protection and indemnity - willis · protection and indemnity market review 2010/11 protection and...

PROTECTIONAND INDEMNITYMARkET REvIEw 2010/2011

PROTECTION AND INDEMNITYMARkET REvIEw 2010/2011Summary 2

MarketFinancialCommentary 6

ReinsuranceandPooling 14– Changes in International Group Reinsurance 15– Pool Results 18– Pool Results - Prospects for the Future 20– Expectations for the Reinsurance Renewal at 20 February 2011 21

GeneralIncreases 22

ReleaseCalls 26

ClubFinancialPages 30– Introduction to Club Pages 31– American Club 34– Britannia 36– Gard 38– Japan P&I Club 40– London Steam-Ship 42– North of England Club 44– Shipowners 46– Skuld 48– Standard (Bermuda) 50– Steamship 52– UK P&I Club 54– West of England 56– Liverpool & London 58– The Swedish Club 59

SupplementaryCallHistory 60– Historic Supplementary Call Accuracy 61– Future trends 63– Comparison of Original and Actual Supplementary Calls 66– Percentage Variation from Initial Estimated Total Call 68

AverageExpenseRatio(AER)Comparisons 72

P&IFixedPremiumMarket 74

Contacts 84

1PROTECTION AND INDEMNITY MARKET REVIEW 2010/11

Calm after the StormThe 2009/10 financial results for the Protection and Indemnity (P&I) market provide very positive reading.

Investment income bounced back with vigour after the near catastrophic results in 2008/09, underwriting results were largely positive and unbudgeted calls are no longer imminently threatening.

The market levels of total assets and free reserves at 20 February 2010 represented all time record highs for the International Group (IG).

The market seems therefore to have weathered the storm of the previous year and the overall picture now appears much more serene.

Providing balance to the positive headline results however, there are underlying trends that may present challenges in the future. Not least of these is that total claims also hit new record levels. Possibly more ominously, this increase was not due to a surge in very large claims but rather to the increasing cost of more routine cases. Even without the huge levels of Pool claims experienced in 2006 and 2007, the last reported year surpassed both of these years in terms of total claims cost.

The variance in performance between individual Clubs also continues to be marked. Ironically the six Clubs that made unbudgeted calls in 2008 financially benefitted disproportionately with the ‘double’ contribution of the extra call revenue in 2008 and the rebound in investment income in 2009. In spite of this, significant differences remain between the best and worst performers in the market.

This Review provides analysis of the most recent reported results, commenting on the underlying themes and on the expected future trends. The Review by definition can only provide a general overview of the Market at a point in time, but the Willis P&I team would be happy to expand on any specific point or update on developments.

BenAbrahamDecember2010

Summary

PROTECTION AND INDEMNITY MARKET REVIEW 2010/11

PROTECTION AND INDEMNITY MARKET REVIEW 2010/11PROTECTION AND INDEMNITY MARKET REVIEW 2010/11

looKING BaCKThe key feature of the financial results of the P&I market in 2009/10 was the huge contribution of investment income, as the world financial markets rebounded spectacularly from the collapse in 2008.

This somewhat overshadowed a relatively positive underwriting result (1% deficit), achieved in spite of the highest levels of claims in the market’s history.

The combined effect of a nearly break even underwriting result and strong investment income was a substantial increase in financial strength for the market. The total market levels of assets and free reserves are currently the highest ever recorded.

The renewal at 20 February 2010 was the most benign renewal for five years. Against an average general increase of 4.8%, we estimated that the actual result achieved across the market was between 2% and 2.5%. Tanker and passenger ship operators benefited further from the respective reductions in reinsurance costs. Possibly surprisingly, with a couple of major exceptions, vessel movements between Clubs tended to be predominantly partial fleets and consolidations rather than wholesale movements of entries.

HigHligHts of tHe 2009/10 financial Year (combined market):— 5% underlying increase in premiums— Gross and net paid claims increased by 11.9% and

4.7% respectively— Marginal underwriting loss (1%) — Huge investment income bounce back (USD 675 million

income in 2009/10 vs. USD 840 million loss in 2008/09)— Overall surplus USD 644 million— Assets increased by 17%— Free reserves increased by 29%— Highest ever combined market assets and free reserves

looKING forWarDClaImS treNDIndividual Clubs provide conflicting feedback on claims development. There is consensus that the cost of individual claims appears to be continuing to increase. The divergence in feedback is between those Clubs that believe numbers of claims are increasing and those that are reporting reducing numbers of incidents. It would be expected in a slowly recovering world economy and with an increasing world fleet, for the numbers of claims to start to increase again. The evidence is that the increase in average costs of individual claims only ever slowed rather than abated and undoubtedly there will be continued volatility in very large claims.

europeaN CommISSIoNThe European Commission is again reviewing certain aspects of the International Group (IG) pooling and reinsurance arrangements.

Mutuality at its core is a fantastically strong, inherently client focussed model. The IG structure of facilitating the sharing of all IG Clubs’ claims from USD 8 million to USD 50 million is a uniquely powerful way of ensuring reinsurance can be bought in excess of these levels competitively to very high limits. The Membership representation on Boards of individual Clubs with claims discretion flexibility is a similarly unique and powerful feature.

The restrictions within the International Group Agreement (IGA) can be frustrating and certainly seem archaic at times. In the context of a strategic approach to buying P&I however, the impact of the IGA is generally relatively modest. In spite of the idiosyncrasies of the IGA, and in some cases because of them, the market can still be incredibly competitive. As a benchmark of this, in twenty years the market has registered an underwriting profit only in a single year.

None of the above is to say the system cannot be improved. The challenge is to update and manage out the frustrations while maintaining the unique strengths of the system.

The investigation of the system will undoubtedly be thorough and probably protracted. As ever we will review the results as soon as they become public.

releaSe CallSRelease calls will, in our opinion, remain the largest barrier to movement between Clubs at renewals. As consistently highlighted in previous Reviews, there is a view that the level of release calls of a number of Clubs in essence represents a penalty for leaving the Club, rather than a realistic estimate of the potential for unbudgeted calls.

The average level of unbudgeted supplementary calls across the whole market over the last 5, 10 and 15 years were 6%, 4% and 1% respectively (average percentage unbudgeted calls each year over the periods in question, across the whole market). It does not make obvious logical sense therefore why a number of Clubs, including some of the strongest financially, would set at least one of their policy years’ release calls 3 or 4 times greater than these averages.

The Shipowners Club continue to show their larger competitors that it is entirely possible to function as a mutual P&I Club with zero release calls. This is even more commendable of the Shipowners Club considering they operate in probably the most competitive sector of the P&I market. Over the last 12 months a couple of the larger Clubs have reduced their average release calls incrementally. Despite this positive progression, it is hoped that the larger ship Clubs will be confident enough to follow the Shipowners’ Club’s lead entirely in due course.

looking forward:— A comparatively soft renewal in prospect for 2011.— The majority of the market’s narrow range of general increases

(0% to 5%) is again in contrast to the large variance in individual Club underwriting results.

— Claims drivers suggest numbers of claims may start to increase again, the average cost of individual claims to progressively increase and continued volatility to exist in respect of very large claims.

— Release calls remain a key barrier to movement between Clubs. — The differences between individual Clubs are likely to persist

and/or expand.

GeNeral INCreaSeSFollowing the strong financial results in 2009/10 it would be expected that the P&I renewal at 20 February 2011 will be marginally softer than in 2010.

P&I General Increases announced, with the exception of the Japan Club, have been between 0 and 5%. The overall market average is 3.4%.

In a similar way to last year, the very small range of increases being sought is surprising, as it bears little relation to the underwriting needs of a number of Clubs. The range of underlying underwriting results is closer to 30% than to 5%. Consequently a minority of Clubs are either optimistic regarding their claims trend or are simply responding to market pressures.

Contrasting with P&I, there is more variation in the announced general increases for Freight Demurrage and Defence (FDD). Individual Clubs appear to have been affected to different extents by increases in commercial disputes and this is more directly reflected in the wider deviation of FDD general increases announced.

marKet fINaNCIal CommeNtary

fINaNCIal overvIeW By comparison to the dramatic results in 2008/09, the most recent set of results for the P&I market make for much more comfortable reading.

On the whole the 2009/10 financial year results for the P&I market were very positive. With a huge bounce back in investment income, almost break even underwriting and market free reserves pushed to new record levels the turmoil immediately following the world economic crisis seems almost a lifetime away.

The results are not universally positive of course and large variances persist between the best and worst performing clubs. Similarly within the excellent overall results the claims trends suggest that sustaining such positive results is not a foregone conclusion.

The combined market results are expanded upon in this section, as usual outlining the key points and providing some insight into the underlying trends.

For consistency, in this section we concentrate on the financial year results of the whole market.

