Reputation, professionalism and experience

International Insurance and Reinsurance Brokers

THE P&I REPORT 2014

UPDATE DECEMBER 2014

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Contents
Soft or more of a curates egg? ................................. Page 1
General Increases . Page 2
Supplementary Call Record . Page 3
Individual Club Commentary .................................................................................... Page 4 16

Curate's egg
Bishop:

I'm afraid you've got a bad egg, Mr Jones";

Curate:

"Oh, no, my Lord, I assure you that parts

of it are excellent!"

"True Humility" by George du Maurier,

originally published in Punch, 9 November 1895.

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Soft or more of a curates egg?

After two years of pain for ship owners, there is some welcome relief for the 2015 renewals. Following a
generally benign 2013, the current year has also been a very quiet year on the claims front for most
Clubs. With some decent investment returns pushing up free reserves to new record highs, many Clubs
have recognized that, with recovery in the shipping market still a dream in many sectors, their members
need a break.
The general increase range is 0 to 6.5%, with the average just over 3.0%, the lowest since 2011. The
biggest surprises were Steamship Mutual coming out with no increase, and UK at the other end of the
scale going for 6.5%, although we expect more flexibility from UK than in previous years given the smaller
rises announced by its major competitors. It is also good to see Britannia back on track, with a 2.5%
increase compensated by a 3.4% return on 2014 premium.
Some Clubs from whom a higher rise might have been expected appear to have been influenced by those
which announced zero or 2.5% at an early stage, and by a determination that UK should suffer the
ignominy of having the largest increase. There are a few odd numbers this year, and it does look as
though the PR boys overruled the actuaries at some Clubs.
The individual Club retention will remain at $9 million, but it is possible the Pool limit will increase again
from the 2014 figure of $80 million. The International Group is still negotiating the renewal of the Excess
Loss Reinsurance Contract but we anticipate no overall increase in premium, and some vessel types may
even see a reduction.

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General Increases
Gard

Skuld

SOP

Swedish

SSM

West*

Standard

UK

Britannia

North

London

American

Japan

2008

10

7.5

20

15

15

15

15

17.5

23.8

17.5

17.5

15

20

2009

15

15

10

15

17.5

19

15

12.5

12.5

17.5

15

29

27.5

2010

2.5

12.5

2011

2.5

3.5

10

2012

2013

8.5

5#

7.5

7.5

7.5

7.5

7.5

16.5

15

12.5

10

2014

8.5+

5#

7.5

10

7.5

12.5

10

2.5

7.5

10

10

7.5

2015

2.5

0#

2.5

2.5

6.5

2.5

4.75

4.5

Total
2008/
2015

150

153

153

173

176

188*

188

189

197

203

205

209

227

Average 185
* Applies to premium net of Group Excess Loss Reinsurance costs
+ Estimated
# Includes any increase in Group Excess Loss Reinsurance costs
The total shows the cumulative increase based on 2007 premium of 100.

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Page 2

Supplementary Call Record (Original Estimate/Current Estimate)

Policy
American* Britannia
Year

Gard

Japan

London

North of
England

Ship
Skuld
Owners+

Standard

SSM

Swedish

UK

West of
England

2005

0/20

40/30

25/20

30/30

40/40

0/0

25/25

0/0

0/0

0/0

0/0

0/0

20/35

2006

0/20

30/30

25/20

30/60

40/89

0/0

25/25

0/0

0/0

0/12.5

0/35

0/20

20/40

2007

0/30

30/30

25/25

30/30

40/89

0/0

10/10

0/0

0/0

0/14

0/35

0/25

20/55

2008

0/25

40/40

25/25

30/30

40/75

0/0

10/10

0/0

0/0

0/20

0/0

0/20

20/65

2009

20/20

40/32.50

25/10

40/40

40/40

0/0

10/10

0/0

0/0

0/0

0/0

0/0

30/30

2010

25/25

40/40

25/15

40/50

0/0

0/0

10/10

0/0

0/0

0/0

0/0

0/0

30/30

2011

25/25

40/40

25/20

40/40

0/0

0/0

0/0

0/0

0/0

0/0

0/0

0/-2.50

30/30

2012

0/0

40/40

25/15

40/40

0/0

0/0

0/0

0/0

0/0

0/0

0/0

0/0

30/30

2013

0/0

45/45

25/15

40/40

0/0

0/0

0/0

0/0

0/0

0/0

0/0

0/0

35/35

2014

0/0

45/40

25/25

40/40

0/0

0/0

0/0

0/0

0/0

0/0

0/0

0/0

35/35

2015

0/0

45/45

25/25

40/40

0/0

0/0

0/0

0/0

0/0

0/0

0/0

0/0

35/35

Called above Estimated Total Call

Called full Estimated Total Call

*Includes Surplus enhancement calls

+ For members entered on ETC basis, but Nil for members entered on Advance Call basis

