in premium income is a direct result of this. On a year on year basis fi nancial year premium is marginally up. The Club made a small fi nancial year underwriting profi t, which might equate to perhaps $ 4.0m pro rata on a full year. The policy year statements on which much of the data herein is based are, however, on a 20 February basis and so fully comparable.

During the year the Club chose not to renew their arrangement with Turk P&I but they did, however, enter into a new partnership with Pantaenius to develop yacht P&I business. Furthermore they entered into another strategic partnership with Swedish insurer, Svensk. The Club’s subsidiary CTRL Marine Solutions Limited, which provides advice/support on matters relating to claims, technical, risk and legal started to trade this year. Its services are available to non members as well as members.

Whilst the Club’s investment return was disappointing, especially when coupled with adverse exchange rate movements, its 7 year performance has been above average despite their performance being more volatile than most.

Shipowners Mutual P&I Insurance (Luxembourg)www.shipownersclub.com

St Clare House, 30-33 Minories, London, EC3N 1BP, UK, Tel: +44 207 488 0911 Fax: +44 207 480 5806S&P Rating: (last change: increase to A- from BBBpi in 2012) A- Stable

19.51%Europe

50.09%Asia Pacifi c




62.71% Other 5.22%

Container / General Cargo

13.08% Passenger/Ferry


2015-16 2014-15 2013-14 2012-13 2011-12

Owned Tonnage 24.0 23.5 23.6 21.9 19.8


Tonnage

2016-17 2015-16 2014-15 2013-14 2012-13



Call History

2016-17 2015-16 2014-15 2013-14 2012-13

On Advance Call 0.0% 0.0% 5.0% 5.0% 0.0%

On ETC 0.0% 0.0% 5.0% 5.0% 0.0%

General Increase

2015-16 2014-15 2013-14 2012-13 2011-12

Call Income 243.3 247.0 243.5 222.2 208.7

Incurred Claims 167.4 165.6 140.3 150.2 136.3

Total Outgoing 247.4 251.5 221.9 222.7 200.8

Underwriting Result -4.1 -4.5 21.6 -0.5 7.9

Call Income/OGT 9.89 10.29 10.10 9.79 10.28


Policy Year Data

2015-16 2014-15 2013-14 2012-13 2011-12

P&I Class 279.4 300.3 298.9 275.6 234.8

Other Class 0.0 0.0 0.0 0.0 0.0

Unallocated 0.0 0.0 0.0 0.0 0.0


Free Reserves

2015-16 2014-15 2013-14 2012-13 2011-12


Investment Income

14.02% Americas


20

11

-12

20

11

-12

20

11

-12

20

13

-14

20

13

-14

20

13

-14

20

12

-13

20

12

-13

20

12

-13

20

14

-15

20

14

-15

20

14

-15

20

15

-16

20

15

-16

20

15

-16

10.00

8.00

6.00

4.00

2.00

0

10.00

8.00

6.00

4.00

2.00

0

6.00

4.00

2.00

0

-2.00

-4.00

Claims Incurred/OGT



The Club launched syndicate 1884 into a soft market in April 2015 and this venture sustained a $6 million underwriting loss in its fi rst trading period. The club has a 40% participation in the syndicate, so this points to a $ 15 million overall defi cit on underwriting for the whole syndicate.

The Club continues to diversify, recently announcing a cooperation agreement with Korean Shipowners P&I to develop covers for smaller Korean coastal vessels. This facility can offer up to $1 billion in cover. The Clubs TS21 joint venture with Tokyo Marine and Nichido Fire now generates around 9% of the Club’s tonnage. The fl edgling Singapore War Risks Mutual has outperformed expectations both in respect of vessels entered and premium income.

Despite signifi cant volatility of claims incidence, the Club still view the claims environment to be benign, particularly when compared to the preceding 2 years.

The investment strategy of the Club remains conservative and their result, a small loss, was above average with equity losses offsetting income from bonds.

The overall level of Free Reserves is within the target strategic range set by the Board; that range is set to ensure compliance with regulatory requirements and so we assume that Solvency II compliance is confi rmed.

The Standard Clubwww.standard-club.com

Standard House, 12-13 Essex Street, London, WC2 3AA, UK, Tel: +44 207 320 8888 Fax: +44 207 320 8800S&P Rating: (last change: unchanged in last 7 years) A Stable

48%Europe

26%Asia Pacifi c




2% Other

13% Offshore

1% Passenger /

Ferry

25% Bulker


2015-16 2014-15 2013-14 2012-13 2011-12

Owned Tonnage 105.0 101.0 108.0 94.0 85.5


Tonnage

2016-17 2015-16 2014-15 2013-14 2012-13



Call History

2016-17 2015-16 2014-15 2013-14 2012-13

On Advance Call 2.5% 5.0% 12.5% 7.5% 5.0%

On ETC 2.5% 5.0% 12.5% 7.5% 5.0%

General Increase

2015-16 2014-15 2013-14 2012-13 2011-12

Call Income 339.4 343.4 326.2 286.8 276.8

Incurred Claims 229.7 209.8 259.2 195.9 209.5

Total Outgoing 365.7 343.8 376.9 309.1 304.2


Call Income/OGT 2.51 2.62 2.42 2.31 2.25


Policy Year Data

2015-16 2014-15 2013-14 2012-13 2011-12

P&I Class 307.2 298.6 299.9 313.6 304.1

Other Class 82.9 81.7 68.6 49.0 48.5

Unallocated 0.0 0.0 0.0 0.0 0.0


Free Reserves

2015-16 2014-15 2013-14 2012-13 2011-12


Investment Income

13% Americas


20

11

-12

20

11

-12

20

11

-12

20

13

-14

20

13

-14

20

13

-14

20

12

-13

20

12

-13

20

12

-13

20

14

-15

20

14

-15

20

14

-15

20

15

-16

20

15

-16

20

15

-16

5.00

4.00

3.00

2.00

1.00

0

5.00

4.00

3.00

2.00

1.00

0

6.00

4.00

2.00

0

-2.00

-4.00

Claims Incurred/OGT



After two exceptional years for underwriting, during which the Club recorded $140 million in underwriting profi ts, the Club’s Free Reserves have risen by almost 50% over the level at the start of the 2014-15 policy year. The Club have not required a general increase for the last two years, and we would expect this to be the case again in November. We also anticipate that a return of premium to members will be on the table.

On the back of these two years results, Standard & Poor’s have improved the Club’s rating to A stable.

The 2014-15 excellent underwriting result was in part attributed to positive back year development of claims; for 2015-16 this development is aid to be even higher than

in previous years. The Club attribute this in part to prudent claims reserving, but there are times when excessive prudency can be counter-productive or misleading.

The 2014-15 policy year is seen as the best year of the last three, with 2015-16 being on a par with 2013-14.

With its ultra conservative investment strategy one would expect that the Club would avoid the worst of the negative investment environment during the year, and this is, to a large extent, true as their loss was better than most of their peer group. Whether the damage limitation benefi ts in a year of small losses has justifi ed the underperformance in previous years is a moot point.

As regards Solvency II, the Club states that it is fully compliant; in an interesting aside, they note that the challenge of Solvency II is to translate the not inconsiderable costs incurred into tangible benefi ts for the membership.

Steamship Mutual Underwriting Association (Bermuda) Ltdwww.simsl.com

Aquatical House, 39 Bell Lane, London, E1 7LU, UK, Tel: +44 207 247 5490 Fax: +44 207 426 6800S&P Rating: (last change: increase to A from A- in 2016) A Stable

33.60%Europe

38.90%Asia Pacifi c




2.90% Other

11.40% Passenger / Ferry

39.40% Bulker


2015-16 2014-15 2013-14 2012-13 2011-12

Owned Tonnage 74.3 68.7 65.3 62.6 57.8


Tonnage

2016-17 2015-16 2014-15 2013-14 2012-13



Call History

2016-17 2015-16 2014-15 2013-14 2012-13

On Advance Call 0.0% 0.0% 10.0% 7.5% 5.0%

On ETC 0.0% 0.0% 10.0% 7.5% 5.0%

General Increase

2015-16 2014-15 2013-14 2012-13 2011-12

Call Income 315.4 327.5 304.5 279.7 289.4

Incurred Claims 233.8 196.3 209.3 234.6 210.3

Total Outgoing 328.1 297.8 302.4 308.4 288.4

Underwriting Result -12.7 29.7 2.1 -28.7 1.0

Call Income/OGT 2.62 2.88 2.98 3.02 3.15


Policy Year Data

2015-16 2014-15 2013-14 2012-13 2011-12

P&I Class 403.0 349.1 272.4 265.7 279.9

Other Class 37.3 27.1 28.8 20.5 15.9

Unallocated 0.0 0.0 0.0 0.0 0.0


Free Reserves

2015-16 2014-15 2013-14 2012-13 2011-12


Investment Income

21.30% Americas


20

11

-12

20

11

-12

20

11

-12

20

13

-14

20

13

-14

20

13

-14

20

12

-13

20

12

-13

20

12

-13

20

14

-15

20

14

-15

20

14

-15

20

15

-16

20

15

-16

20

15

-16

5.00

4.00

3.00

2.00

1.00

0

5.00

4.00

3.00

2.00

1.00

0

6.00

4.00

2.00

0

-2.00

-4.00

Claims Incurred/OGT



As the founder of diversifi cation amongst the International Group, the Swedish Club must consider that imitation is the sincerest form of fl attery, as their peer group all catch on and join the rush towards diversifi cation in their various directions. The Club is in the fortunate position of being able to create new products within an established framework, whilst others around them are focussed on creating the platform.

In direct contrast to the Standard Club, the Swedish Club started the year in review with a series of major casualties “which were far beyond what could be expected in terms of probability” however they still achieved a 99% fi nancial year combined ratio and made a small underwriting profi t of $ 0.2 million.

On the investment front the Club achieved better than average returns and restricted

their pure investment loss to $ 2.9 million, although this performance could have been infl uenced by the Club having a 31 December year end and so not being entirely comparable with the majority of Clubs.

The Club conducted a dry run during the year to test their preparedness for the impending Solvency II requirements. This confi rmed that the Solvency Capital Requirements was in line with the expected value and reconciled with their ORSA.

The Club has reported on its results for the 6 months to 30 June 2016. They have increased Free Reserves by $ 11.2 million based on an investment performance which generated an $ 8.8 million net income despite the fi nancial period end being so close after the Brexit vote shook the market. A technical surplus of $ 2.4 million completed the result.