N.B. The only Club excluded from this analysis is the Swedish Club, which does not report on a like for like basis with the rest of the market. As the Swedish Club represents less than 2.5% of the market their omission does not materially affect the overall analysis.

marKet fINaNCIal hIGhlIGhtS (2009/10 fINaNCIal year)— Total owned tonnage increased by +7%— Underlying premium increase +5% (premiums actually reduced

by -9%, but the underlying premium represents the increase after stripping out the unbudgeted calls made in 2008/09)

— Gross and net paid claims increased by 11.9% and 4.7% respectively— Estimates for outstanding claims increased by USD 161 million — Total incurred claims increased by +12.5% (compared to reduction

of -10.9% in 2008/09)— Marginal underwriting loss of -1% or USD 31 million— Investment income USD 675 million— Overall surplus USD 644 million— Assets increased by 17%— Free reserves increased by 29%

2009/10 fINaNCIal year reSultSpremIum treNDOn face value the reported results indicate that total premiums reduced by -9% between 2008/09 and 2009/10. The trend is however quite the reverse as the 2008/09 financial year included USD 613 million of unbudgeted calls made by six errant clubs. The underlying result, after stripping out these unbudgeted calls was approximately a +5% increase in premium.

This analysis is slightly complicated in that the UK Club included a USD 63 million allocation of their unbudgeted call in the 2009/10 financial year. Arguably a true underlying trend calculation should also take into account the positive contribution of the USD 40 million that the Gard did not charge in 2009/10 due to the reduction in their deferred call from 25% to 10% for that year. These two factors largely cancel each other out, but as a rule of thumb to provide a measure of the impact, each USD 10 million in unbudgeted call (or not charged call) equates to roughly 0.3% of the total premium into the market.

Over the same period owned tonnage insured by the market increased by 7%. The implication of which is that the overall premium per gross ton (GT) in the market eroded slightly between 2008/09 and 2009/10.

PROTECTION AND INDEMNITY MARKET REVIEW 2010/11 PROTECTION AND INDEMNITY MARKET REVIEW 2010/11

ClaImS treNDBetween 2008/09 and 2009/10 gross and net paid claims increased by 11.9% and 4.7% respectively. The estimates for outstanding claims similarly increased by USD 161 million, or roughly 8% of incurred claims. The combined effect was an increase in total net incurred claims of +12.5%.

In our Review last year we mentioned that a number of Clubs, responding to the huge investment losses in 2008, appeared to squeeze out all possible ‘fat’ in their claims reserves. This seemed to be a significant contributing factor to the contraction in total estimated claims in 2008/09. In a similar way, the increase in estimates recorded in 2009/10 could partially be a reversing of this trend in a more benign financial environment.

These increases bring the overall claims levels marginally above those of the 2007/08 financial year (the previous record claims year). 2009/10 therefore represents a new high level in total incurred claims for the market.

It is too early to be definitive about recent claims trends, but there is a suggestion from these results that rather than 2007/08 being an abnormally high claims year, it is more likely that 2008/09 represented a dip in claims, against a higher average level.

We highlighted in our P&I Review last year that while it might be expected that P&I claims would decrease during a world economic recession, the reduction in total claims cost in 2008/09 appeared to be too early and too dramatic for this to be the sole reason for the reduction in overall claims. We suggested that a more significant factor in the 2008/09 claims result was the reduction in very large claims in that year. The Pool results in 2008/09 were significantly better than the previous two years.

It is probably worth highlighting therefore that the record level of overall claims in 2009/10, unlike 2007/08, was reached without the adverse impact of a very high level Pool Claims level (this is expanded upon in the Reinsurance and Pooling Section of this Review).

The graph below shows the trends in total premium paid into the market compared to the progression of gross paid claims, net paid claims and net incurred claims.

premIum vs. ClaImS

(almoSt) BreaK eveN uNDerWrItINGThe developments in premiums and claims outlined previously led to an overall underwriting deficit for the market of only -1%. This result is marginally worse than the underlying underwriting result for the market in 2008/09 (a 2.4% surplus, excluding the impact of that year’s unbudgeted calls). In spite of this it still represents the second best underwriting result for the market in over 15 years.

The development of the ‘Net Underwriting’ result for the market is shown in the graph below.

The solid line in the graph shows the results as reported, the dashed line strips out the unbudgeted calls included in the most recent reporting periods to show the ‘as-if’ underlying result.

Within this generally positive underwriting picture the variance between the best and worst performing Clubs is huge. The largest individual Club underwriting surplus was 7%, the worst deficit was -23%. A 30% range in underwriting results across the market is clearly enormous.

Net uNDerWrItING reSult

Gross Paid Claims

Net Paid ClaimsContribution of Unbudgeted Calls

Calls and Premiums

Net Incurred Claims

8002009 vs 2010 (in USD Mn)

CAlls And PREMIuMs

3,481 ≈ 3,162GRoss PAId ClAIMs

2,378 Ω 2,660nET InCuRREd ClAIMs

2,035 Ω 2,290nET PAId ClAIMs

1,982 Ω 2,075

Change in Estimated Outstanding ClaimsPaid Technical Surplus (Deficit)

Incurred Technical Surplus (Deficit)‘as if’ no Unbudgeted CallsContribution of Unbudgeted Calls

2009 vs 2010 (in USD Mn)

PAId TEChnICAl suRPlus

627.6 ≈ 183.3ChAnGE In EsTIMATEd ouTsTAndInG ClAIMs

53.2 Ω 214.2InCuRREd TEChnICAl suRPlus (dEfICIT)

574.3 ≈ -30.9

Therecordlevelofoverallclaimsin2009/10,unlike2007/08,wasreachedwithouttheadverseimpactofaveryhighlevelofPoolClaims.

10 PROTECTION AND INDEMNITY MARKET REVIEW 2010/11 PROTECTION AND INDEMNITY MARKET REVIEW 2010/11 11

NeW reCorD marKet aSSet levelS The enormous contribution of investment income allowed an overall market surplus of just over USD 640 million in 2009/10. In context, this single year surplus produced almost a 29% increase in free reserves across the market.

The overall result represents a new high point in combined reserves for the market, some 20% stronger than even the previous record level (in 2007/08). The graph below shows the progression of net assets, outstanding claims and free reserves for the entire market over the last 12 years.

aSSetS aND free reServeS

future treNDSWhere Next for ClaImS levelS?In last year’s review we discussed whether the positive claims results in 2008/09 were more likely to represent a ‘one off’ or a turning point in the claims pattern.

The new record claims levels for 2009/10 suggest that the reduction in 2008/09 may well be a ‘one off’. It is of course never quite as simple as this, particularly as volatility persists in the pattern of very large claims.

It was highlighted last year that in a recessionary environment it may be expected that such factors as reduced pressure on utilisation and turnaround of ships would reduce the number of claims. Similarly lower commodity prices would lead to smaller cargo claims and reduced competition for qualified/experienced crew may reduce the human error element.

In contrast there are issues that endure despite the economic situation. These would include increased and increasing liability limitation on ship owners, increasingly unexpected awards in certain jurisdictions, ingenious ways authorities are exploring the circumvention of ratified conventions and technological advancements which make what was previously impossible, now possible (e.g. wreck removal/cargo removal from deeper water etc).

We continue in a period of considerable uncertainty. It would be reasonable to assume that the frequency and cost of routine smaller claims would reduce in a recession and there is some evidence of this in the reality. As the economy is recovering however it would similarly be reasonable to expect that this claims pattern would again increase. Large claims will remain volatile and it is unlikely that the individual cost of major claims will abate.

Free ReservesNet Assets (Market)

Net Outstanding ClaimsContribution of Unbudgeted Calls

8002009 vs 2010 (in USD Mn)

nET AssETs (MARKET)

6,768 Ω 7,913fREE REsERVEs

2,254 Ω 2,907nET ouTsTAndInG ClAIMs

5,031 Ω 5,297

maSSIve INveStmeNt reSurGeNCe The most significant factor for the health of Clubs’ reserves across the market was the resurgence in investment income. In 2008/09 the combined market investment loss approached USD 840 million. In 2009/10 the position reversed with combined investment revenue approaching USD 680 million. Not quite a complete bounce back, but a hugely positive investment result nonetheless.

Again, even within this very positive overall investment position the divergence between the returns of individual Clubs was marked. Broadly speaking those Clubs that retained significant equity portfolios reported returns on investment between 10% and 19%.

The Clubs that had previously de-risked, principally by disposing of their equity holdings, reported much more modest returns. Even for these Clubs, the commercial bond market performed well and returns were by no means adverse (between 2% to 8%).

The graph below shows the progression of underwriting, investment and overall result for the market over the last 12 years. The solid line in the graph shows the results as reported, the dashed line strips out the unbudgeted calls included in the most recent reporting periods to show the ‘as-if’ underlying result.

overall reSult

Overall Surplus (Deficit) for YearInvestment Income

Incurred Technical Surplus (Deficit)Overall Surplus for Year excl. Unbudgeted Calls

Incurred Technical Surplus excl. Unbudgeted Calls

2009 vs 2010 (in USD Mn)

InVEsTMEnT InCoME

-839.2 Ω 678.6oVERAll suRPlus (dEfICIT) foR yEAR

-265 Ω 647.7

Largelyduetothehugecontributionofinvestmentincome,marketassetsandfreereservesreachednewrecordlevelsin2009/10.

PROTECTION AND INDEMNITY MARKET REVIEW 2010/1112 PROTECTION AND INDEMNITY MARKET REVIEW 2010/11 1

overall reSult aNtICIpateD for 2010/11?In summary we would expect inflationary increases in claims (in the region of 3% to 5% on average), investment returns to reduce to more normal levels (possibly 4% or 5% returns overall) set against the background of modest overall increases in premium.

To try to put such a scenario in perspective, the graph below projects where the overall market result for 2010/11 may end up based on these assumptions.