Called below Estimated Total Call

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Page 3

American Steamship Owners Mutual

Protection & Indemnity Association, Inc.
P&I General increase:

FDD General Increase:

4.5%

4.5%

Deductibles under $10,000 to rise by $1,000, but crew deductible to be minimum $7,500
Deductibles $10,000 - $25,000 to rise by 10%
Deductible in respect of cargos proportion of general average to be minimum $50,000 for vessels over 15 years of age.

The Club reports that the effect of churn is reducing so that premium in 2014 has shown a welcome degree of firmness. Retained claims to date in
2014 are down on the 2013 position at the same stage, while the Pool has stabilised since 2012, with 2014 again looking better than 2013. Investment
returns as at November 2014 are around 4%.

Despite this good news, the Club believes that the trends identified last year weaker pricing power, underlying claims inflation and rising overhead
expense- will continue to influence the cost of P&I. The Club then adds some generalities about expected increases in attritional claims, volatility of larger
claims and an uncertain investment climate to seek to justify a general increase of 4.5% for all covers, plus increased deductibles. There is no explanation
of how the Club arrived at this odd figure, and we assume it was chosen simply because it looks better than 5%.

Release calls have been set at 10% for 2012, and 20% for all subsequent years.

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Page 4

The Britannia Steam Ship

Insurance Association Limited
P&I General increase:

FDD General Increase:

2.5%

Nil

The Manchester United of the P&I world is on its way back! A modest 2.5% P&I increase with no change to deductibles is welcome news, particularly as
the Club has also decided to reduce the deferred call for 2014 from 45% to 40%, equivalent to a reduction of 3.4% in total premium.

After two years of heavy claims, particularly large ones excess of $1m, the Club reports that attritional claims in 2014 continue to decline and there have
been only seven claims to date in excess of $1m, compared to 29 in 2012 and 41 in 2013. Total retained claims at the six month stage are the lowest for
four years, and the Club hopes the trend is towards claims levels of years prior to 2012. Investment results at the halfway point have also helped,
producing an annualised return of 5%.

There is also good news on FDD where, for the fourth year out of five, there will be no general increase. On top of this, the deferred call for 2015 is
reduced from 50% to 30%. A similar reduction also applies to 2014, while for 2013 the deferred call is reduced to 25%. These reductions reflect the fact
that the Club has completed rebuilding its FDD reserves after the awful years of 2008 and 2009, and can now return to a strategy of charging premiums at
a level to balance the policy year rather than achieve a surplus.

P&I Release calls, expressed as percentages of advance call and excluding deferred premium, are 7.5% for 2012, 10% for 2013 and 17.5% for 2014.

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Page 5

Gard (P&I) Bermuda Limited

P&I General increase:

FDD General Increase:

2.5%

10%

Deductibles below the standard ones to rise by $1,000 or to the standard ones, whichever is lower.
Standard Deductibles are unchanged at:
Crew/passengers/all others

$7,000

Cargo/pollution/fines:

$19,000

Collision/FFO:

$24,000

Gard has had an excellent first half for 2014, running up a surplus of $129m due to a combined net ratio of 78% and an investment return of $45m
th
th
(2.2%). Free reserves have now broken the $1 billion barrier and stand at $1.047 billion as at 20 August 2014, compared to $944m at 20 February
2014. Owned tonnage has grown over the same period by 10m to 197m GT.

We do wonder why the Club has felt the need for any general increase, other than to keep rates moving upwards when members will no doubt benefit in
cash terms from further reductions in deferred calls.

Release calls as a percentage of Estimated Total Call are 5% for 2012 and 2013, and 20% for both 2014 and 2015.

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Page 6

Japan P&I Club

P&I General increase:

FDD General Increase:

3%

Nil

The Club reports that retained claims on mutual entries have remained comparatively good since 2012 but Pool claim contributions are rising so the
Club is still to achieve overall claims stability. In the vaguest statement of any Club, a general increase of 3% is justified on the grounds of protecting the
Clubs income and expenditure, our financial stability, and so on.

Chartered claims are running at a high level, so charterers covers are subject to a 5% rise while there is no increase for fixed premium coastal vessels
or for FDD.

The Club has also joined the fixed premium bandwagon and, from 2015, dry cargo vessels engaged in relatively short-haul trade - Asia, Middle East and
Australia will have the option of a fixed premium entry.