Sveriges Angfartygs Assurance Foreningwww.swedishclub.com

Gullbergs Strandgata 6, SE 40122, Goteborg, Sweden, Tel: +46 31 638400 Fax: +46 31 156711S&P Rating: (last change: increase to BBB+ from BBB in 2012) BBB+ Stable

53%Europe

44%Asia Pacifi c

3% Americas



2% Other


36% Bulker


2015-16 2014-15 2013-14 2012-13 2011-12

Owned Tonnage 41.5 41.0 37.1 34.8 33.9


Tonnage

2016-17 2015-16 2014-15 2013-14 2012-13



Call History

2016-17 2015-16 2014-15 2013-14 2012-13

On Advance Call 0.0% 2.5% 7.5% 7.5% 5.0%

On ETC 0.0% 2.5% 7.5% 7.5% 5.0%

General Increase

2015-16 2014-15 2013-14 2012-13 2011-12

Call Income 110.0 106.0 100.0 91.7 91.4

Incurred Claims 75.1 62.1 70.7 78.5 68.3

Total Outgoing 116.4 104.4 116.5 116.2 100.0

Underwriting Result -6.4 1.6 -16.5 -24.5 -8.6

Call Income/OGT 1.73 1.77 1.80 1.72 1.82


Policy Year Data

2015-16 2014-15 2013-14 2012-13 2011-12

P&I Class 124.3 119.9 113.2 111.7 111.1

Other Class 58.8 64.2 51.6 36.6 30.8

Unallocated 0.0 0.0 0.0 0.0 0.0


Free Reserves

2015-16 2014-15 2013-14 2012-13 2011-12


Investment Income


20

11

-12

20

11

-12

20

11

-12

20

13

-14

20

13

-14

20

13

-14

20

12

-13

20

12

-13

20

12

-13

20

14

-15

20

14

-15

20

14

-15

20

15

-16

20

15

-16

20

15

-16

5.00

4.00

3.00

2.00

1.00

0

5.00

4.00

3.00

2.00

1.00

0

6.00

4.00

2.00

0

-2.00

-4.00

Claims Incurred/OGT



The Club briefl y turned the market on its head in February 2016 by announcing that merger talks were in progress between itself and Britannia and additionally its management company, Thomas Miller with Britannia’s Tindall Riley. Four months later it was announcement that both merger talks had been terminated.

Prior to this the Club manager had acquired a controlling interest in the mangers of the Osprey fi xed facility. Subsequently this business has been vested in a new MGA Thomas Miller Speciality although the Osprey branding continues in the identifi cation of the product lines.

Thus “UK Club diversifi cation” continues but remains outside the Club, seemingly following the strategy that they used many years ago when segregating their FD&D Class into a different mutual club.

The Club has experienced close to break even underwriting over the past 6 years and this enabled them to offer a 2.5% premium discount on the 2014 policy year as part of their 2016-17 general increase offering.

The Club experienced below average investment results which meant that their $17.8 million underwriting gain for the year was almost extinguished by investment losses, leaving Free Reserves broadly unchanged.

In February 2016 the Club was granted approval to use its own internal model to calculate the Solvency Capital requirement. This has had the benefi cial effect of reducing the Club’s capital requirements.

The United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Ltdwww.ukpandi.com

90 Fenchurch Street, London, EC3M 4ST, UK, Tel: +207 283 4646 Fax: +207 549 4243S&P Rating: (last change: increase to A from A- in 2014) A Stable

53%Europe

37%Asia Pacifi c

10% Americas



3% Other


37% Bulker


2015-16 2014-15 2013-14 2012-13 2011-12

Owned Tonnage 130.0 127.0 120.0 116.0 112.0


Tonnage

2016-17 2015-16 2014-15 2013-14 2012-13


Latest Estimate 0% 0% -2.5% 0% 0%

Call History

2016-17 2015-16 2014-15 2013-14 2012-13

On Advance Call 2.5% 6.5% 10.0% 7.5% 3.0%

On ETC 2.5% 6.5% 10.0% 7.5% 3.0%

General Increase

2015-16 2014-15 2013-14 2012-13 2011-12

Call Income 391.9 397.1 399.2 357.2 357.2

Incurred Claims 268.3 264.0 307.4 291.3 228.5

Total Outgoing 388.3 394.8 439.6 400.6 336.1

Underwriting Result 3.6 2.3 -40.4 -43.4 21.1

Call Income/OGT 1.70 1.79 1.90 1.82 1.86


Policy Year Data

2015-16 2014-15 2013-14 2012-13 2011-12

P&I Class 447.8 449.1 430.0 394.0 386.5

Other Class 0.0 0.0 0.0 0.0 0.0

Unallocated 99.1 98.7 98.3 99.8 99.3


Free Reserves

2015-16 2014-15 2013-14 2012-13 2011-12

Return on Total Assets -1.29% 3.65% 3.20% 2.26% 0.48

Investment Income


20

11

-12

20

11

-12

20

11

-12

20

13

-14

20

13

-14

20

13

-14

20

12

-13

20

12

-13

20

12

-13

20

14

-15

20

14

-15

20

14

-15

20

15

-16

20

15

-16

20

15

-16

5.00

4.00

3.00

2.00

1.00

0

5.00

4.00

3.00

2.00

1.00

0

6.00

4.00

2.00

0

-2.00

-4.00

Claims Incurred/OGT



West of England appears to have completed the recovery started in 2011 when it revamped the profi le of its entered tonnage by shedding several high premium / high claim members. Since then we have seen a steady improvement in underwriting results.

Since that decision the fi nancial year underwriting result has improved every year before turning a modest profi t in 2014-15 and then an excellent one in 2015-16 when the Club produced a $ 30.1 million profi t.

Whilst they speculate, as do most Club managers, that the current run of benign claims years “will not go on for ever” the Club is far better positioned to absorb any adverse underwriting conditions that may follow. This positivism is refl ected in increasing membership and falling pool contributions.

The Club also turned in an investment profi t, although it should be observed that the majority of this was attributable to an upwards valuation of its offi ce premises. However, even if we exclude this, the Club is the only 20 February year end Club to have logged an investment gain on its fi nancial investments.

With regard to Solvency II the Club states that its solvency capital sits well above the SCR under Solvency ii. This is reassuring and fi nally justifi es the Club’s decision to make excess calls in the mid 2000’s in preparation for impending higher regulatory capital needs.

West of England Ship Owners Mutual Insurance Associationwww.westpandi.com

90 Fenchurch Street, London, EC3M 4ST, UK, Tel: +207 716 6000 Fax: +207 716 6100S&P Rating: (last change: change to BBB+ from BBB in 2014) BBB+ Stable

53.80%Europe

37.40%Asia Pacifi c

3.90% Americas




1.70% Other

2.20% Passenger / Ferry

37.50% Bulker


2015-16 2014-15 2013-14 2012-13 2011-12

Owned Tonnage 68.5 59.2 53.7 50.9 49.2


Tonnage

2016-17 2015-16 2014-15 2013-14 2012-13

Forecast Call 35% 35% 35% 35% 30%


Call History

2016-17 2015-16 2014-15 2013-14 2012-13

On Advance Call 0.0% 2.5% 7.5% 3.5% 5.0%

On ETC 0.0% 2.5% 7.5% 7.5% 5.0%

General Increase

2015-16 2014-15 2013-14 2012-13 2011-12

Call Income 214.8 207.5 195.9 185.3 197.1

Incurred Claims 151.6 123.6 147.3 152.3 146.4

Total Outgoing 227.5 196.7 216.8 214.2 213.3

Underwriting Result -12.7 10.8 -20.9 -28.9 -16.2

Call Income/OGT 2.35 2.56 2.66 2.73 2.96


Policy Year Data

2015-16 2014-15 2013-14 2012-13 2011-12

P&I Class 204.0 174.6 149.4 134.6 122.5

Other Class 22.4 19.6 19.9 17.8 17.2

Unallocated 50.3 49.5 46.9 45.0 39.7


Free Reserves

2015-16 2014-15 2013-14 2012-13 2011-12


Investment Income


20

11

-12

20

11

-12

20

11

-12

20

13

-14

20

13

-14

20

13

-14

20

12

-13

20

12

-13

20

12

-13

20

14

-15

20

14

-15

20

14

-15

20

15

-16

20

15

-16

20

15

-16

5.00

4.00

3.00

2.00

1.00

0

5.00

4.00

3.00

2.00

1.00

0

6.00

4.00

2.00

0

-2.00

-4.00

Claims Incurred/OGT


7 Year Combined Ratio Premium & Claims per GT

Average Best Worst

Japan 92.21% 2015-16 80.82% 2011-12 103.46%

Shipowners 95.03% 2010-11 83.77% 2014-15 102.43%

Skuld 96.09% 2009-10 74.08% 2015-16 109.07%

Steamship 98.38% 2009-10 84.81% 2012-13 113.38%

North 101.71% 2010-11 87.48% 2012-13 114.74%

UK 102.13% 2009-10 89.75% 2012-13 116.16%

Average 103.98% 2009-10 94.17% 2012-13 117.52%

American 104.73% 2015-16 89.70% 2014-15 116.83%

Gard 105.86% 2009-10 94.55% 2012-13 141.61%

Standard 106.97% 2009-10 84.75% 2013-14 122.86%

Swedish 110.57% 2010-11 93.22% 2012-13 136.36%

West 110.72% 2014-15 92.51% 2012-13 121.53%

Britannia 120.36% 2010-11 110.75% 2015-16 139.31%

London 126.05% 2015-16 108.57% 2014-15 143.78%

Policy Year: 2015-16 2014-15 2013-14 2012-13 2011-12 2010-11 2009-10

American Premium 6.63 6.63 6.97 7.05 7.02 6.62 6.42 (Claims @10m) Claims 3.11 4.07 4.19 4.23 4.20 4.03 5.01

Britannia Premium 1.87 1.98 2.03 2.03 2.08 2.05 2.01 Claims 1.66 1.43 1.66 1.65 1.69 1.48 1.40

Gard Premium 2.23 2.38 2.40 2.27 2.29 2.38 2.48 Claims 1.70 1.58 1.55 2.17 1.79 1.79 1.47

Japan Premium 2.42 2.02 2.16 1.73 2.09 2.37 2.60 Claims 1.26 1.06 1.49 1.24 1.56 1.58 1.47

London Premium 1.92 2.02 2.11 2.04 2.16 2.38 2.69 Claims 1.43 1.97 1.85 1.95 1.77 2.36 2.20

North of England Premium 1.83 2.04 2.04 2.05 1.95 1.85 2.29 Claims 1.04 1.40 1.27 1.52 1.46 1.04 1.68