The anticipation is for a slightly deteriorated underwriting loss but still more than offset by investment income.

Overall Surplus (Deficit) for YearInvestment Income

Incurred Technical Surplus (Deficit)

poSSIBIlIty of further ‘uNBuDGeteD CallS’?Even with such positive overall results, there is a continuing background concern whether any Clubs may again have to revert to unbudgeted calls to address their finances.

Despite the large differences between the relative financial performances of individual Clubs, investment income levels were such in 2009/10 that every Club in the IG made an overall surplus of some sort for the financial year. In terms of quantum of free reserve therefore every Club is stronger than they were the previous year.

What the levying of the unbudgeted calls and/or the enormous investment income of 2009/10 has provided is a cushion of time to allow the minority of underperforming Clubs to address their fundamental issues. We therefore do not imminently expect another widespread round of unbudgeted calls. There may be one or two continued isolated examples in the not too distant future, but that is likely to reflect the individual circumstances, rather than a market wide issue.

The converse question is also valid. A number of the Clubs that were recently forced to make unbudgeted calls did so directly as a result of dramatic investment losses in 2008/09. Notably they subsequently regained much of those investment losses with the exceptionally high investment income in 2009/10. In effect 6 Clubs which have been refinanced by the Members with additional calls have then seen the investment income also rebound (admittedly not fully in each case). It will be interesting to see whether any of the 6 Clubs in question will debate the issue at Board level and in turn whether they offer to repay, even partially, the unbudgeted calls levied.

2011 reNeWal SeaSoNIn light of the positive results outlined previously there is a reasonable expectation for a more flexible renewal in 2011.

As ever a number of factors may well be raised by Clubs as the autumn progresses. These are likely to include: — Clubs will inevitably point towards the

uncertainty of investment income.— The continuing inflationary pressures

on claims levels.— Continued pressure from

regulators/uncertainty of eventual solvency requirements.

— Ever increasing liability under limitation regimes.

— The continuing challenges of rating erosion, with extremely competitive new buildings replacing highly rated older ships.

In addition, individual Clubs will face their own particular challenges. As mentioned earlier in this section, underwriting results vary widely between Clubs. Two-thirds of the market already achieved on/about break-even underwriting results in 2009/10. A third of the market however has some way to go to get close to this goal. In theory therefore three or four Clubs should be looking for significant double digit increases, while the remainder of the market should be seeking only inflationary, if any, increases. As ever, in a market situation logical theory is frequently not translated to practice.

N.B.ComparativeAnalysesofIndividualClubsIn this section a number of references were made to wide variances in underwriting performance, financial strength and investment allocation between individual Clubs. Willis’ P&I clients have access on request to a separate section setting out a number of comparative analyses of individual Clubs.

Followingtheenormousinvestmentgainsin2009/10muchmoremodestreturnsareexpectedfor2010/11

poSSIBle future projeCtIoN

Where Next for INveStmeNt INCome?Investment income continues to be the cornerstone of financial growth for most Clubs. Following the enormous investment gains in 2009/10 much more modest returns are expected for 2010/11. So far in 2010 the investment markets have been better than initially predicted but the economic environment continues to be fragile.

Clubs have come under increasing pressure from rating agencies to reduce their exposure to equities. There is also the suggestion that regulators may similarly follow suit in this vein in the next couple of years.

There is clearly no right or wrong answer to this question. As highlighted earlier those Clubs that de-risked in 2008/09 missed out on considerably higher investment returns in 2009/10 than if they had retained their equity holdings. Conversely their investment portfolios, while unlikely to produce spectacular results, should at least be more predictable.

At the end of 2009/10 only 4 out of the 13 Clubs maintained more than 20% of their total assets in equities. Two years ago the equivalent number would have been 9 out of 13. The North of England and Steamship Mutual have effectively withdrawn entirely from equities as an investment class and the Japan Club has never held them.

Inlightofthepositivefinancialresultsamuchmoreflexiblerenewalwouldreasonablybeexpectedfor2011.

reINSuraNCe aND poolING

PROTECTION AND INDEMNITY MARKET REVIEW 2010/11 1

Collective overspill Protection (one Reinstatement)

Usd 3.05b

Third Excess layer (unlimited Reinstatements)

Usd 2.05b

second Excess layer (unlimited Reinstatements)

Usd 1.05b

75% first Excess layer (unlimited Reinstatements)

Usd 550m

Pool - Reinsured by hydra Usd 50m

Individual Club Retention Usd 8m

25% Co-Insurance (hydra)

Aggregate of Passenger and Crew Risk Usd 3.00b

sub-limit in Respect of Passenger Risks Usd 2.00b limit

oil pollution Usd 1.00b limit

Pool Usd 30m

Catastrophe/overspill Call liability of shipowners approximately Usd 6.9b

ChaNGeS IN INterNatIoNal Group reINSuraNCe: reNeWal at 20 feBruary 2010StruCtureThe only notable change to the structure of the IG reinsurance programme at 20 February 2010 was the increase in individual Clubs’ retention from USD 7 million to USD 8 million each event. This was widely expected and highlighted in our review last year.

While this does not affect the reinsured part of the programme it reduces the Pool layer by USD 1 million and is another material increase in exposure for each Club to deal with individually.

The revised structure on the IG reinsurance programme is as below.

16 PROTECTION AND INDEMNITY MARKET REVIEW 2010/1116 PROTECTION AND INDEMNITY MARKET REVIEW 2010/11 PROTECTION AND INDEMNITY MARKET REVIEW 2010/11 1

CoSt ChaNGeS By veSSel type

Vessels without SBTU

Vessels with SBT

uS voyaGe aDDItIoNal premIumS — CoSt ChaNGeS

Clean Tanker Other

Dirty Tanker Passenger

CoSt With no change to the main reinsured part of the programme, the key focus remained on cost of the renewal at 20 February 2010.

The most recent years of the reinsurance programme had run well, but there was again deterioration in the back years’ claims, notably in respect of 2006 and 2007. The final result achieved was a 5% increase in the lower layer of the programme, with the two upper layers renewed ‘as expiry’. Overall this equated to a premium increase to reinsurers of approximately 3.25%

With the increase in world tonnage, this has translated to a slight reduction in the average rate per GT applied to individual vessels’ premium. The IG chose to allocate the available reductions to tankers and passenger ships only, while inflationary rises were applied to dry cargo ships’ reinsurance rating.

There was again welcome progress with US voyage additional premiums which were reduced by 16%.

The impact on the reinsurance cost by type of vessel is outlined in the table below and in the graphs on the following page.

The key changes at 20 February 2010 are summarised as follows:

StruCture ChaNGeS— Club retentions increased from

USD 7 million to USD 8 million

CoSt ChaNGeS— 3.25% increase in cost of combined

reinsurance programme offset by increased world tonnage.

— Modest overall reduction in average rates per GT applied to entered vessels.

— Tankers and passenger ships benefited from these reductions, whereas dry cargo ships’ reinsurance rating continued upwards.

— US Voyage Additional Premiums reduced by 16%

INterNatIoNal Group exCeSS of loSS reINSuraNCe rateSVesselType 2009/10 2010/11 Increase/Reduction Percentage (USD,perGT,perannum) (USD,perGT,perannum) (USD,perGT,perannum) Increase/DecreaseDirty Tanker 0.8079 0.7554 -0.0525 -6.50%Clean Tanker 0.3667 0.335 -0.0332 -9.05%Dry/Other 0.3695 0.3867 0.0172 4.65%Passenger 1.6026 1.5654 -0.0372 -2.32%

uS voyaGe SurCharGeSAdditional Fixed Premium 2009/10 2010/11 Reduction PercentageChange (USD,perGT,pervoyage)Vessels with SBT 0.077 0.0647 -0.0123 -15.97%Vessels without SBT 0.093 0.0780 -0.0150 -16.30%

SBT: Segregated Ballast Tanks

2009 vs 2010 (in USD PER GT)

dIRTy TAnKER

0.808 ≈ 0.755ClEAn TAnKER

0.367 ≈ 0.334PAssEnGER

1.603 ≈ 1.565oThER

0.369 Ω 0.387

2009 vs 2010 (in USD PER GT)

VEssEls WITh sBT

0.077 ≈ 0.065VEssEls WIThouT sBT

0.093 ≈ 0.078SBT: Segregated Ballast Tanks

1PROTECTION AND INDEMNITY MARKET REVIEW 2010/111 PROTECTION AND INDEMNITY MARKET REVIEW 2010/11

Totals (inc. Hydra and Co-Insurance)Number

Club retentionPoolPool - Reinsured by Hydra

Club Retention

pool reSultSThe importance of very large claims and their impact on P&I rating was brought sharply into focus with the surge in the cost of such claims in 2006 and 2007.

We have included below a graph showing the number and cost of Pool claims for the period from 1995 to 2009 (as at autumn 2010). Between 1995 and 2003 there was relatively modest variation in Pool results. Over this period average total cost of the Pool was marginally less than USD 135 million per year.

The big change in exposure to the Pool occurred in 2004 with the introduction of the Upper Pooling layer. This increased the top limit of the Pool from USD 30 million to USD 50 million. Inevitably this increased exposure led to increased volatility of overall results.

As the Pool Claims graph clearly shows, since 2004 the combined results of very large claims have been considerably more erratic. The results peaked in 2006 and 2007 with the overall cost of large claims averaging at around USD 500 million for each of these two years.