Release Calls are set at 5% of advance call for all open years.

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Page 7

London Steamship Owners

Mutual Insurance Association Ltd
P&I General increase:

FDD General Increase:

6%

6%

Deductibles below $15,000 to rise by $2,000

Deductibles also to apply to costs, fees and expenses

The Club reports that the claims experience for 2014 to date is encouraging for claims up to $1m but there is increased activity on higher bands. The
investment return for the first half of 2014 is 3.4%.

No further information is provided to justify the general increase of 6%, which does like a concerted effort not to be the largest in the International Group.
Members should note on deductibles that, besides the increase of $2,000 on all those below $15,000, the relevant claim deductible will in future also
apply to costs, fees and expenses.

Release calls for P&I and FDD are set at 5% of advance call for 2012, 12.5% for 2013 and 15% for 2014 and 2015.

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Page 8

The North of England P&I Association Limited

P&I General increase:

FDD General Increase:

Mutual entries: 4.75%

Mutual entries: 2.5%

Cargo and crew deductibles under $25,000 to rise by $2,000

Fixed entries: 5%

Fixed entries: 5%

All deductibles below $25,000 to rise by $2,000

Every year, there is one Club which tries to be different and this year is Norths turn.
The Club takes the view that the claims environment remains challenging, with a significant number of larger claims in excess of $1m and continuing
inflationary pressures on all claims due to the high overall level of global trading. As mentioned in our main Report, the Club suffered the largest two claims
in its history in 2013, and these will impact significantly on the Clubs contribution to the International Group Pool. It has therefore decided that for mutual
members, the first 2.5% of the overall general increase of 4.75% is mandatory as it is required to cover these increased Pool costs. The balance of 2.25%
is therefore presumably negotiable. In addition, the Club is yet again increasing certain deductibles, as set out above. No detailed figures are given
regarding the Clubs financial position, but these are promised in a Pre-Renewal Report to be published shortly. We shall be interested to see how the
figures justify 4.75% as opposed to 4 or 5%!
The Club is also changing the way it debits premium instalments. The current practice is to charge five equal instalments, four during the policy year and
one in December of the following year, and this has in the past been accompanied by vague noises (including the Chairmans statement in the 2013
Annual Report) that perhaps the final instalment would not be charged in full. Clearly this is no longer the case was it ever? - and for 2015 premium will
be debited in four equal instalments within the policy year.
P&I Release calls are 5% for 2012 and 2013, 20% for 2014 and 2015. The FDD release call is 5% for 2013 and 20% for 2014 and 2015.

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Page 9

The Shipowners Mutual Protection

& Indemnity Association (Luxembourg)
P&I General increase:

FDD General Increase:

Nil

Nil

We are delighted that the Club has decided that no general increase is required for 2015, and it will also absorb any increase in reinsurance costs.

The Club has issued unaudited results for the first half of 2014, and these show an increase in free reserves of $15m to $314m, thanks to an investment
return of $11m (2.2%) and a combined ratio of 95.5%. It has suffered a large claim which will hit the Pool, involving a container vessel which grounded off
Mykonos, Greece and resulted in a wreck removal, but otherwise the Club reports a decrease in claims over $1m and will be monitoring the incidence of
high claims in the rest of the year to try to determine whether the trend of rising claims costs may be reversing.

Following our comments regarding the Clubs service in our main Report, its senior management has met with us to consider possible improvements. We
are pleased the Club has reacted so quickly and positively, and are confident the changes will produce the desired results.

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Page 10

Assuranceforeningen Skuld
P&I General increase:

FDD General Increase:

No official figure

No official figure

All standard deductibles for P&I and FDD to rise by $2,500

For the first half of 2014, Skuld has reported a surplus of $20m, of which $18m is due to investment income. As a result, free reserves have risen to a
record high of $354m. Claims are in line with budget expectations but the Club does mention that churn remains a challenge and reduces mutual
premium growth.

The Club no longer has an official general increase, but adjusts premiums based on individual and global risk factors. We imagine that, in view of the
zero or low general increases of most of its competitors, no general increase might actually mean what it says for 2015. However, the Club is increasing
all standard deductibles by $2,500.

Release calls are nil for all years prior to 2014, 10% for 2014 and 15% for 2015.

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Page 11

The Standard Club Ltd

P&I General increase:

FDD General Increase:

5%

5%

Deductibles under $10,000 to rise by $1,000.

Deductibles over $10,000 to rise by 10%.
Deductibles also to apply to costs, fees and expenses.