Shipowners* Premium 9.89 10.29 10.10 9.79 10.28 11.10 10.69 Claims 6.80 6.90 5.82 6.62 6.71 6.16 6.39

Skuld Premium 2.02 2.32 2.35 2.21 2.21 2.28 2.78 Claims 1.43 1.46 1.46 1.55 1.52 1.53 1.49

Standard Premium 2.51 2.62 2.42 2.31 2.25 2.43 3.03 Claims 1.70 1.60 1.92 1.58 1.70 1.62 1.75

Steamship Premium 2.62 2.88 2.98 3.02 3.15 3.27 3.61 Claims 1.94 1.73 2.05 2.53 2.29 2.33 2.26

Swedish Premium 1.73 1.77 1.80 1.72 1.82 1.75 1.99 Claims 1.18 1.04 1.27 1.48 1.36 1.07 1.34

United Kingdom Premium 1.70 1.79 1.90 1.82 1.86 2.09 2.18 Claims 1.17 1.19 1.46 1.49 1.19 1.60 1.44

West of England Premium 2.35 2.56 2.66 2.73 2.96 3.22 3.38 Claims 1.66 1.52 2.00 2.24 2.19 2.64 2.46

7 Year Combined Ratio, after eliminating excess call income, policy year basis Expressed in US$ per total Entered Ton (Policy Year Figures)

$ per GT of tonnage

2

1.6

1.2

0.8

0.4

0

Combined Ratio

2010 2011 2012 2013 2014 2015 2016

*Historic undercalling impact of Shipowners Club is not significant on figures Orange figures areas are policy years when excess calls have been accounted for. Green figures areas are policy years when under calling has happened.

3.10

2.90

2.70

2.50

2.30

2.10

1.90

1.70

1.50

2015-16 2013-14 2011-12 2009-10 2007-08 2005-06 2003-04 2001-02 1999-2000

ClaimsPremium Premium Exc xs Call


Free Reserve / PY Premium

Free Reserves

2015-16 2014-15 2013-14 2012-13 2011-12 2010-11 2009-10

American 86.86% 57.78% 57.49% 55.53% 58.07% 59.32% 48.23%

Britannia 201.93% 210.72% 171.72% 154.15% 163.08% 160.07% 138.85%

Gard 113.36% 100.26% 100.78% 102.69% 99.55% 101.96% 122.86%

Japan 74.68% 81.20% 68.83% 87.58% 77.28% 63.18% 49.86%

London 162.90% 157.44% 166.29% 168.34% 146.87% 142.65% 129.27%

North of England 87.46% 71.77% 92.17% 96.05% 98.70% 112.45% 96.10%

Shipowners 114.83% 121.58% 122.75% 124.05% 112.51% 95.25% 77.66%

Skuld 125.62% 113.00% 108.50% 113.43% 110.81% 103.88% 83.43%

Standard 114.94% 110.75% 112.97% 126.43% 127.38% 118.38% 96.51%

Steamship 139.61% 114.88% 98.92% 102.34% 102.21% 112.11% 92.94%

Swedish 101.48% 101.89% 95.63% 87.10% 81.68% 93.90% 69.42%

United Kingdom 139.56% 137.91% 132.37% 138.26% 135.99% 131.12% 106.12%

West of England 128.78% 117.45% 110.37% 106.54% 90.98% 76.76% 71.92%

Total 119.97% 112.13% 110.03% 112.76% 109.40% 107.29% 95.02%

Free reserves as percentage of policy year premium (exc. supplementary calls)

130%

120%

110%

100%

90%

80%

70%

60%

4.50

4.00

3.50

3.00

2.50

2.00

2016

2016

2012

2012

2014

2014

2010

2010

2007

2007

2015

2015

2011

2011

2008

2008

2013

2013

2009

2009

2006

2006

2005

2005

20th February: 2016 2015 2014 2013 2012 2011 2010

American*** 5.54 3.55 3.68 3.59 3.74 4.00 3.20

Britannia* 4.73 5.05 4.27 3.94 4.47 4.63 4.03

Gard** - - - - - - -

Japan 2.03 1.85 1.70 1.75 1.86 1.72 1.47

London 3.67 3.65 3.90 3.84 3.57 3.85 3.80

North of England** - - 2.40 2.50 2.55 2.98 2.67

Shipowners 11.64 13.06 12.94 12.88 12.16 10.88 8.62

Skuld 4.00 3.96 4.17 3.85 3.93 3.98 3.36

Standard 3.72 3.77 3.41 3.86 4.15 4.40 5.11

Steamship 5.93 5.48 4.61 4.57 5.12 5.74 5.04

Swedish** - - - - - - -

United Kingdom*** 4.21 4.31 4.40 4.26 4.34 4.59 3.83

West of England 4.04 4.12 4.03 3.88 3.65 3.42 3.22

Market Average 4.31 4.30 4.08 4.00 4.13 4.19 3.70

Free Reserves per owned members’ GT entered

Free Reserves per owners GT (selected clubs)

Market average is selected clubs only, ie excludes Gard, Swedish and North of England* Includes pledged assets in Boudicca Insurance Co Ltd. ** composite nature of Free Reserves makes this figure incalculable on any meaningful basis*** includes subordinated and surplus loan notes as part of free reserve


Tonnage

2016-17(p) 2015-16 2014-15 2013-14 2012-13 2011-12 2010-11 2009-10 2008-09

American Owned 13.6 13.7 16.5 15.6 15.1 16.1 15.9 14.7 13.2 Charter 0.7 0.7 0.5 0.3 0.3 0.3 0.3 0.5 0.6

Britannia Owned 105.9 108.5 108.0 110.5 111.1 103.2 98.0 93.2 88.1 Charter 35.5 27.0 23.0 25.0 28.9 32.8 39.9 41.4 42.9

Gard Owned 215.2 209.4 206.7 186.7 174.3 162.1 144.3 132.6 127.1 Charter 90.0 60.0 57.5 57.5 60.0 57.5 51.0 50.0 53.0

Japan Owned 93.0 92.2 93.1 92.0 90.2 89.9 91.9 91.6 82.8 Charter 12.0 12.5 11.8 12.8 13.5 13.6 13.5 12.2 13.2

London Owned 44.4 43.8 43.1 41.2 40.1 40.5 37.7 37.2 36.4 Charter 8.5 7.5 6.5 4.9 4.7 5.2 5.0 3.4 2.5

North of England Owned 131.0 127.0 131.0 127.0 123.0 123.0 105.0 90.0 66.6 Charter 54.0 43.0 49.0 43.0 39.0 40.0 45.0 19.0 24.0

Shipowners Owned 24.4 24.0 23.0 23.1 21.4 19.3 17.3 15.7 14.8 Charter 0.6 0.6 0.5 0.5 0.5 0.5 0.5 0.6 0.6

Skuld Owned 88.6 87.1 84.7 80.3 80.2 74.2 66.9 60.0 43.7 Charter 50.0 50.0 48.0 51.0 42.8 45.0 52.6 35.0 46.6

Standard Owned 107.0 105.0 101.0 108.0 94.0 85.5 72.0 47.5 43.0 Charter 31.0 30.0 30.0 27.0 30.0 37.5 38.0 35.5 30.0

Steamship Owned 77.8 74.3 68.7 65.3 62.6 57.8 52.8 49.9 46.8 Charter 51.2 46.0 45.0 37.0 30.0 34.0 30.0 25.0 25.0

Swedish Owned 43.6 41.5 41.0 37.1 34.8 33.9 30.9 25.9 24.5 Charter 22.5 22.2 18.9 18.4 18.4 16.3 17.8 14.8 13.4

United Kingdom Owned 135.0 130.0 127.0 120.0 116.0 112.0 104.0 107.0 110.0 Charter 100.0 100.0 95.0 90.0 80.0 80.0 70.0 70.0 51.0

West of England Owned 72.1 68.5 59.2 53.7 50.9 49.2 53.4 52.5 53.7 Charter 25.0 23.0 22.0 20.0 17.0 17.5 20.4 17.0 19.1

Totals Owned 1151.6 1125.0 1103.0 1060.5 1013.7 966.7 890.1 817.8 750.7 Charter 481.0 422.5 407.7 387.4 365.1 380.2 384.0 324.4 321.9 Total 1632.6 1547.5 1510.7 1447.9 1378.8 1346.9 1274.1 1142.2 1072.6

Entered Tonnage Expressed In Millions Of GT

International Group Tonnage Development

1,600

1,200

800

400

0

1998 20062002 20102000 20082004 2012 20151999 20072003 2011 20142001 20092005 2013 2016

CharteredOwnedTotal

Comparative Growth Factors

Club Owner Tonnage PY Call Income Free Reserve Total Free Reserve Natural Note (1) (2) (3) (4)

American -13.84% -19.82% 19.53% -11.02%

Britannia 10.71% -10.50% 12.90%

Gard 45.11% 29.52% 28.73%

Japan 0.33% 6.41% 18.57% 9.57%

London 21.67% -2.95% 10.75%

North of England 20.95% 11.99% 37.13% 21.61%

Shipowners 34.83% 23.13% 48.46%

Skuld 30.19% 8.07% 30.71%

Standard 45.83% 26.83% 23.14% 12.75%

Steamship 40.72% 16.60% 45.17%

Swedish 34.30% 28.96% 21.82%

United Kingdom 25.00% 7.55% 14.44%

West of England 28.28% -9.75% 51.45%

Market 26.56% 10.96% 27.25% 24.23%

Growth in key statistics between 2010-11 and 2015-16

(1) This ratio is the growth in owned tonnage;

(2) This ratio is the growth in policy year P&I premium income, stripped of the effect of any excess calls and adjusted for any under-calling in the two years in question. It may not reflect the full impact of late developing premium in the 2015-16 policy year;

(3) This ratio is the growth in Free Reserve caused by any activity in the period, including calling patterns, mergers and capital raising through debt issuance;

(4) This ratio shows the change in Free Reserve attributable to normal trading activity, ie it excludes the impact of over calling and also the impact of new capital and structural changes. Where a figure is not shown, the column 4 figure is the same as column 3.