The aggregate cost of large claims dropped spectacularly in 2008 but rebounded somewhat in the still extremely undeveloped 2009. In the current year (2010/11) there had been 11 Pool claims reported by November 2010. In the context of such very large claims it is much too early to make any sensible predictions about the eventual cost of 2010/11.

Like all liability claims, the Pool results progress over time as cases are known about, estimated for, develop and are finally paid and closed. It usually takes two to three years following the inception of a policy year for the results to mature to the point that final projections can be made with reasonable accuracy. As a consequence the more recent years’ results are more likely than the back years’ results to develop from the values set out in the graph below.

pool ClaImS

N.B. In this review, references to ‘Pooling’ includes all areas where the IG collectively shares the risk, either directly through the Lower Pool, or via Hydra in the Upper Pool and the 25 percent coinsurance layer.

pool aND reteNtIoN DevelopmeNtThere have been progressive increases in both individual Clubs’ retentions and the limits collectively insured by the Pool.

The graph below shows this development in individual Club retention and of the Pool layers from 1984 to 2010. The trend has been for periods of stability followed by clear steps up in exposure.

Hugely increased retention by the P&I Industry – increases potential for volatility:— Over the last 20 years the maximum Pool exposure has increased

from USD 10.8 million each claim (in excess of a USD 1.2 million individual Club retention) to the current exposure of USD 42 million each claim (in excess of a USD 8 million individual Club retention).

— In addition to this, a 25 percent share of all claims between USD 50 and USD 550 million was introduced in 2004. This share of the USD 500 million excess layer represents a further potential exposure of USD 125 million on major claims.

— Thus the current combined catastrophe exposure under the Pool and Hydra is USD 167 million each claim.

This USD 156 million increase in the maximum Pool exposure per claim inevitably increases the potential for erratic results. This is moderated somewhat by the reinsurance of Hydra arranged by the IG, but even so the exposure is considerable.

CluB aND pool reteNtIoN CluB reteNtIoN

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pool reSultS - proSpeCtS for the futureThe factors driving a possible recurrence in an increase in claims costs were outlined in the Market Financial Commentary Section of this review.

The pattern and causes of individual claims within the Pooling layer have been analysed in our previous P&I Reviews. In summary there were two key factors driving the surge in very large claims in 2006 and 2007. The first was a significant increase in the average cost of individual major claims. The second factor was causational. The majority of Pool claims in these two years were caused largely due to human error, rather than for example, mechanical failure or involvement of sub-standard shipping.

Reviewing the first factor, it is unlikely that the average cost of major claims will reduce materially and it is arguably more likely that such costs will increase (due to inflationary pressures, technological innovation and ever increasing liability awards).

Reviewing the causation factor, the economic slowdown had the effect of decreasing world trade. Consequently in an environment with fewer ships operating, the competition to secure better qualified, more experienced crew eased somewhat. Similarly with lessened commercial time pressure on ships, it seemed logical to expect that fewer decision making errors would be made.

Whether coincidental, or as a result of the economic situation, the number of very large cases decreased materially in 2008 and 2009. This was suggested as a likely pattern in our previous reviews.

With a progressive increase in trade expected in the coming years it would seem similarly reasonable to anticipate that pressures on numbers of claims may again start to increase. The obvious corollary being that this may be the catalyst for an increase in the pattern of very large claims.

Any predictions about very large cases should however be tempered with a considerable amount of caution. In statistical terms, the IG experiences a very small total number of Pool claims. Even in 2006 and 2007 there were on average less than 40 cases per year above USD 7 million, across the entire industry. As a consequence statistical anomalies easily occur. The general trend could follow a pattern in line with the expected market forces, but the potential for volatility is enormous.

The impact of statistical aberrations is also far greater today on the P&I Clubs, due to the greater retentions in the current structure of the Pool/IG reinsurance.

expeCtatIoNS for the reINSuraNCe reNeWal at 20 feBruary 2011While extremely immature in its development, the current year so far seems to be following the positive results of the two previous years. To date in 2010 there hasn’t been a claim advised within the IG which appears likely to exceed USD 50 million, i.e. nothing so far that is likely to impact the IG excess of loss reinsurance programme.

In each of the previous two years, 2008 and 2009, only one claim was registered that was large enough to impact the IG excess of loss reinsurance programme.

The positive results (so far) in the three most recent years (2008, 2009 and 2010) will therefore have gone a significant way to offsetting the two extremely adverse years in 2006 and 2007.

The upper layers of the programme continue to run claims free and the top layer is half way through a two year deal.

At the time of writing, the negotiations on the IG reinsurance programme are still in the ‘positioning’ stage. In addition to the usual negotiating issues, there are a couple of background factors that will form part of the discussions.

These background factors directly or indirectly stem from the Deepwater Horizon incident. While Deepwater Horizon did not impact any P&I entry, significant losses were paid and/or reserved in the energy market. The energy and marine reinsurance markets are closely interlinked consequently there will inevitably be costing pressures on all large-limit excess liability programmes. Regardless of the losses on individual (re)insurers, Deepwater Horizon has also altered the perception of risk in very large liability cases.

It is also clear that there will be amendments to US pollution liability legislation as a result of Deepwater Horizon. At this stage it is uncertain whether or to what extent such changes will impact tank vessels, but it seems unlikely that there will be no change at all.

The negotiations are likely therefore to revolve around the improving loss record of the IG excess of loss programme vs. general hardening pressures on large-limit liability programmes and possible future legislative changes.

At this stage our expectation is that the recent years’ loss results are more tangible and present a stronger argument than the more ethereal background factors. Consequently, we suspect the likely outcome will be a standstill in overall premium paid to reinsurers at 20 February 2011. It is also possible that when this is translated to the ‘per GT’ rates applied to P&I premiums a modest overall reduction may be feasible due to the increase in world tonnage. We would expect any allocation of changes in reinsurance cost to follow a similar pattern to 2010 (tankers and passengerships doing better than dry cargo ships). The actual results will of course be reported in January 2011 as soon as they become available.

Withaprogressiveincreaseintradeexpectedinthecomingyearsitwouldseemsimilarlyreasonabletoanticipatethatpressuresonnumbersofclaimsmayagainstarttoincrease.

Weexpectthelikelyoutcomewillbeastandstillinoverallpremiumpaidtoreinsurersat20February2011.

p&IAs was widely anticipated the P&I general increases announced for the renewal at 20 February 2011 are predominantly in the 0% to 5% range. The average market level is 3.4%. The announced figures are included in the graph below.

This is the lowest average increase across the market for 11 years. The graph on page 25 displays the trend in average general increases over the last 21 years.

As has been the pattern in recent years, a number of Clubs will again try to introduce minimum deductibles and/or increase deductible levels in conjunction with any premium increases.

In a similar way to 2010, the notable feature of the 2011 general increases is that they do not necessarily reflect the underwriting performance of individual Clubs. The range of figures announced is relatively small whereas there is a 30% variance between the best and worst underwriting results in the IG (on a financial year basis).

It is evident that the perception of future claims trends differs from Club to Club. Even taking this into account however the most obvious implication of the variance between historic underwriting performance and announced general increases is that rather than making the assessment purely on technical underwriting requirements, competitive market pressures are a clear influencing factor on a minority of Clubs.

In September 2010, the Skuld declared that they will no longer be announcing general increases in the traditional manner. This approach has been seen before from Gard, but is a welcome development, particularly if it can be translated into practice in a manner that does not result in effectively the same methodology (i.e. not simply using an overall ‘internal’ target which is then applied in the same way as an announced general increase).

p&I GeNeral INCreaSeS – 20 feBruary 2011

t of E

123.4% Market Average

0% n/a

3.5%3%

GeNeral INCreaSeS

fDD GeNeral INCreaSeS – 20 feBruary 2011

averaGe marKet p&I GeNeral INCreaSeS

% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

American 12.5 8.5 18 7.5 10 0 5 5 10 26 25 17.5 10 10 10 20 29 4.2 2

Britannia 10 5 0 5 0 0 0 0 10 28.8 15 8.5 7.5 -2.5 5 23.8 12.5 5 5

Gard 10 0 0 5 7.5 0 -3.85 5 10 25 15 7.5 5 7.5 5 10 15 0 0

Japan 0 0 0 0 0 0 10 0 0 0 10 20 21.2 12.5 10

London 10 7.5 5 5 5 0 5 5 10 27.5 25 15 12.5 12.5 7.5 17.5 15 5 5

North of England 15 7.5 5 7.5 7.5 5 5 5 10 25 25 17.5 12.5 7.5 7.5 17.5 17.5 5 3

Shipowners 15 5 0 0 0 0 0 0 0 20 15 0 0 0 5 * 10 5 0

Skuld 15 10 2.5 5 5 0 5 0 10 30 25 15 7.5 5 2.5 7.5 15 5 **

Standard (Bermuda) 20 7.5 4.5 7.5 0 0 0 0 7.5 25 25 20 12.5 5 5 15 15 3 2.5

Steamship 15 4.5 5 7.5 5 0 0 5 10 25 25 20 12.5 5 9 15 17.5 5 0

Swedish 15 0+R/I 0+R/I 0 0 0 0 0 7.5 25 25 15 10 10 7.5 15 15 2.5 2.5

United Kingdom 15 0 7.5 5 5 5 5 0 7.5 20 25 17.5 12.5 12.5 7.5 17.5 12.5 5 5

West of England 20 7.5 7.5 7.5 7.5 5 5 5 10 25 25 15 12.5 12.5 5 15 19.2 5 5

Average 14.84 7.03 5 4.84 4.38 1.43 2.01 2.31 7.88 23.25 21.54 12.96 8.85 6.54 6.65 16.15 16.5 4.78 3.42

* The Shipowners Club did not announce a general increase in 2008, however they selectively applied increases between 15% and 20%.