The Club reports that it expects the 2014 year to finish around break even, with a small underwriting deficit expected to be balanced by a modest
investment return. It believes that on average, claims inflation is running at 6%, and has decided on a 5% general increase as this takes into account the
Clubs financial strength and the level of expected investment income. There is also a 10% rise in deductibles. No further financial information is provided.
The Club does warn that members with poor records will be asked for substantial rises plus changes to terms, and is happy to accept that some members
may well choose not to renew.

We understand there was considerable debate within the Club regarding the level of general increase required. It was not that long ago that the Club had
a cull of members with bad records and, compared to most Clubs who are reporting solid technical results, we do wonder whether Standards underwriting
discipline needs tightening.

Release calls have been reduced to 3% for 2012, 4% for 2012 and 8% for 2014.

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Page 12

The Steamship Mutual

Underwriting Association (Bermuda) Ltd
P&I General increase:

FDD General Increase:

Nil

Nil

The shock of the P&I year must be Steamships decision to have no general increase.

The Club reports claims to date in 2014 are below budget, and there has also been an improvement in prior years. As a result, free reserves are projected
to increase by February 2015. No specific figures are given but the Club will provide further details in its usual Pre-renewal Report. How refreshing it is to
see a Club actually admit its free reserves are sufficient and no general increase is needed. Well done, Steamship.

Release calls are 5% for 2012, 10% for 2013 and 25% for 2014 and 2015

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Page 13

The Swedish Club

P&I General increase:

FDD General Increase:

2.5%

5%

Crew deductibles to rise by $1,000.

th
The Clubs 2014 half year figures, covering the six months to 30 June, show an overall gain of $10.3 million due to a combined ratio of 93% and an
investment return of 3.15%. The Club comments that overall claims have shown a noticeable reduction in severity. Owned tonnage has risen by 1.7m to
38.8mGT.

The Club has opted for a 2.5% P&I General Increase, no doubt influenced by the approach of its Norwegian neighbours. It calls the increase a move to
balance the needs of its members and the demands of the global shipping market, and a consolidation of the work undertaken by the Club in 2014, for
which a bottom line surplus is expected. The FDD increase of 5% is felt necessary due to rising legal costs.

Release calls are 7.5% for 2012, 10% for 2013, 15% for 2014 and 20% for 2015.

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Page 14

The United Kingdom Mutual Steamship

Assurance Association (Bermuda) Limited
P&I General increase:

FDD General Increase:

6.5%

0%

Standard Deductible increased from $8,500 to $10,000, including fees and expenses

The Club reports that , at the half way stage, total claims for 2014 are 25% lower than for 2013. However, 2013 is turning into a very expensive year for
the Club, with twice as many large claims (i.e. those over $500,000) as the average, and this has pushed the 2014 combined ratio to 109% as at August
2014. Fortunately, investment income of $22m has resulted in free reserves remaining unaltered at $529m.

Although 2014 is developing in line with expectations, the deterioration in 2013 which makes it one of the most expensive years for the Club since 1995
- has clearly worried the Club into going for a 6.5% general increase. Given the smaller increases of most of the other larger Clubs, UK has set itself quite
a challenge and will be under serious pressure to compromise.

On FDD, the UK Defence Club has decided on a nil increase and has also introduced a continuity credit scheme, whereby premium will reduce by
between 2.5% and 9% depending on the length of time the member has been entered and whether the entire fleet is with the Club.

P&I Release calls are 5% for 2012, 10% for 2013 and 15% for 2014 and 2015.

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Page 15

The West of England Shipowners

Mutual Insurance Association (Luxembourg)
P&I General increase:

FDD General Increase:

2.5% (excluding Excess Loss Reinsurance)

Nil

Deductibles to increase by 10% or $1,000, whichever is greater, subject to a maximum increase of $2,000
The minimum deductible under the Rules is increased from $8,000 to $10,000

The Club has reported a good half-year performance for 2014. The combined ratio has improved to 100.30% and an investment return of 2.25% means
free reserves have increased by over $11m to $228m as at August. We are pleased that, given the continuing strengthening of its financial position, the
Club has opted for a P&I general increase of just 2.5%, with no increase on FDD. As usual, the increase only applies to premium net of the Excess Loss
reinsurance costs, so equates to an overall increase of approximately 2%. However, the minimum Rules deductible is being increased by 25% and other
P&I deductibles will rise by up to $2,000.

Release calls are 5% for 2012, 15% for 2013 and 30% for 2014. These are percentages of advance call, but for 2015 the release has been changed to
18.5% of estimated total cost.

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Page 16

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