18.11% Gard2.48% American

6.90% Shipowners

3.12% Swedish

2.80% London

11.11% UK

8.65% North of England

7.20% Britannia

9.63% Standard

7.11% Japan

7.86% Skuld

8.94% Steamship

6.09% West of England

Market Share

18.61% Gard

1.22% American

2.13% Shipowners

3.69% Swedish

3.89% London

11.56% UK

11.29% North of England

9.64% Britannia9.33 Standard

8.20% Japan

7.74% Skuld

6.60% Steamship

6.09% West of England

Market share by owned tonnage

Market share by premium

General increases 2010-2016 - Effective ETC basis

Class 2016 2015 2014 2013 2012 2011 2010 7Y Cum

American P&I 2.5% 4.5% 10.0% 10.0% 5.0% 2.0% 4.2% 144.60% FD&D 0.0% 4.5% 10.0% 10.0% 5.0% 10.0% 4.2% 152.13%

Britannia P&I 2.5% 2.5% 8.1% 10.5% 5.0% 5.0% 5.0% 145.27% FD&D 0.0% 0.0% 0.0% 10.0% 0.0% 0.0% 50.0% 165.00%

Gard (1) P&I 2.5% 2.5% 5.0% 5.0% 5.0% 0.0% 0.0% 121.62% FD&D 2.5% 10.0% 5.0% 5.0% 5.0% 10.0% 20.0% 172.29%

Japan P&I 3.0% 3.0% 7.5% 5.0% 3.0% 10.0% 12.5% 152.64% FD&D 0.0% 0.0% 7.5% 0.0% 0.0% 0.0% 0.0% 107.50%

London P&I 5.0% 6.0% 10.0% 12.5% 5.0% 5.0% 5.0% 159.44% FD&D 5.0% 6.0% 10.0% 12.5% 5.0% 7.5% 20.0% 186.56%

North of England P&I 2.50% 4.75% 7.5% 15.0% 5.0% 3.0% 5.0% 150.73% FD&D 0.0% 2.5% 5.0% 10.0% 10.0% 10.0% 10.0% 157.57%

Shipowners P&I 0.0% 0.0% 5.0% 5.0% 0.0% 0.0% 5.0% 115.76%

Skuld (2) P&I 0.0% 0.0% 0.0% 8.5% 0.0% 0.0% 5.0% FD&D 0.0% 0.0% 0.0% 8.5% 0.0% 0.0% 5.0%

Standard P&I 2.5% 5.0% 12.5% 7.5% 5.0% 3.5% 3.0% 145.69% FD&D 0.0% 5.0% 12.5% 15.0% 5.0% 3.5% 15.0% 169.77%

Steamship P&I 0.0% 0.0% 10.0% 7.5% 5.0% 0.0% 5.0% 130.37% FD&D 0.0% 0.0% 10.0% 7.5% 5.0% 0.0% 0.0% 124.16%

Swedish P&I 0.0% 2.5% 7.5% 7.5% 5.0% 2.5% 2.5% 130.67% FD&D 0.0% 5.0% 5.0% 5.0% 5.0% 10.0% 2.5% 137.05%

United Kingdom P&I 2.5% 6.2% 10.0% 7.5% 3.0% 5.0% 5.0% 146.17% FD&D 0.0% 0.0% 5.0% 7.5% 3.0% 5.0% 5.0% 128.18%

West of England P&I 0.0% 2.5% 7.5% 7.5% 5.0% 5.0% 5.0% 137.12% FD&D 0.0% 0.0% 7.5% 9.0% 10.0% 7.5% 10.0% 152.42%

Notes. 1) Gard express their premium plans in terms of “Combined Ratio Net” which is then converted to an effective General Increase2) Skuld have abandoned General Increases and fi gures shown in this table are their anticipated incremental premium requirements where advised

Above averageBelow Average

0.2

0.16

0.12

0.08

0.04

0

2016 2015 2014 2013 2012 2011 2010 2009 2008

FD&DP&I


Average expense ratio

Policy Year: 2015-16 2014-15 2013-14 2012-13 2011-12 2010-11 2009-10

American 24.20% 21.60% 19.30% 19.30% 18.30% 16.50% 15.30%

Britannia 9.12% 8.43% 8.03% 8.49% 8.49% 8.09% 8.16%

Gard 11.84% 11.40% 11.30% 14.10% 13.00% 11.40% 11.80%

Japan 5.18% 5.25% 5.73% 5.69% 6.18% 6.27% 6.56%

London 9.52% 8.78% 8.36% 9.63% 9.00% 8.70% 8.90%

North of England 12.40% 12.40% 12.50% 13.10% 12.60% 11.90% 11.40%

Shipowners 21.00% 20.00% 18.00% 20.00% 20.00% 19.00% 19.00%

Skuld 12.80% 12.90% 12.30% 12.30% 12.40% 12.10% 12.20%

Standard 12.20% 11.40% 10.90% 13.20% 13.40% 13.30% 13.30%

Steamship 12.10% 11.80% 11.30% 12.40% 12.30% 12.00% 11.80%

Swedish 13.30% 13.00% 12.10% 13.30% 13.00% 11.60% 11.40%

United Kingdom 10.17% 9.66% 9.35% 9.47% 9.46% 9.16% 9.37%

West of England 15.50% 14.86% 14.24% 15.43% 14.75% 13.66% 13.79%

After an initial drop in 2013-4 as the negative investment income of 2008-09 dropped out of the system, the AER has continued its upward drift, encouraged in 2015-16 by negative investment income, as well as the strengthening dollar. In practice the past 15 years have shown that no real discernible pattern exists (as the graphic below indicates) and this measure has basically fallen into disrepute.

13.25%

12.75%

12.25%

11.75%

11.25%

10.75%

10.25%

9.75%

9.25%

2016 20122014 2010 20072015 2011 20082013 2009 2006 2005


7 Year Investment Return Summary

Average Best Worst

London 5.23% 2009-10 10.29% 2015-16 -2.91%

West of England 4.45% 2009-10 9.63% 2015-16 1.53%

American 4.06% 2009-10 7.83% 2015-16 0.14%

Standard 3.83% 2009-10 8.27% 2015-16 -0.50%

Gard 3.82% 2009-10 13.46% 2015-16 0.93%

Shipowners 3.57% 2009-10 8.80% 2015-16 -0.99%

Market Average 3.08% 2009-10 7.29% 2015-16 -0.79%

Britannia 3.03% 2009-10 7.22% 2015-16 -2.04%

Skuld 3.01% 2009-10 9.68% 2015-16 -1.52%

UK 2.43% 2009-10 4.63% 2015-16 -1.29%

Swedish 2.19% 2012-13 5.50% 2015-16 -0.63%

Steamship 2.14% 2009-10 4.22% 2015-16 -0.24%

Japan 1.58% 2014-15 1.90% 2010-11 1.00%

North of England 1.34% 2014-15 3.21% 2015-16 -0.77%

Club Equities Fixed Interest Cash Other

American 36.21% 56.13% 5.58% 2.08%

Britannia 18.05% 71.57% 10.60% -0.22%

Gard 40.43% 49.89% 5.15% 4.53%

Japan 0.02% 60.37% 35.05% 4.56%

London 19.89% 60.61% 13.01% 6.49%

North of England 5.93% 66.28% 25.70% 2.09%

Shipowners 24.10% 58.71% 17.19% 0.00%

Skuld 14.26% 60.21% 20.16% 5.37%

Standard 21.29% 62.23% 12.78% 3.70%

Steamship 5.02% 63.18% 23.07% 8.73%

Swedish 20.03% 68.75% 11.22% 0.00%

UK 27.71% 65.08% 7.51% -0.30%

West of England 8.68% 51.85% 29.14% 10.33%

Market 20.50% 60.40% 15.42% 3.68%

Club 2016 2015 2014 2013 2012 2011 2010

American 36.21% 40.05% 40.63% 40.84% 34.82% 33.23% 27.74%

Britannia 18.05% 18.96% 20.00% 17.22% 16.12% 16.44% 20.53%

Gard 40.43% 33.85% 32.42% 21.57% 20.29% 15.50% 14.39%

Japan 0.02% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

London 19.89% 22.84% 25.11% 22.95% 22.21% 22.34% 20.61%

North of England 5.93% 6.95% 6.86% 0.01% 0.01% 0.01% 0.01%

Shipowners 24.10% 22.92% 24.00% 25.58% 22.94% 25.00% 25.60%

Skuld 14.26% 18.86% 19.69% 17.24% 17.32% 17.10% 11.17%

Standard 21.29% 17.22% 20.66% 17.47% 20.22% 29.03% 34.03%

Steamship 5.02% 5.65% 3.64% 3.59% 3.39% 2.34% 6.56%

Swedish 20.03% 20.77% 23.41% 11.79% 11.81% 19.38% 17.44%

UK 27.71% 23.07% 25.97% 28.39% 19.31% 23.74% 22.94%

West of England 8.68% 9.20% 15.20% 13.26% 24.15% 29.19% 26.93%

7 Year Investment Return expressed as a %age of Total Assets Investment Allocation by Club 20 February 2016

Proportion of Equities held by Club over timeGroup combined investment income as a % of total assets

2010

2011

2012

2013

2014

2015

2016

-8.00 0-4.00 4.00-6.00 2.00-2.00 6.00-7.00 1.00-3.00 5.00-5.00 3.00-1.00 7.00 8.00

Lowest Highest

Reduced by > 5% Increased by > 5%


The above amounts are in addition to any as yet uncalled parts of the original ETC, and also in addition to excess supplementary calls levied but as yet unbilled, if any.

The above amounts are believed to be current at the end of August 2015, but are prone to alter as circumstances change. Accordingly please consult your AJG contact or your Club for specific rates appropriate at the time you may wish to release.

Following the cessation of the EU investigation into the International Group in 2012 the Clubs have introduced a degree more transparency into the calculation of the Release Call levels. The factors to be used in determining the level of Release Call is now laid out in Clause 8 of the 2013 IG Agreement, and include:

• Premium risk• Reserve risk• Catastrophe risk• Market risk• Counterparty Default risk• Operational risk

Whilst the above is largely a codification of existing practice, this should ensure a high degree of correlation between the Solvency II calculations and the Release Call assessments, in that they can both emerge from the same risk model. Release calls have continued to fall steadily under the new regime and Shipowners Club has abolished them completely.