** The Skuld do not intend to announce a general increase in 2011, though members will be assessed on their individual merits

The Gard did not announce figurative general increases in 2007, 2008 and 2009, but the approximate overall increases they sought are noted.

The figure noted for Britannia in 2008, West of England, Japan Club and American Club in 2009 and 2010 represents the cumulative effect of the announced increase in the advance call plus the increase in deferred call estimate.

1993—2011 marKet p&I GeNeral INCreaSeS

freIGht DemurraGe aND DefeNCe (fDD)The general increases on the FDD side are much less homogeneous. Individual Clubs’ experience of commercial disputes continues to vary considerably. Unlike the P&I increases, there seems to be a much closer correlation between recent underwriting performance on FDD and the announced increases.

The graph outlining the FDD announcements is below.

t of E

155.1% Market Average

0% n/a0% 0%

10%10%

10% 1991

releaSe CallS

As P&I Clubs are mutual, release calls are not an unreasonable mechanism in theory. Unfortunately, in recent years it appears that there has been a tendency to use them as much as a commercial penalty for leaving, rather than purely as a reasonable estimate of future exposure to the Club. The following section outlines each Clubs’ release calls, discussing them in context of the exposure.

BaCKGrouNDThe intent of release calls is to remove any potential future liability for further calls to the Club, following termination of Membership in the particular Club. By paying the release call the Member is ‘released’ from obligation to pay future supplementary calls to the Club. Thus, the release call is intended to represent the Member’s proportion of the Club’s incurred but not reported (IBNR) claims for the open years outstanding.

This original intent is an entirely equitable mechanism in a mutual environment, but the level of release calls established in recent years suggests that this is not necessarily mirrored in practice.

releaSe Call levelS vS. expoSureWe have included two graphs on the following page. The first graph displays the current release calls for all the Clubs as they have been announced by the individual Clubs. Due to the different calling structures, the announced figures are difficult to compare directly across the market. Specifically the American Club, Britannia, Gard, Japan and West of England announce their release calls as a percentage of their advance call, whereas the remainder of the market publish release calls as a percentage of their estimated total calls. Consequently to allow a more direct comparison, we have included the second graph which adjusts all the announced release calls to percentages of estimated total calls.

There is a wide range. Clubs like the Shipowners’ Club or Japan represent the lower, acceptable, end of the market with release calls set at nil and 5% respectively. At the higher end of the market 7 Clubs have at least one open policy year with release calls set at, or over, 20% (of estimated total call).

When comparing the published release calls to average levels of unbudgeted calls across the market, the figures seem surprising. The average level of unbudgeted call across the IG market over the last 10 years is only 3.9% (above original budget) per year. It could be argued that the average is misleading and that release calls should be set at a level to address the worst case scenario rather than the average. In this context, over the last 10 years the worst two individual years were 2006 and 2007 at 11.9% and 10.6% (above original budget) respectively.

We would argue however that there is a material range in the relative financial strengths of the Clubs. Across a 15 year range only half of the Clubs have been forced to make any unbudgeted calls at all. The lack of differentiation in the Clubs’ release calls is therefore surprising. It would be impossible to distinguish the stronger Clubs from the weaker Clubs purely from their published release calls.

This point has been highlighted in previous reviews. The lack of consistency in the range of release calls does not stand up to logical analysis. For example, it is clearly not realistic that the Gard or North of England are five times more vulnerable to unbudgeted supplementary calls than the Japan Club, though they both have at least one policy year release call that suggests this.

The Shipowners’ Club can be singled out for praise for taking the step in 2008 to reduce all their release call estimates to zero. The Shipowners’ Club specialise in smaller tonnage and arguably have a relatively predictable claims pattern; however they are subject to greater competitive pressure than any other member Club in the International Group.

The widespread Market convention has been that if the majority of the fleet remains with the Club, release calls would not be insisted upon for partial fleet moves. The UK Club in particular do not automatically follow this convention. The UK Club in most cases will follow the letter of the Rules to apply release calls or obtain equivalent security for ships moved from the Club even where a material proportion of the fleet remains with the Club.

ReleasecallsareamaterialbarriertomovementbetweenP&IClubs.Thecurrentlevelsdonotstanduptologicalanalysis

Clubs will argue that any Member can provide a bank guarantee from a first class bank as security for potential future calls instead of actually paying release calls. This is entirely true, however it is not without cost. In addition to bank costs there is frequently a requirement to tie up funds to secure the guarantee. In challenging economic times, where liquidity is all important, the bank guarantee route is far from straightforward and in many cases presents as large a barrier to movement as actually paying the release calls outright.

aS aNNouNCeD (perCeNtaGeS of aDvaNCe or eStImateD total Call)

t of E

Clubs have a wide variety of sophisticated modelling methods at their disposal. It is therefore curious that a Club with significant release calls believe their claims may exceed expectation by up to 25%, even one or two years after the expiry of the policy.

Release calls are a material barrier to movement of business between P&I Clubs. As highlighted through this section, even though it may be equitable for a member leaving a Club to pay some form of contribution to release them from further obligation to the Club, the current levels of release calls in many cases do not appear to be proportionate to the exposure they are intended to eliminate.

perCeNtaGe of eStImateD total CallS

2008/09 2009/10 2010/11

2008/09 2009/10 2010/11 Average (All Years)

CluB fINaNCIal paGeS

INtroDuCtIoN The following individual Club pages include consolidated, financial year summaries for each Club.

As in previous years, our main aim in presenting these summaries has been consistency. There are still variations between the way Clubs report, however we have tried as far as possible to compare ‘like with like’. We have simplified and summarised certain aspects but where information is available, we have tried to adopt the same approach for all Clubs.

The figures included/summarised under each heading are defined below:

All figures are on consolidated, financial year basis.

Calls and Premiums All calls (gross basis, including brokerage)Reinsurance Premiums All reinsurance premiums.Operating Expenses All general management, administrative and audit expenses

(not including claims management costs)Operating Income Calls, less reinsurance costs, less expenses Gross Paid Claims Paid gross claims, including Pool contributions

(including claims management costs)Net Paid Claims Gross paid claims less reinsurance and Pool recoveries.Paid Technical Surplus (Deficit) Operating income, less net paid claimsNet Change in Provision for Claims Change in net estimated outstanding claimsIncurred Technical Surplus (Deficit) Paid technical surplus (deficit), plus/minus net change in

provision for claimsInvestment Income All investment income, including, exchange gains/losses, tax etc.Overall Surplus for Year (Deficit) Incurred Technical surplus (deficit), plus investment income. Net Assets (Market) Total assets, less creditors, less miscellaneous provisions for

taxation etc., less additional calls advised but not yet debited.Net Outstanding Claims Total net estimated outstanding claims.Forecast Additional Calls Premium/Calls advised but not yet debited.Free reserves Net assets, plus forecast additional calls, less outstanding claims. (Including Forecast Supplementary Calls)

NoteSBrItaNNIaWith effect from the 1997/98 policy year Britannia entered into a reinsurance contract with Boudicca Insurance Company Limited, located and regulated in Bermuda. Boudicca Insurance holds assets in a way that they cannot be dissipated to the detriment of the reinsurance contract with Britannia. This is intended to be a tax efficient vehicle for a proportion of Britannia’s reserves.

Boudicca is owned and controlled by the Iceni Trust, a charitable trust for which Report and Accounts are unavailable. In our summary page for Britannia for the sake of effective comparison we have always included Boudicca’s assets in the figures. The assets of Boudicca as disclosed by the Club are as follows:

1997/98 USD 62 million 1998/99 USD 87 million 1999/00 USD 97.5 million2000/01 USD 105.4 million2001/02 USD 106.7 million2002/03 USD 124.9 million2003/04 USD 152 million2004/05 USD 142.8 million2005/06 USD 132.3 million2006/07 USD 108.4 million2007/08 USD 80.3 million2008/09 USD 85 million2009/10 USD 153.8 million

The relationship between Britannia and Boudicca presents an unusual challenge in terms of trying to show the ‘combined’ picture as accurately as possible.

The adjustments we make to Britannia’s reported figures to show the overall picture including Boudicca are as follows:— Britannia reinsurance premiums reduced by amounts paid

to Boudicca— Britannia paid claims increased by amounts recovered

from Boudicca — The change in provision of claims for Boudicca added to the

change for Britannia— Inclusion of a non-technical adjustment under Britannia’s

‘investment income’ heading to reflect the difference between Boudicca’s investment income and operating costs.

North of eNGlaND / NeWCaStle CluBThe Newcastle Club merged with the North of England in 1998/99. To try to demonstrate the trends as clearly as possible the 1998/99 year figures for the North of England do not include the ‘income and expenditure’ figures for the Newcastle Club. We have however included the Newcastle Club’s free reserve figure for this year to reflect the total combined reserve. For the subsequent years we have included the fully integrated figures under the North of England.

SWeDISh CluBThe Swedish Club discloses its financial results on a different basis to the rest of the International Group. Within the Swedish Club’s published Report and Accounts there is no allocation of funds between their Protection and Indemnity and Hull and Machinery Classes. This makes the P&I Class impossible to compare directly with other Clubs and consequently we have only included a partial financial summary for this Club.

StaNDarD aND poor’SStandard and Poor’s (S&P) ratings mentioned in the following pages fall into two categories, interactive ratings and public information ratings. S&P establish interactive ratings following in-depth meetings with the Club Managers. Interactively rated Clubs are identified by ‘*’ after the rating. Public information ratings are signified by a ‘pi’ subscript and are established purely on the basis of the information provided in the Clubs’ published financial statements.

It is the Clubs themselves that choose whether or not to pursue an interactive rating and there is a cost to the Club from S&P for the consequent additional work involved. When an interactive rating is undertaken, the rating of the particular Club usually shows some form of improvement.

All ratings are shown as at 1 November in the years noted.

2 PROTECTION AND INDEMNITY MARKET REVIEW 2010/11 PROTECTION AND INDEMNITY MARKET REVIEW 2010/11

toNNaGe DIStrIButIoN By NatIoNalIty of maNaGemeNt

toNNaGe DIStrIButIoN By veSSel type

AMERICAN BRIT GARD JAPAN LONDON NORTH SHIPOWNERS SKULD STANDARD STEAM UK WEST SWEDISH

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

Calls and PremiumGross Paid ClaimsTotal Tonnage (GT)

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

Investment IncomeOverall Surplus for Year (Deficit)Incurred Technical Surplus for Year (Deficit)

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

Paid Technical Surplus (Deficit)Change in Estimated Outstanding ClaimsIncurred Technical Surplus (Deficit)

amerICaN CluBwww.american-club.com

hIGhlIGhtS— 15.8% increase in owned tonnage— 17.6% increase in underlying premium

(excluding the contribution of USD 43.8 million of unbudgeted calls in 2008/09 financial year)

— Gross paid claims increased by 44.8%. Net paid claims reduced by -1.9%.

— USD 18.7 million reduction in outstanding claims estimates

— Total incurred claims increased by 5%— Combined investment income of

USD 20.6 million more than offsets the investment loss in 2008/09

— The huge investment result transforms the USD 7.9 million underwriting loss to an overall surplus for the year of USD 12.7 million

— Assets reduced by 1.4%, Free Reserves increased by 35.5%

CoNSolIDateD fINaNCIal year Summary (uSD 000s)

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

Net AssetsFree ReservesNet Outstanding Claims

2007/08 2008/09 2009/10calls and Premiums 148,473 142,152 115,691 reinsurance premiums -13,902 -10,531 -12,282 operating expenses -36,298 -38,227 -35,378 operating income 98,273 93,394 68,031 Gross paid Claims 111,171 126,190 182,740 Net paid Claims 101,452 96,496 94,643 Paid technical surplus (Deficit)

-3,179 -3,102 -26,612

Net Change in provision for Claims

5,507 -24,232 -18,725

incurred technical Surplus (Deficit)

-8,686 21,130 -7,887

Investment Income 11,075 -19,432 20,551 overall surplus for Year (Deficit)

2,389 1,698 12,664

net assets (market) 228,458 199,072 196,322 Net outstanding Claims 239,428 219,751 188,018 forecast additional Calls 44,939 56,346 40,027 free reserves (including forecast additional calls)

33,969 35,667 48,331

ENTERED TONNAgE (gT)

2008 2009 2010owned/mutual 13,300,000 13,200,000 15,283,342 Chartered/fixed 500,000 200,000 1,506,488 total 13,800,000 13,400,000 16,789,830

S&P RATINg

2008 2009 2010 BB-* BB-* BB-*

GroSS uNDerWrItING DevelopmeNt Net uNDerWrItING DevelopmeNt

aSSetS aND free reServeSoverall fINaNCIal year reSult

Europe 58.2%

Dry Cargo 68.5%

Tanker 24%

Americas 13.6%

Other3.8%

Middle East and Africa 1.6%

Asia 22.8%

Ferry/ Passenger 4.8%

Other 0.7%Tug/Barge 2%

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

BrItaNNIawww.britanniapandi.com

hIGhlIGhtS— 5.4% increase in owned tonnage— 5% increase in premiums— 8% increase in net paid claims,

contrasting with a very marginal reduction in gross paid claims

— Total incurred claims increased from USD 192 million to USD 207 million (7.8% increase)

— Continuing positive underwriting surplus, at USD 5.3 million (though USD 4.2 million less than 2008/09)

— Enormous investment result. Combined investment income of approximately USD 94 million

— Overall surplus for the year of USD 99.4 million

— Net Assets and Free Reserves increased by 19% and 36% respectively

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

-18,479 30,075 26,736

59,913 20,531 21,422

-78,392 9,544 5,314

-31,352 -34,822 99,404

net assets (inc. boudicca) 835,385 820,885 976,482 Net outstanding Claims 580,143 621,474 688,796 forecast additional Calls 56,100 77,109 88,207 free reserves (including forecast additional calls and boudicca)

311,342 276,520 375,893

2008 2009 2010owned/mutual 88,000,000 93,000,000 98,000,000 Chartered/fixed 41,000,000 41,000,000 40,000,000 total 129,000,000 134,000,000 138,000,000

S&P RATINg

2008 2009 2010 api api api

Europe 20.3%

Container 26%

General Cargo 3%

Asia 48.9%

Australasia0.4%

Middle East 2.6%

Tanker 43%Bulk Carrier 27%Other 1%

Americas 6.4%

Scandinavia 21.4%

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

GarDwww.gard.no

hIGhlIGhtS— Owned tonnage increased by 4%— Reported premium reduced by 2.7%, however

this was largely due to the Gard reducing the 2009 year supplementary call estimate from 25% to 10% (a reduction worth USD 40 million)

— Had this supplementary call not been reduced, the underlying result would have been a 6% increase in premium.

— Gross and net paid claims increased by 15% and 9% respectively

— Total incurred claims increased from USD 257 million to USD 335 million (a 30% increase)

— Enormous investment result. A 19% return was made across the Club, USD 175 million of this allocated to the P&I results

— Investment income far exceeded the technical deficit, resulting in an overall surplus for the year of USD 163 million

— Assets and Free Reserves increased by 22% and 41% respectively

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

27,856 71,931 19,594

88,774 -22,011 31,041

-60,918 93,942 -11,447

32,374 -121,515 163,442

net assets (market) 1,181,643 1,030,914 1,259,720 Net outstanding Claims 720,787 698,776 729,816 forecast additional Calls 54,759 61,962 27,638 free reserves (including forecast additional calls)

515,615 394,100 557,542

S&P RATINg

2008 2009 2010 a+* a* a*

Norway 18%

Other Dry Cargo 10%

Tanker 35%

Other Europe 23%

Americas10%

Asia 22%

Gas Carrier 6%Bulk Carrier 17%Other 3%

Germany 16%

Greece 11%

Container 16%

Mobile Offshore 10%

Passenger 3%

toNNaGe DIStrIButIoN By NatIoNalIty of reGIStry

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

japaN p&I CluBwww.piclub.or.jp

hIGhlIGhtS— Owned tonnage increased by 2%— Premium increased by 11.7%— Gross paid claims reduced by 3%, but a 6%

increase in net paid claims— Outstanding claims estimates very stable— Total incurred claims increased by 5%

(from USD 150 to USD 158 million)— Modest underwriting surplus

(USD 6 million)— Nominal investment result ( just under

USD 1 million)— Assets and Free Reserves increased by 13%

and 8% respectively

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

30,580 17,591 26,976

-1,082 20,963 20,956

31,662 -3,372 6,020

Investment Income -18,884 6,154 953 overall surplus for Year (Deficit)

12,778 2,782 6,973

net assets (market) 282,128 313,059 354,833 Net outstanding Claims (p&I only)

164,717 188,967 220,464

forecast additional Calls 0 0 0free reserves (including forecast additional calls)

117,411 124,092 134,369

2008 2009 2010owned/mutual 79,230,000 86,400,000 88,250,000 Chartered/fixed 13,240,000 12,180,000 12,310,000 owned/fixed 3,610,000 3,450,000 3,300,000total 96,080,000 102,030,000 103,860,000

S&P RATINg

2008 2009 2010 BBBpi BBBpi BBBpi

Other 4.7%

Tanker 17.8%

Singapore 3.3%

Container Ship 10.1%

Bulk Carrier 49.8%

LPG, LNG Tanker 5.9%

Panama 65.2%

Car Carrier 11.1%

General Cargo 3.1%

Korea 1.8%Philippines 2.4%

Bahamas 2.6%

Liberia 3.1%

Japan 11.7%

Hong Kong 5.2%

Other 2.2%

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

loNDoN Steam-ShIpwww.lsso.com

hIGhlIGhtS— 4.9% reduction in owned tonnage — Marginal increase (+1%) in underlying

premium (excluding the USD 94 million unbudgeted call contribution in the 2008/09 Financial year)