P&I Call History Statistics P&I Release Call Statistics

Policy Year: 2016-17 2015-16 2014-15 2013-14

American 20% 15% 12.5% C

Britannia 15.0% 7.5% 5% 0%

Gard 20% 15% 5% 0%

Japan 5% 5% 5% 5%

London 15% 15% 12.5% 5%

North of England 15% 5% 5% 0%

Shipowners not applicable

Skuld 10% 5% 0% 0%

Standard 7% 3% 2% C

Steamship 12.5% 2.5% 0% C

Swedish 15% 10% 7.5% C

United Kingdom 15% 10% 0% C

West of England 20% 10% 0% C

Expressed in terms of %age of Original ACExpressed in terms of of Supplementary Call projected/ultimate

Year Commencing: 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

American Original 0% 0% 0% 0% 0% 25% 25% 20% 0% 0% Latest 0% 0% 0% 0% 0% 25% 25% 20% 25% 30%

Britannia Original 45% 45% 45% 45% 40% 40% 40% 40% 40% 30% Latest 45% 45% 37.5% 45% 40% 40% 40% 32.5% 40% 30%

Gard Original 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% Latest 25% 15% 15% 15% 15% 20% 15% 10% 25% 25%

Japan Original 40% 40% 40% 40% 40% 40% 40% 40% 30% 30% Latest 40% 40% 40% 40% 40% 40% 50% 40% 30% 30%

London Original 0% 0% 0% 0% 0% 0% 0% 40% 40% 40% Latest 0% 0% 0% 0% 0% 0% 0% 40% 75% 89%

North of England Original 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Latest 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Shipowners Original 0% 0% 0% 0% 0% 0% 10% 10% 25% 25% Latest 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Skuld Original 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Latest 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Standard Original 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Latest 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Steamship Original 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Latest 0% 0% 0% 0% 0% 0% 0% 0% 20% 14%

Swedish Original 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Latest 0% 0% 0% 0% 0% 0% 0% 0% 0% 35%

United Kingdom Original 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Latest 0% 0% -2.50% 0% 0% -2.50% 0% 0% 20% 25%

West of England Original 35% 35% 35% 35% 30% 30% 30% 30% 20% 20% Latest 35% 35% 35% 35% 30% 30% 30% 30% 65% 55%

Green figures = Club under-called original estimate Red figures = Club over-called original estimate


Lay up returns Ratings Agencies

In the current continued recessionary environment, the laying up of vessels still remains an alternative for owners. It is thus important for the owner to appreciate the insurance implications of laying up his vessels, particularly in terms of return premiums. Each Club has a different approach to returning premiums, and some leave it simply to the discretion of the managers.

The amounts quoted below are usually applied to the premium after deduction of the International Group reinsurance cost. Further allowance is made for within retention reinsurance costs, pooling and administration expenses. This allowance tends to be the inverse of the Club’s “acceptable loss ratio” and will vary from vessel to vessel, even within the same fleet. In some cases adjustments are also made for brokerage, although this is not universally the case.

Also a return premium is usually not calculated on that element of the premium which is attributable to overspill risks – this is usually a “premium for capacity” issue and so ought not be subject to any pro rata time or risk related refund.

“pi” ratings are based on public data only, others are based on a periodic review by S&P analysts.

Ratings BBB or higher are regarded as having financial security characteristics that outweigh any vulnerabilities, and are likely to have the ability to meet financial commitments.

AA: “Very Strong” financial security characteristics.

A: “Strong” financial security characteristics, but is somewhat more likely to be affected by adverse business conditions than are insurers with higher ratings.

BBB: “Good” financial security characteristics, but is more likely to be affected by adverse business conditions than are higher rated insurers.

Ratings BB or lower are regarded as having vulnerable characteristics that may outweigh the strengths.

BB: “Marginal” financial security characteristics. Positive attributes exist, but adverse business conditions lead to insufficient ability to meet financial requirements.

B: “Weak” financial security characteristics. Adverse business conditions will likely impair the ability to meet financial commitments.

+ or – signs show relative standing within the major rating category.

Club Minimum Days Percentage Allowance

American 45 days 80%

Britannia 30 days 50% with crew on board 95% without crew

Gard 30 days as agreed by managers

Japan 30 days 75% with crew 95% with no crew

London 30 days 50% with crew 75% with no crew

North of England 30 days as agreed by managers

Shipowners 30 days 40% P&I risks 15% FD&D risks

Skuld 30 days a rate as appropriate

Standard 30 days 75%

Steamship 30 days 50% with machinery operative 90% with machinery shut down

Swedish 30 days not specified

UK 30 days as agreed by the managers

West of England 30 days 75% 50% with crew but not cargo

Current 2015 2014 2013 2012 2011 2010

American BBB- BBB- BBB- BBB- BB+ BB+ BB

Britannia A A A pi A pi A pi A pi A pi

Gard A+ A+ A+ A+ A+ A A

Japan BBB+ BBB+ BBB+ BBB+ BBB BBB pi BBB pi

London BBB BBB BBB pi BBB pi BBB pi BBB pi BBB pi

North of England A A A A A A A

Shipowners A- A- A- A- A- BBB pi BBB pi

Skuld A A A A A A- A

Standard A A A A A A A

Steamship A A- A- A- A- A- BBB+

Swedish BBB+ BBB+ BBB+ BBB+ BBB+ BBB BBB

United Kingdom A A A A- A- A- A

West of England BBB+ BBB+ BBB BBB BBB- BBpi BBB pi

Standard and Poor’s Ratings


International Group Reinsurance Programme Structure & Rates

Cumulative Value Layers

$ 6,300 m Uninsured Overspill: reverts to Pooling Approximately $ 3,200m ($ 3,150m)

$ 3,080m (85%,90%) Collective Overspill Layer $ 1,000 million $ 3,100m (15%,10%) General One Reinstatement

$ 2,080m (85%,90%) 3rd Excess Layer $ 1,000 million $ 2,100m (15%,10%) General Unlimited Reinstatements

$ 1,080m (85%,90%) 2nd Excess Layer $ 500 million $ 1,100m (15%,10%) Towers: General & Oil Pollution Unlimited Reinstatements

$ 580m (85%,90%) 1st Excess layer $ 500 million Coinsured by Hydra and private $ 600m (15%,10%) Towers: General & Oil Pollution placements ** Unlimited Reinstatements

$80m Upper Pool* $ 35m, reinsured by Hydra 7.5% ICR

$ 45m Lower Pool (B) $ 15m, reinsured by Hydra

$ 30m Lower Pool (A) $ 20m ($ 21m)

$ 10m ($ 9m) Individual Club Retention (“ICR”) $ 10m ($ 9m)

Excess Point $80m $80m $80m $70m $60m $60m $50m 2016-17 2015-16 2014-15 2013-14 2012-13 2011-12 2010-11

Dirty tanker 0.6567 0.7317 0.7963 0.7565 0.6515 0.7038 0.7554

Clean tanker 0.2816 0.3138 0.3415 0.3245 0.2798 0.3055 0.3335

Dry 0.4537 0.4888 0.5203 0.4942 0.3561 0.3709 0.3867

Passenger 3.5073 3.7791 3.7791 3.1493 1.3992 1.4780 1.5654

NB Figures are for 2016-17, with 2015-16 figures in red for comparison where different.

*In 2015-16 this element was in 2 layers: the first $ 15m featured a 5% ICR and the second $ 20m featured a 10% ICR

**At the 2014 renewal a 5% private placement line on the group programme

was placed, on a 3 year fixed premium basis, between $100 million and $ 1.1 billion with Berkshire Hathaway. At the 2015 renewal a further 5% private placement line was placed, on the same basis, with Liberty Mutual. At the 2016 renewal a further 5% private placement line was placed on the same basis with Hannover Re.

Hydra participation was increased at the 2016-17 renewal such that it now reinsures 75% (2015-16: 70%) of the first $20 million on the 1st Excess layer; 60% on the next $20 million and 30% between $ 120m and $580m.

Cost of reinsurance programme in US $ per GT

The following chart shows the development of the cost of the International Group programme as regards different types of vessel.

In addition, a surcharge was made in respect of vessels transporting oil to the United States, different rates applying to vessels with and without segregated ballast tanks in accordance with regulation 13 of Annex 1 to MARPOL 73/78. This rate steadily fell since its introduction and was scrapped IN 2014-15.

Reinsurance cost in US$ per GT

Vessel Surcharge per voyage for tanker > 1,000 GT in US $ per ton

4

3.5

3

2.5

2

1.5

1

0.5

0

0.5

0.4

0.3

0.2

0.1

0

1998

1991

2007

1999

2015

1995

2011

2003

1993

2009

2001

1997

2013

2005

1992

2008

2000

2016

1996

2012

2004

1994

2010

2002

1998

2014

2006

20062002 20102000 20082004 2012 20151999 20072003 2011 20142001 20092005 2013 2016

Dirty Tanker

Non SBT

Clean Tanker

SBT

DryPassenger


Losses to pooling Hydra Insurance Company Limited

After # 12m 24m 36m 48m 60m 72m 84m 96m 108m 120m Policy Year

2006-07 38 310.6 416.8 463.2 455.1 454.8 461.0 464.8 476.0 500.9 500.3

2007-08 27 267.6 348.3 360.4 358.5 392.8 399.9 399.4 386.9 392.5

2008-09 14 87.6 116.2 106.3 122.0 120.0 119.5 122.9 124.9

2009-10 22 226.3 221.8 223.5 219.5 246.9 266.7 263.9

2010-11 22 179.1 241.1 266.9 252.5 250.6 259.0

2011-12 14 231.0 277.9 280.8 289.6 289.3

2012-13 22 368.6 453.9 467.0 465.1

2013-14 17 279.8 327.0 364.0

2014-15 14 179.6 193.6

2015-16 10 198.4

HICL Cell: Cell Performance (US$)

Britannia 20-02-16 20-02-15

Net Premiums 20,129,000 20,567,000

Net Claims (8,701,000) (6,379,000)

Other Expenses (64,000) 24,000 11,364,000 14,212,000

Inv. Income 788,000 283,000

Surplus 12,152,000 14,495,000

Investments etc 87,780,000 79,933,000

Claims o/s (43,895,000) (48,200,000)

Cell Equity 43,885,000 31,733,000

Original Cost 7,962,600 7,962,600

Club 2016/7p 2015/6p 2014/5pp 2013/4pp 2012/3pp

American 2.3% 2.5% 2.9% 2.9% 2.9%

Britannia 8.2% 7.6% 7.8% 9.9% 10.2%

Gard 17.3% 16.0% 14.8% 18.2% 15.9%

Japan 8.1% 9.0% 9.5% 8.8% 8.4%

London 3.8% 4.0% 4.0% 4.2% 4.6%

North of England 8.8% 9.7% 10.4% 8.3% 7.9%

Shipowners 6.1% 6.2% 6.0% 4.2% 3.4%

Skuld 4.4% 4.8% 4.8% 5.4% 5.8%

Standard 11.7% 10.2% 10.2% 8.5% 7.9%

Steamship 8.0% 7.8% 7.5% 8.1% 8.8%

Swedish 7.2% 7.7% 8.0% 7.6% 7.1%

UK 7.9% 8.1% 8.2% 7.5% 10.0%

West of England 6.2% 6.4% 5.9% 6.4% 7.2%

The figures below show the development of pooling claims on an historic basis in the past decade.