— Gross and net paid claims increased by 7% and 14% respectively

— Estimates for outstanding claims reduced by USD 4 million

— Overall 7.4% increase in total incurred claims— Technical deficit approaching

- USD 16.5 million— Combined investment income of

USD 42 million almost completely offsets the investment losses in 2008/09

— Overall surplus for the year of USD 25.9 million— Assets and Free Reserves increased by 37%

and 22% respectively

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

-23,367 93,705 -4,405

6,815 16,117 12,055

-30,182 77,588 -16,460

Investment Income 138 -42,953 42,367 overall surplus for Year (Deficit)

-30,044 34,635 25,907

80,884 115,519 141,426

2008 2009 2010owned/mutual 38,029,162 39,123,528 37,223,388

Chartered/fixed 2,126,894 2,600,000 3,391,719 total 40,156,056 41,723,528 40,615,107

S&P RATINg

Other 2%

Container/RoRo 18%

General Cargo 2%

Bulk Carrier 50%

Tanker 26%

Southern European 56%

Middle East 2%Americas 3%

Asia 29%

Northern European 8%

Gas Carrier 4%

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

North of eNGlaND CluBwww.nepia.com

hIGhlIGhtS— Owned tonnage increased by 15%— Premium increased by nearly 12%— Gross and net paid claims increased by 16%

and 18% respectively— USD 14 million increase in provisions for

outstanding claims— Substantial increase in total incurred

claims from USD 142 to USD 190 million (34% increase)

— Positive USD 11.2 million underwriting surplus (even though USD 23.5 million less than 2008/09)

— A relatively modest USD 17 million investment result (reflecting the Club’s risk averse position with investment allocation)

— USD 28.4 million overall surplus for the year— Net Assets and Free Reserves increased by

6.5% and 13.8% respectively

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

3,149 28,220 25,218

15,101 -6,435 14,066

-11,952 34,655 11,152

Investment Income 41,849 -40407 17,222 overall surplus for Year (Deficit)

29,897 -5,752 28,374

net assets (market) 678,821 663,480 706,697 Net outstanding Claims 458,803 452,368 466,435 forecast additional Calls 0 0 0free reserves (including forecast additional calls)

220,018 211,112 240,262

S&P RATINg

2008 2009 2010 a* a* a*

Europe 44%

Gas Carrier 3%

Tanker 36%Bulk Carrier 30%

Asia 26%

Other 6%Americas 10%

Other 6%

Middle East 14%

Container 25%

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

ShIpoWNerSwww.shipownersclub.com

hIGhlIGhtS— Owned tonnage increased by 4.5%— Premium increased by 4.5%— Gross paid claims increased by 8.4%,

contrasting with a 5.6% reduction in net paid claims

— USD 16 million increase in reserves for outstanding claims

— 38% increase in total incurred claims (from USD 85 million to USD 118 million)

— Combined investment return of 12.5%, equating to nearly USD 42 million.

— The investment result more than offset a very modest underwriting deficit (USD 2.2 million) producing an overall surplus for the year of USD 39.5 million

— Assets and Free Reserves reduced by 18% and 41% respectively

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

13,422 10,334 13,897

43,144 -22,603 16,092

-29,722 32,937 -2,195

-5,971 -28,171 39,473

net assets (market) 362,841 312,067 367,632 Net outstanding Claims 239,103 216,500 232,592 forecast additional Calls 0 0 0free reserves 123,738 95,567 135,040

2008 2009 2010owned/mutual 15,264,101 15,868,755 16,583,572 Chartered/fixed 350,000 350,000 350,000 total 15,614,101 16,218,755 16,933,572

S&P RATINg

2008 2009 2010 api BBBpi BBBpi

Asia and Australasia 36%

Barge 17.9%

Offshore 10.7%

Fishing 17.2%

Europe 31%

North America 12%

Yacht 3.9%

Middle East and India 7%

Passenger 13.4%

Latin America 12%

Africa 2%

Harbour 27%

Tanker 4.3%Dry Cargo 5.6%

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

Calls and PremiumGross Paid ClaimsOwned Tonnage (GT)

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

SKulDwww.skuld.com

hIGhlIGhtS—21.6% increase in owned tonnage— Premium increased by just under 20%— Gross paid claims increased by 2.9%,

net paid claims reduced by 9.5%— Total incurred claims jumped by 24%,

from USD 144 million to USD 179 million— Continued underwriting surplus

(USD 10.6 million in 2009/10)— Combined investment income result of

USD 46 million— Very positive overall surplus for the year

(USD 57 million) almost entirely offsetting the previous year’s loss

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

20,121 16,214 62,086

14,000 3,300 51,459

6,121 12,914 10,627

11,541 -59,344 57,008

203,518 143,967 201,505

2008 2009 2010owned/mutual 41,372,458 45,234,508 55,011,661 Chartered/fixed 49,770,039 48,465,540 not advised total 91,142,497 93,700,048 55,011,661

S&P RATINg

2008 2009 2010a-* a-* a-*

N.B. The Skuld, probably correctly, do not feel GT is a consistent measurement of charterers business. As a measure of size however, Skuld’s premium volume of chartered business is USD 48 million.

Europe (excl. Scandinavia) 38%

Tanker 45.4%

Bulk Carrier 25.3%

Asia 28%

Other 2.4%

Americas 7%

Scandinavia 25%

Middle East/Africa 2%

General Cargo 13.6%

Container 10.2%

Passenger 3.2%

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

StaNDarD (BermuDa)www.standard-club.com

hIGhlIGhtS— Owned tonnage increased by 23%— Premiums increased by 22%— Material increases in paid claims

(gross and net paid claims increased by 36.6% and 18.6% respectively)

— Estimates for outstanding claims similarly increased by USD 36 million

— Significant (60%) increase in total incurred claims, from USD 114 to USD 184 million

— Modest (USD 1.3 million) underwriting surplus

— Huge investment result. 18% investment return, equating to a combined investment income figure of USD 66 million

— Resultant overall surplus for the year (USD 67 million) more than offsets the overall loss in 2008/09

— Net Assets and Free Reserves increased by 18% and 38% respectively

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

-44,322 31,383 37,358

-24,266 -10,475 36,017

-20,056 41,858 1,341

8,727 -50,450 67,135

226,122 175,672 242,807

S&P RATINg

2008 2009 2010 a* a* a*

Europe 50%

Dry Bulk 19%

Tanker 31%

Other 2%

USA 14%

Asia 20%

Other 8%

Container & General Cargo 28%

Offshore 11%

Passenger & Ferry 9%

Canada 8%

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

SteamShIpwww.simsl.com

hIGhlIGhtS— 5.8% increase in owned tonnage— 1.7% growth in underlying premium

(excluding the contribution of USD 83 million of unbudgeted calls in 2008/09 financial year)

— Gross paid claims increased by 8% whereas net paid claims reduced by 3%

— USD 21.6 million increase in estimates for outstanding claims

— Total incurred claims of USD 203 million, an increase of 4.5% from 2008/09

— Substantial, USD 21 million underwriting surplus

— Despite the de-risking of the investment portfolio, a USD 43 million investment return was achieved

— Overall surplus of nearly USD 64 million— Assets increased by nearly 24%,

Free Reserves increased by 34%

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

-27,238 113,111 42,726

-31,739 7,268 21,628

4,501 105,843 21,098

27,648 1,869 63,900

net assets (market) 659,669 584,879 723,024 Net outstanding Claims 473,876 481,144 502,772 forecast additional Calls 0 83,927 31,310 free reserves (including forecast additional calls)

185,793 187,662 251,562

S&P RATINg

2008 2009 2010 BBB+* BBB+* BBB+*

Europe 30.1%

General Cargo 6.5%

Bulk Carrier 32.4%

Other 3.7%

Far East 34.3%

Latin America 7.5%

Indian Sub-Continent 5.8%

Container 16.9%

Tanker 28.1%

Passenger 12.4%

North America 13.3%

Middle East/Africa 9%

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

uK p&I CluBwww.ukpandi.com

hIGhlIGhtS— 3.4% increase in owned tonnage— The 2009/10 financial year premium

included USD 63 million in unbudgeted calls and the 2008/09 premium included USD 128 million in unbudgeted calls

— The underlying premium in 2009/10 (excluding the contribution of unbudgeted calls) is therefore almost unchanged from 2007/08

— Gross and net paid claims increased by 14.5% and 6.8% respectively

— 9.4% reduction in total incurred claims, from USD 353 million to USD 320 million

— The USD 68 million combined investment income result more than offsets the investment loss in 2008/09

— A USD 75 million overall surplus for the year was reported (without the additional calls this would have been USD 12 million)

— Net assets and free reserves increased by 5.8% and 22.7% respectively

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

Net AssetsFree Reserves ( ‘as if’ no Hybrid Capital)Net Outstanding ClaimsContribution of Hybrid Capital

-39,817 109,857 -2,585

56,476 44,254 -9,756

-96,293 65,603 7,171

-33,604 6,615 75,173

net assets (market) 992,364 1,141,183 1,207,055 Net outstanding Claims 763,212 807,466 797,710 forecast additional Calls 0 0 0free reserves (including forecast additional calls)

229,152 333,717 409,345

S&P RATINg

2008 2009 2010 a* a-* a-*

Europe 46%

Passenger 4%

Bulk/General Cargo 32%

Americas 12%

Other 6%

Container/ RoRo 16%

Other 1%

Asia Pacific 36%

Tanker 47%

The UK P&I Club’s reported Assets and Free Reserves include USD 98.4 million of Hybrid Capital

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

WeSt of eNGlaNDwww.westpandi.com

hIGhlIGhtS— Entered tonnage increased by 3%— 6% reduction in underlying premium

(excluding the contribution of USD 152 million of unbudgeted calls in 2008/09 financial year)

— Gross and net paid claims reduced by 7% and 4% respectively

— Estimates for outstanding claims reduced by USD 8.6 million

— Total incurred claims reduced by 7.5%, from USD 232 million to USD 214 million

— Substantial, USD 55.7 million, underwriting deficit

— Very positive (14%) investment return offset underwriting deficit to produce an overall surplus of USD 8.2 million.