Pooling Losses in millions of US $ - historic thresholds

With effect from 2009-10 changes were made to the way the Clubs share these claims. During the early part of the period covered by the above table, the lower pool (then $ 30 million inclusive of the individual club retention) was apportioned between Clubs based on a calculation which determined their share based on a weighting of one third claims, one third premiums and one third tonnage.

This calculation is then moderated by the application of a loss ratio which is intended,

in the long term, to make each Club in effect pay for its own losses. The upper pool was shared on the same weighted tonnage basis as was applicable to the first excess reinsurance layer.

From 2009 the sharing formula was consolidated, and the whole of the pool is now shared on the basis previously only applicable to the lower pool. The distinction between lower and upper pool thus became irrelevant as regards allocation of pooling costs for the future and was abandoned in 2010.

Changes were also made to the way in which the loss ratio adjustment was applied.

Subsequently, with the introduction of individual club retentions of 5 or 10% for upper pool claims (amended to 7.5% across the board effective 2016-17), as per the reinsurance structure diagram earlier herein, the distinction between the upper and lower pool, and, fleetingly, the upper upper pool, has resumed importance.

The approximate shares that each club pays of a residual pool loss (ie net of the ICR’s where appropriate), are as follows:

The amounts are at different development points and will vary slightly based on the future development of the three factors noted above over time, as well as the loss experience moderator.

Hydra Insurance Company Limited is a Bermudian segregated cell company which:

• Reinsures the newly combined Upper Pool and the 2nd layer of the Lower Pool for both 2015-16 and 2016-17, inclusive of individual club retentions: ie $ 50 million xs $30 million;

• Co-insures, for 2016-17: 75% (2015-16: 70%), of the primary $ 20 million of the First Layer of the International Group excess of loss contract For both years it also coinsures 60% of the next $ 20 million thereof, and 30% of the next $ 460 million of the layer. Hydra partially protects this co-insurance exposure with a stop loss policy.

The vehicle is designed to enable the Clubs to increase their risk retention in the future and thus reduce their dependence on the commercial reinsurance market.

Hydra itself does not make financial information available, but Britannia has given details of the performance of its Hydra cell (which varies but averages some 10% of Hydra). Based on a review of this data we have seen a patchy and volatile performance from Hydra, with sizeable losses incurred in its first 5 years which necessitated an “excess call” in 2007-08. After a lucrative 2010-11 there followed a 3 year period where the cell made a small loss as losses were incurred at a high level. The past two years have seen these losses abate and almost $ 27 million has been added to cell equity which now stands at an all-time high.

Since Hydra first started in 2004-05, the Britannia cell has received in excess of $ 180 million of premium from its host Club, including some $ 20 million as an “excess call” noted above. Should the Britannia cell be typical (and ICR’s will impact this, as well as

investment performance in the individual cells) it would appear that almost $ 1.8 billion of premiums have flowed into Hydra since it started to trade, with almost $ 1.5 billion of claims being incurred.

Hydra may have some $ 400 million of collective free reserve in it, but this amount may well have been dealt with differently in individual club’s accounts: ie if consolidated, or equity accounted, these reserves will already be included in the overall free reserve figures cited elsewhere in this report. If, like Britannia, Hydra is accounted for at cost only, then these reserves are not otherwise included.


Sanctions

Following the easing of sanctions against Iran via the JCPOA, the situation has, if anything, become less clear. The majority of EU / Iran sanctions and the US imposed secondary sanctions have been lifted, measures continue in force against specific companies and individuals. Furthermore sanctions remain in force against certain prohibited trading activity.

Prohibitions also continue in place against US domiciled insurers and reinsurers and also restricting the use of the US dollar and financial systems relating to transactions with Iran. The Group has arranged a back up reinsurance programme to act as a stop gap should US domiciled reinsurers in the group program be unable to pay claims.

UK Insurance Act 2015

This legislation came into force on 12 August 2016 and is predominantly aimed at affording consumer protection to non sophisticated buyers. P&I is deemed a sophisticated market and so the eight affected clubs domiciled in the UK by and large contracted out of the provisions of the Act.

They did however amend Club Rules in order to adopt some aspects of the legislation where they serve to clarify interpretation of the applicable law. Club circulars have addressed these specifics.

Maritime Labour Convention (“MLC”)

As we reported previously, the MLC came into force on 20 August 2013 having presented the Clubs with a couple of coverage dilemmas. Most liabilities under the MLC fell under normal Club cover, but there are a number of areas which were considered likely to cause problems.

When it came into force, the MLC did not extend the financial security requirements to encompass unpaid wages in the event of shipowner insolvency. However in June 2014 the Special Tripartite Committee of the ILO approved a number of amendments to the MLC which will effectively extend liability under the MLC to encompass loss of up to 4 months wages in the event of shipowner insolvency, and to require certification and securitisation thereof. These aspects of the MLC come into force on 18 January 2017.

This obligation is not part of current P&I cover – indeed, the risk is essentially a financial guarantee risk and relates to the owner’s solvency rather than any characteristic of their fleet traditionally used in rating the premium. The Clubs have made progress towards finding a P&I solution to this requirement and indeed towards the smooth implementation of the financial certification requirements.

EU Insurance Block Exemption Review

The European Commission is currently reviewing this, which expires on 31 March 2017. The IBER is of general application to certain types of insurance co-operation and collaboration arrangements, providing them with a “safe harbour” from the EU competition rules. With Brexit likely to be triggered imminently, it will be interesting to see how this will affect the Group, some of whose members are still expected to remain domiciled within the EU notwithstanding Brexit.

Places of Refuge

On 27 January 2016 the EU introduced new operational guidelines on places of refuge intended to promote proper application of existing directives and avoid the prospect of further maritime legislation.

The guidelines promote better cooperation between the industry, the EU Members and the Coastal State (s) concerned.

Again, these guidelines, like many other EU initiatives on environmental liability, maritime safety and ship recycling etc will potentially be impacted by Brexit, the full consequences of which remain far from certain.

Developments in the Last 12 Months


1. Convention on Limitation of Liability for Maritime Claims (LLMC), 1976 (in force 1 Dec 1986)

This convention applies to all vessels involved in incidents in signatory states, except such incidents to which the Civil Liability Convention (See Section 2) applies. In effect it replaced the 1957 Brussels Convention.

At 14 August 2016, it has been ratified by 55 states, covering 54.80% of world tonnage.

The right to limit losses under this convention is lost if the incident involves a personal act or omission carried out intentionally or recklessly

and with the knowledge that loss would result.

Liability under the convention is calculated in accordance with the following formulae (note that, at 14 August 2016, SDR 1 = approximately US$ 1.39):

Vessel Size Formula

500 GT or less Minimum SDR 333,000

501-3,000 GT Add SDR 500 per GT to the above sum

3,001-30,000 GT Add SDR 333 per GT to the above aggregate


70,001 GT or more Add SDR 167 per GT to the above aggregate

Example

25,000 GT SDR 8,909,000

75,000 GT SDR 21,409,000

Vessel Size Formula

500 GT or less Minimum SDR 167,000

501-30,000 GT Add SDR 167 per GT to the above sum



Example

25,000 GT SDR 4,258,500

75,000 GT SDR 10,508,500

1.1 Personal Injury / Loss of Life 1.2 Property

1A. 1996 protocol to the 1976 LLMC (in force 13 May 2004)

This amends the limits of compensation payable and has been adopted by 52 states encompassing 57.41% of world tonnage at 14 August 2016. Until 8 June 2015 (see below) these limits were as follows:

1A.1 Personal injury / Loss of Life 1A.2 Property

Vessel Size Formula

2,000 GT or less Minimum SDR 2,000,000

2,001–30,000 GT Add SDR 800 per GT to the above sum

30,001– 70,000 GT Add SDR 600 per GT to the above aggregate


Example

25,000 GT SDR 20,400,000

75,000 GT SDR 50,400,000

Vessel Size Formula


2,001– 30,000 GT Add SDR 400 per GT to the above sum

30,001– 70,000 GT Add SDR 300 per GT to the above aggregate


Example

25,000 GT SDR 10,200,000

75,000 GT SDR 25,200,000

1B. 2012 amendments to the 1996 protocol (in force 8 June 2015)

This further amended the limits of compensation payable. It was dealt with via the tacit acceptance system whereby it was deemed acceptable to all contracting states after 18 months following notification, and entered into force after a further 18 months:

It thus came into force on 8 June 2015. The increased limits are 51% higher and are now as follows:

1B.1 Personal injury / Loss of Life 1B.2 Property

2.1 Liability under CLC (1992 protocol) 2.2 Liability under CLC as amended in 2000 (in force 1 November 2003)

Vessel Size Formula


2,001-30,000 GT Add SDR 1,208 per GT to the above sum



Example

25,000 GT SDR 30,804,000

75,000 GT SDR 76,104,000

Vessel Size Formula


2,001-30,000 GT Add SDR 604 per GT to the above sum



Example

25,000 GT SDR 15,402,000

75,000 GT SDR 38,052,000

2. International Convention on Civil Liability for Oil Pollution Damage (CLC), 1969 (in force 19 June 1975); Protocol to CLC, 1992 (in force 30 May 1996)

The Civil Liability Convention covers those who suffer oil pollution damage resulting from maritime casualties involving oil-carrying ships. The Convention places the liability for such damage on the owner of the ship from which the polluting oil escaped or was discharged.

The original Convention has been largely replaced by the 1992 Protocol, which has been adopted by 136 states, encompassing 97.00% of world shipping as at 14 August 2016. 34 states encompassing 2.74% of world shipping remain under the original 1969 regime. Liability is strict, and insurance is compulsory.

Liability under the convention is calculated in accordance with the following formulae:

Vessel Size Formula


5,001 GT or more Add SDR 420 per GT to the above sum

Maximum SDR 59,700,000 (equivalent to 140,000 GT)

Example

25,000 GT SDR 11,400,000 See earlier comment regarding the mechanics of the calculation

75,000 GT SDR 32,400,000

Vessel Size Formula


5,001 GT or more Add SDR 631 per GT to the above sum

Maximum SDR 89,770,000 (equivalent to 140,000 GT)

Example

25,000 GT SDR 17,130,000

75,000 GT SDR 48,680,000


3. International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage (FUND), 1992 Protocol (in force 30 May 1996)

The purpose of this Fund is to provide compensation for pollution damage to the extent that the protection afforded by the 1969 Civil Liability Convention is inadequate. It is also intended to give relief to shipowners in respect of the additional financial burden imposed on them by the 1969 Civil Liability Convention, with such relief being subject to conditions designed to ensure compliance with safety at sea and other conventions.

The Fund is financed by receivers of persistent oil cargoes in signatory states, via a governmental levy. It is managed by an inter-governmental organisation, the IOPC Funds.

The original 1971 Fund was denunciated in 2002 when the number of contracting states fell below 25, being effectively replaced by the 1992 Fund which entered into force in 1996. Subsequently the limits in the 1992 Fund were increased by amendment in 2000, effective November 2003.

114 states have adopted the 1992 Protocol at 14 August 2016 covering 94.04% of the world fleet.

The 2000 protocol increased this maximum sum to SDR 203 million via a tacit approval procedure, inclusive of the primary contribution under the 1992 CLC Protocol.

4. Supplementary Fund, 2003 (in force 3 Mar 2005)

The aim of this Fund is to supplement the compensation available under the 1992 Civil Liability and Fund Conventions with an additional, third tier of compensation. The Protocol is optional and participation is open to all States which are party to the 1992 Fund Convention. 31 states have adopted the 2003 protocol at 14 August 2016, covering 17.36% of the world fleet.

As with the 1992 Fund, the Supplementary Fund is financed by levies on receivers of persistent oil cargoes.

The total amount of compensation payable for any one incident will be limited to a combined total of SDR 750 million inclusive of the amount of compensation paid under the existing CLC/Fund Convention system.

5. Tanker Oil Pollution Indemnification Agreements.

In recognition of the potential disparities between contributions by shipowners and receivers of cargo towards the cost of pollution incidents, two agreements came into force in 2006 which sought to remedy the situation.

Under STOPIA, owners of small tankers of 29,548 GT or less indemnify the 1992 Fund for the difference between their 1992 CLC liability and SDR 20 million.

Under TOPIA, all tanker owners indemnify the 2003 Supplementary Fund in respect of 50% of any claim falling on that fund.

6. US Oil Pollution Act (OPA), 1990

The USA is not party to any of the above pollution related conventions, instead there are specific statutes which affect any vessels discharging oil, oil products or oil by-products in US waters.

The main one of these is OPA 1990, which imposes strict liability – the only defence being

acts of war, acts of God or that the loss was caused solely by the actions of a third party. In July 2006, the US Coast Guard & Maritime Transportation Act 2006 amended limits under OPA 1990 as set out in the table below. For non tank vessels the above increases were immediate, and for tank vessels they came into force in October 2006.

6.1 Limits of Liability under OPA 1990 as amended in 2006

6.1 Limits of Liability under OPA 1990 as amended in 2006

Vessel Size Formula

Single Hull Tanker: 3,000 GT or less US$ 3,000 per GT with minimum US$ 6,000,000

Single Hull Tanker: 3,000 GT or more US$ 3,000 per GT with minimum US$ 22,000,000

Double Hull Tanker: 3,000 GT or less US$ 1,900 per GT with minimum US$ 4,000,000

Double Hull Tanker: 3,000 GT or more US$ 1,900 per GT with minimum US$ 16,000,000

Other Vessels US$ 950 per GT with minimum US$ 800,000

Example

25,000 GT Single: US$ 75,000,000 Double: US$ 47,500,000


Vessel Size Formula

Single Hull Tanker: 3,000 GT or less US$ 3,200 per GT with minimum US$ 6,408,000

Single Hull Tanker: 3,000 GT or more US$ 3,200 per GT with minimum US$ 23,496,000

Double Hull Tanker: 3,000 GT or less US$ 2,000 per GT with minimum US$ 4,272,000

Double Hull Tanker: 3,000 GT or more US$ 2,000 per GT with minimum US$ 17,088,000

Other Vessels US$ 1,000 per GT with minimum US$ 854,400

Example



Deepwater Port, unless established under Reg 33 U.S.C. 2704(d)(2)

US$ 373.800,000

LOOP US$ 87,606,000

The US Coast Guard subsequently announced increases in liability limits to reflect inflationary erosions since the 2006 change. These came into effect on a provisional basis on 1 July 2009, and were formally adopted with effect from 5 February 2010. Further increases are likely every three years in line with US CPI movements.

The US has also established an Oil Spill Liability Trust Fund (“OSLTF”) administered by the National Pollution Funds Center, which supports OPA 90 and is funded by a tax on oil produced and imported into the USA. The OSLTF responds where a responsible party denies liability or fails to meet that liability or where the first level of liability is insufficient to fund all claims. It can provide up to $1 billion any one oil pollution incident.


7. US Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 1980

This legislation is focussed on “hazardous substances”, however there are circumstances where both CERCLA and OPA could apply to an incident involving a shipowner, operator, bareboat charterer etc. Club cover is discretionary as regards CERCLA related claims.

Limits of liability are as follows:a) for vessels over 300 GT carrying a hazardous substance as cargo – the greater of US$ 5 million or US$ 300 per GT;

b) for any other vessel over 300 GT – the greater of US$ 500,000 or US$ 300 per GT.

These limits did not change when the OPA 90 limits were raised in July 2009.

In respect of obligations under both OPA and CERCLA, Certificates of Financial responsibility (COFRs) are required. As Clubs are unwilling to certify financial responsibility as required by the US regulators, the COFR is generally provided by an independent issuing company, and covers the aggregate of the CERCLA and OPA limits of liability.

ExampleA double hull tanker of 25,000 GT will need a COFR of US$ 55 million, comprising US$ 47,500,000 under OPA 1990 as amended plus US$ 7,500,000 under CERCLA.

8. Athens Convention relating to the Carriage of Passengers and their Luggage by Sea (PAL), 1974 (in force 30 Apr 1989) & 2002 Protocol thereto (in force 23 April 2014)

The Convention consolidated and harmonised two earlier Brussels conventions dealing with passengers and luggage, which were adopted in 1961 and 1967 respectively. It establishes a regime of liability for damage suffered by passengers carried on a seagoing vessel. It declares a carrier liable for damage or loss suffered by a passenger if the incident causing the damage occurred in the course of the carriage and was due to the fault or neglect of the carrier.

However, unless the carrier acted with intent to cause such damage, or recklessly and with knowledge that such damage would probably

result, it can limit its liability. For the death of, or personal injury to, a passenger, this limit of liability is set at SDR 46,666 per passenger.

Liability is however further limited for losses arising from acts of terrorism to the practically insurable amount. As of 2006, this amount is SDR 250,000 per passenger with an aggregate limit of SDR 340 million.

Subsequent to the ratification of this convention (by 25 states to date, covering 31.81% of the world’s fleet) the limitation amount has become more and more inadequate. A 1990 protocol increasing the limit to SDR 175,000 was not adopted

(now ratified by only 3 minor states) and has been superseded by the 2002 protocol.

Through 14 August 2016, 25 contracting states, including the European Union, representing 42.83% of world tonnage have acceded to this protocol.

Notwithstanding the above, the principle provisions of this protocol came into effect within the European Union and the European Economic Area via the EU Passenger Liability Regulation #329/2009 on 31 December 2012.

8.1 Limits under 2002 Protocol to PAL

Type of Loss Limit

Strict Liability Passenger Personal Injury / Death SDR 250,000 per passenger

Operator Negligence Passenger Personal Injury / Death SDR 400,000 per passenger

Loss or Damage to Cabin Luggage SDR 2,250 per passenger

Loss or Damage to Vehicle and Luggage therein SDR 12,700 per vehicle

Loss or damage to Other Luggage SDR 3,375 per passenger

9. International Convention on Civil Liability for Bunker Oil Pollution Damage, (BUNKERS) 2001 (in force 21 Nov 2008)

The Bunker Convention reached its required criteria of 18 states’ ratification in November 2007, and by 14 August 2016 had 83 acceptances covering 92.12% of the world fleet.

The Convention covers pollution caused by spills of oil carried as fuel on board the vessel. The limits are the same as those imposed under LLMC 1976 as amended by the 1996 Protocol.

10. ILO Maritime Labour Convention (MLC) 2006 (in force 20 August 2013)

30 countries were required to ratify the Maritime Labour Convention for it to start the 12 month countdown to coming into force. On 20th August 2012 the 30th country signed up, being the Russian Federation.

At 14 August 2016 there were 79 ratifications, although in some 14 of these jurisdictions including India and China) the convention is not yet in force. In the majority of these cases, “in force status” is expected within the next 12 months. In 2007 the European Union authorized its member states to ratify the Convention by the end of 2010, but in a number of EU states, including Romania and Portugal, this process is still incomplete. Accordingly the MLC came into force in August 2013.

The Convention is kept under continuous review by a tripartite committee including representatives of shipowners, seafarers and governments. Following the first two committee meetings, various amendments were agreed to the liability (relating to repatriation and unpaid wages) and financial security rules, which will come into force in early January 2017.

Whilst most liabilities under MLC are typically covered by P&I insurance, the amendments to the financial security requirements include, inter alia, up to 4 months unpaid crew wages following abandonment which is very much not a traditional P&I risk. It remains to be seen how this develops.


11. International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea (HNS), 1996 and Protocol, 2010 (not yet in force)

The original 1996 HNS Protocol established a two tier compensation regime for amounts up to SDR 250 million and has still only been ratified by 14 states 0r 13.70% of world fleet by 14 August 2016.

A Focus Group was established in 2007 in order to address administrative concerns of the ratifying states – particularly in respect of the operations of the 2nd tier of compensation, and the difficulty in establishing how much HNS was received in any country.

A revised 2010 protocol, based on the findings of the above focus group, was adopted in April 2010, but has not yet been ratified by any states, with a limited number of states signing the protocol “subject to ratification”.

Under this protocol the total compensation remains the same, but the shipowner’s maximum liability for an incident involving packaged HNS is increased from SDR 100 million to SDR 115 million. Thereafter compensation would be paid by a second tier HNS Fund, financed by cargo receivers. The shipowners liability for bulk HNS remains unchanged at SDR 100 million.

The revised protocol will enter into force eighteen months after at least 12 States (including at least 4 with over 2 million GT) express their consent to be bound by it. Additional conditions relate to cargo receiving country contributions.

11.1 Limits of Liability under HNS 1996

Vessel Size Formula – bulk HNS Formula – packaged HNS

2,000 GT or less Minimum SDR 10,000,000 Minimum SDR 11,500,000

2,001 – 50,000 GT Add SDR 1,500 per GT to the above Add SDR 1,725 per GT to the above

50,001 GT or more Add SDR 360 per GT to the above aggregate Add SDR 414 per GT to the above aggregate

Maximum SDR 100 million SDR 115 million

Example

25,000 GT SDR 44,500,000 SDR 51,175,000

75,000 GT SDR 91,000,000 SDR 104,650,000

Efforts continue via workshops to promote the implementation and ratification of this convention but clearly with very limited success and its implementation in the near future is highly unlikely.

12. Nairobi International Convention on the Removal of Wrecks (NAIROBI WRC) 2007 (in force 14 April 2015)

The Convention provides a sound legal basis for coastal states to remove, or have removed, from their coastlines, wrecks which pose a hazard to the safety of navigation or to the marine and coastal environments, or both. It makes shipowners financially liable and requires them to take out insurance or provide other financial security to cover the

costs of wreck removal. It also provides states with a right of direct action against insurers.

The Convention has been adopted by 29 states representing 59.82% of the world fleet at 14 August 2016, however not all of these states have extended the operation of the convention to their territorial waters.

13. UN Convention for the International Carriage of Goods Wholly or Partly by Sea (ROTTERDAM RULES) 2009 (not yet in force)

In 1996, in order to harmonise liability regimes, the United Nations Commission on International Trade Law (UNCITRAL) began a review of laws in the area of the international carriage of goods by sea. An additional aim was to update the regimes to reflect more modern transportation systems. This resulted in the “Rotterdam Rules” which became open for signature in September 2009 and will enter into force 12 months after 20 states have ratified it.

By 30 November 2012, 24 nations have signed the Rules, including major shipping nations such as Greece, Norway and the United States: collectively these signatories account for 25% of world trade.

The Convention will come into force one year after ratification by the 20th UN Member state. Whilst 24 have signed the Convention, only 3 states (Congo, Spain and Togo with no new additions in the past 2 years) have ratified it at 14 August 2016. The most recent survey of various jurisdictions on the question of ratification suggests that there is very little progress being made on the subject within the legislative processes of the countries asked. Notably none of the major Asian trading nations appear close to ratifying the rules.

The European Parliament has recommended member states to move speedily towards ratification, but lethargy continues to be the watchword, and no significant progress is expected to be made in the immediate future.

The Rotterdam Rules have eroded some of the traditional defences available to sea carriers, for example the elimination of the nautical fault defence. The obligation of due diligence has been extended to apply throughout the duration of the voyage, and limits of liability per package, or unit of weight, have been significantly increased, beyond Hague-Visby and Hamburg Rules limits.

The table below contrasts the liability under the various regimes:

13.1 Contrasting liability under “Rules”

“Rule” Limitation of Liability Liability for Delay

Hague (1934) £ 100 per package/unit N/A

Hague Visby (1968) Higher of SDR 2 per kg or SDR 667 per package

N/A Add SDR 360 per GT to the above aggregate Add SDR 414 per GT to the above aggregate

Hamburg (1978) Higher of SDR 2.50 per kg or SDR 835 per pack-age/shipping unit

2.5 times freight on goods delayed subject to an upper limit if lost

Rotterdam (2009) Higher of SDR 3 per kg or SDR 875 per package/shipping unit

2.5 times freight on goods delayed not to exceed limit under rules

US COGSA (1936) US$ 500 per package/unit N/A


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Ship Repairers Liability(Marine Liability)

Yachts(Hull & Machinery)

Marina Operators Liability (Marine Liability)

Physical Loss & Damage to Containers (Cargo & StockThroughput)

Port Authorities(Ports & Terminals)

D&O & E&O for Ship Managers, Marine Surveyors (Marine Liability)

Strikes & Terrorism (War Risks)

Pharmaceuticals,Commodity Business, Frozen & Chilled Goods (Cargo & StockThroughput)

Cargo & Stock Throughput

Ports & Terminals

War Risks

Charterers Liability &Damage to Hull (Protection & Indemnity)

Protection & Indemnity

Marine Liability

Terminal Operators(Ports & Terminals)

Stevedores(Ports & Terminals)

Piracy, Kidnap & Ransom(War Risks)

Hull & Machinery

P&I Offshore & MOU Cover(Protection & Indemnity)

Freight Demurrage & Defence Cover (Protection & Indemnity)


Alex Vullo Divisional Director +44 (0)207 204 1891 [email protected]

Bård Poulsson Divisional Director +971 4 450 2531 [email protected]

Charles Gibbs Divisional Director +44 (0)207 234 4717 [email protected]

Chris Taylor Divisional Director +44 (0)207 560 3337 [email protected]

Christopher Kearns Divisional Director +44 (0)207 560 3037 [email protected]

Edward Remnant Divisional Director +44 (0)207 204 6033 [email protected]

Gemma Greenwood Divisional Director +44 (0)207 234 4055 [email protected]

John Glover Divisional Director +44 (0)207 204 8319 [email protected]

Malcolm Peckett Divisional Director +44 (0)207 204 6193 [email protected]

Mike Ingham Divisional Director +44 (0)207 204 1864 [email protected]

Nick Paice Divisional Director +44 (0)207 204 6254 [email protected]

Nicola Ellis Divisional Director +44 (0)207 204 1892 [email protected]

Patrick Wilmot Divisional Director +44 (0)207 560 3655 [email protected]

Richard Sturgeon Divisional Director +44 (0)207 204 1887 [email protected]

Simon Mauduit Divisional Director +44 (0)207 204 6203 [email protected]

Tim Sullivan Divisional Director +44 (0)207 204 6295 [email protected]

Wayne Godfrey Associate Director +44 (0)207 204 1841 [email protected]

William Kinnear Divisional Director +44 (0)207 560 3338 [email protected]

Haris Lagios Broker +44 (0)207 204 6211 [email protected]

Nick Roblin Broker +44 (0)207 234 4983 [email protected]

Amanda Gray Account Executive +44 (0)203 425 3289 [email protected]

Angus Blayney Account Executive +44 (0)207 204 8312 [email protected]

Anneliese Campbell Account Executive +44 (0)207 560 3378 [email protected]

Ben Payne Account Executive +44 (0)207 560 3525 [email protected]

Brian Webster Account Executive +44 (0)207 560 3037 [email protected]

Clare Stewart Account Executive +44 (0)207 560 3388 [email protected]

George Saunders Account Executive +44 (0)207 560 3058 [email protected]

Isabel James Account Executive +44 (0)207 204 6210 [email protected]

Lauren Osman Account Executive +44 (0)207 204 1885 [email protected]

Liera Doyle Account Executive +44 (0)207 204 8321 [email protected]

Melanie Buitendag Account Executive +44 (0)203 425 3195 [email protected]

Michael Hutchins Account Executive +44 (0)203 425 3406 [email protected]

Olly Madley Account Executive +44 (0)207 234 4228 [email protected]

Rachel Woodward Account Executive +44 (0)207 204 8321 [email protected]

Rebecca Eagles Account Executive +44 (0)207 204 1863 [email protected]

Richard Landers Account Executive +44 (0)207 204 1890 [email protected]

Wendy Needham Account Executive +44 (0)207 204 1854 [email protected]

Quizell Lawrence Senior Technician +44 (0)207 234 493 [email protected]

Joe Hassan Technician +44 (0)207 234 4734 [email protected]

Vincenzo Corsaro Technician +44 (0)207 560 3457 [email protected]

Michelle Field Personal Assistant to Jonathan Suckling +44 (0)207 560 3948 [email protected]

London Marine Division Broker / Account Executive / Technician

Malcolm Godfrey Executive Director +44 (0)207 204 1883 [email protected]

Alex Vullo Divisional Director +44 (0)207 204 1891 [email protected]

Nicola Ellis Divisional Director +44 (0)207 204 1892 [email protected]


William Baynham Associate Director +44 (0)207 560 3456 [email protected]

Nick Roblin Broker +44 (0)207 234 4983 [email protected]

Lauren Osman Account Executive +44 (0)207 204 1885 [email protected]

Wendy Needham Account Executive +44 (0)207 204 1854 [email protected]

Vincenzo Corsaro Technician +44 (0)207 560 3457 [email protected]

Jonathan Suckling Managing Director +44 (0)207 204 6091 [email protected]

Andrew James Executive Director +44 (0)207 204 6059 [email protected]

Malcolm Godfrey Executive Director +44 (0)207 204 1883 [email protected]

Matthew McCabe Executive Director +44 (0)207 204 6200 [email protected]

Paul Brandram Executive Director +44 (0)207 560 3336 [email protected]

Peter Wilmot Executive Director +44 (0)207 204 1829 [email protected]

London Marine P&I London Marine Division Senior Management

London Marine Division Divisional Directors

London Marine Division Associate Directors

Daniel Leveridge Associate Director +44 (0)207 560 3695

Dave Clark Associate Director + 44 (0)207 234 4717 [email protected]

David Gibbs Associate Director +44 (0)207 234 4718 [email protected]

David Meadway Associate Director +44 (0)207 560 3778 [email protected]

David Waller Associate Director +44 (0)207 560 3898 [email protected]

Deniz Nagatay Associate Director +44 (0)207 234 4719 [email protected]

Gary Brand Associate Director +44 (0)207 204 6121 [email protected]

James Richardson Associate Director +44 (0)203 425 3232 [email protected]

Jenny Mankelow Associate Director +44 (0)207 204 6220 [email protected]

Katrina Davis Associate Director + 44 (0)207 234 4716 [email protected]

Nick Peters Associate Director +971 4 450 2530 [email protected]

Paul Tingley Associate Director +44 (0)207 234 4720 [email protected]

Phillip Mace Associate Director Marine Claims +44 (0)207 234 4981 [email protected]

Sophia Quentin Associate Director +44 (0)207 560 3657 [email protected]

Richard Lockwood Associate Director +44 (0)207 204 6198 [email protected]

Richard Pinkerton Associate Director +44 (0)207 560 3027 [email protected]


William Baynham Associate Director +44 (0)207 560 3456 [email protected]

Andrew Albins Operations Director +44 (0)207 560 3454 [email protected]

Arthur J. Gallagher (UK) Limited is authorised and regulated by the Financial Conduct Authority.

Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AW.

Registered in England and Wales. Company Number: 1193013. www.ajginternational.com

The information contained in this market has been compiled by Arthur J. Gallagher from information provided by each insurer. This does not purport to be comprehensive or to give legal advice. While every effort has been made to ensure accuracy,

Arthur J. Gallagher cannot be held liable for any errors, omissions or inaccuracies contained within the document. Readers should not act upon (or refrain from acting upon) information in this document without first taking further

specialist or professional advice.

AJGINTERNATIONAL.COM

100921 ajg marine prerenewal market review 2016...

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