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

-102,249 108,278 -37,736

-42,246 26,529 17,944

-60,003 81,749 -55,680

-31,035 -12,377 8,249

173,617 160,774 169,109

S&P RATINg

Europe 45.6%

General Cargo 14.9%

Bulk Carrier 31.5%

Americas 13.1%

Middle East & Africa 8.3%

Container/ RoRo 17.9%

Ferry/ Passenger 4.9%

Other 3.5%

Asia 33%

Tanker 27.3%

Southern Europe 19%

General Cargo9%

Bulk Carrier 23%

Sweden 6%

Container/ RoRo 40%

Passenger 4% Other 1%

Middle East 1%

Tanker 23%

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

Calls and PremiumGross Paid Claims

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

lIverpool & loNDoNhIGhlIGhtS—ClubinRun-Off— Continued positive developments in the

claims run off.— USD 1.9 million improvement in outstanding

claims almost completely balanced paid claims and expenses to produce a tiny, USD 0.2 million underwriting deficit (with materially no premium paid in the year)

— Investment income of USD 3.5 million more than offset the small underwriting deficit to allow an overall surplus of USD 3.3 million.

— Assets increased by 3.4%— Free Reserves increased by 18.9%— The final three policy years (1997, 1998

and 1999) remain open.

GroSS uNDerWrItING DevelopmeNt

2007/08 2008/09 2009/10calls and Premiums -25,189 4,706 5 reinsurance premiums - - - operating expenses -555 -535 -741operating income -25,744 4,171 -736 Gross paid Claims 2,637 3,929 1,385 Net paid Claims 2,425 3,694 1,322 Paid technical surplus (Deficit)

-28,169 477 -2,058

-3,778 -13,051 -1,852

-24,391 13,528 -206

-21,846 3,577 3,345

14,164 17,741 21,086

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

overall fINaNCIal year reSult

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

aSSetS aND free reServeS

the SWeDISh CluBwww.swedishclub.com

The Swedish Club writes P&I, FD&D and Hull and Machinery (H&M) classes of business. The Club provides separate summary financial statements for the P&I Class, but it does not allocate total reserves of the Club across all the different Classes written. Meaningful financial comparisons with other P&I Clubs are therefore limited.

In terms of premium income the Swedish Club continues to be the smallest Club in the IG by some margin (roughly 32% less premium than the next smallest Club). The Club has developed a much more international P&I membership over the last decade. Swedish tonnage now represents only 6% of their portfolio, compared with around 50% 12 years ago.

hIGhlIGhtS:— Owned tonnage stable— Underlying premium increase of 2.3%, after excluding the USD 35

million in unbudgeted calls allocated to the 2008/09 financial year— Gross paid claims reduced by 35%, net paid claims increased by 14%— 18% increase in total incurred claims, from USD 41.6 million to

USD 49.4 million— Modest underwriting surplus (USD 2.2 million) very similar to the

underlying result of the previous year (excluding the USD 35 million in unbudgeted calls the 2008/09 underwriting result would have been a USD 2.5 million surplus)

— Combined allocated investment income of USD 10.9 million— Overall P&I result for 2009/10 was a USD 13.2 million surplus

fINaNCIal year Summary (uSD 000s)

2007/08 2008/09 2009/10calls and Premiums 62,161 111,955 78,742reinsurance premiums -19,324 -20,306 -17,321operating expenses -8,706 -12,375 -9,824operating income 34,131 79,274 51,597Gross paid Claims 138,654 150,235 97,241Net paid Claims 39,853 35,427 40,382Paid Technical Surplus (Deficit) -5,722 43,847 11,215Net Change in provision for Claims 8,716 6,163 9,004Incurred Technical Surplus (Deficit) -14,438 37,684 2,211Investment Income 10,813 -18,446 10,948Overall Surplus for Year (Deficit) -3,625 19,238 13,159

S&P RATINg

2008 2009 2010 BBB* BBB* BBB*

Northern Europe 20%

Asia 54%

SupplemeNtary Call hIStory

The turmoil in 2008/09 when six Clubs were forced to make unbudgeted calls clearly highlighted the potential for mutual Clubs to resort to their ultimate refinancing option. All the International Group Clubs, being mutual insurers, have the ability to charge additional premiums or allow rebates on originally estimated premiums.

The following section outlines the overall historic trend in supplementary calls, sets out the results of individual Clubs and suggests where the market might be heading next.

hIStorIC SupplemeNtary Call aCCuraCyoverall marKet treNDNot since the end of the 1980s and early 1990s had such a large number of clubs been forced to make unbudgeted calls as in 2008/09. Putting this in historical perspective however, the unbudgeted calls announced in 2008/09 were nowhere near as severe, nor as widespread as the late 1980s ‘spike’. The cause was also different. Rather than a surge in claims levels, the principal driver in 2008, if not the only underlying cause was enormous investment losses.

The trend and scale of the market’s call performance is outlined in the ‘Market Average’ graph below. This graph shows the average supplementary call accuracy of the combined market, from 1988 to 2010.

As can be seen from the graph, between the major problems in the late 1980s and the recent downturn in 2008, there have been two intermediary phases of small scale unbudgeted calls. The main Clubs over-calling in the mid 1990s were the Liverpool and London, Newcastle and Ocean Marine. These Clubs were all subsequently forced to cease underwriting, either by merging or entering run-off. Since then there was a small peak of unbudgeted calls in 2000/01 when comparatively minor investment losses forced the Skuld and Steamship to over-call. Additionally the West of England made ‘solvency’ calls in 2006 and the American Club has been more routinely above their originally budgeted calls than any other Club in the last 15 years.

There is a natural tendency to focus on the negative aspects with supplementary calls. To provide some balance, it is worth highlighting that quietly in the background a minority of Clubs have been able to charge less their full originally budgeted deferred calls. Over the last ten years only Britannia, Gard and Shipowners have been able to achieve this. Notably Gard recently reduced their deferred call from 25% to 10% for 2009/10 in recognition of the outstanding investment result in that year.

marKet averaGe varIaNCe IN eStImateD total Call

perCeNtaGe varIatIoN from orIGINal eStImateD total CallThis is a measure whereby the Clubs’ supplementary call performance can be directly compared. It provides a clear comparison, as individual Clubs use a wide range of original estimated supplementary calls.— A zero percentage variance from estimated

total calls signifies that the Club has charged exactly what it estimated for that year.

— A negative percentage variance shows that the Club charged less than it originally estimated for the year in question.

— A positive variance highlights that the Club actually charged more than was originally estimated for the year.

future treNDSThere was a natural period of uncertainty immediately after almost half the market was forced to make unbudgeted calls in 2008/09. Following the announcements of the six offending Clubs, a significant number of commentators continued to question which Club would be next. At the time Willis consistently highlighted that we did not expect this particular problem to imminently spread to the stronger half of the market.

This view has been verified with the stronger Clubs demonstrating sufficient resilience to withstand the need to resort to their membership. In the most recent reporting period investment income bounced back considerably, underwriting results have been relatively stable and the outlook appears much more positive. All Clubs are financially stronger this financial year than last. Ironically the Clubs that made unbudgeted calls have benefitted to a significant extent by the double contribution of the refinancing with unbudgeted calls and the resurgence in investment income.

This is not to say unbudgeted calls are a thing of the past, there could well be further isolated announcements in the next couple of years. However, as previously mentioned in our reviews, we do not expect unbudgeted calls to frequently recur for the majority of the market.

The inherent issues with the American Club continue to make it the most vulnerable to further fluctuations in the investment and/or claims climate, increasing the probability of this Club making further unbudgeted calls in the future.

The majority of the market are likely to remain on budget. The broad market picture is expected to develop in a more normal way, with one or two isolated problem Clubs at the bottom, contrasted with one or two Clubs at the top granting rebates.

Thebroadmarketpictureisexpectedtodevelopinamorenormalway,withoneortwoisolatedproblemClubsatthebottom,contrastedwithoneortwoClubsatthetopgrantingrebates.

PROTECTION AND INDEMNITY MARKET REVIEW 2010/11 662 PROTECTION AND INDEMNITY MARKET REVIEW 2010/11

perCeNtaGe varIatIoN from eStImateD total Call – averaGe from 2005 to 2009

t of E

-20%-15%-10%

5%10%15%

20%25%30%

t of E

-20%-15%-10%

5%10%15%

20%25%30%

t of E

-20%-15%-10%

5%10%15%

20%25%30%

SupplemeNtary Call hIStory

The analysis is broken down as follows:— TablewithBasicData

The main reference table below shows in figures the original and final/current estimates for the supplementary/deferred calls of all the Clubs from 1994/95 to 2010/11.

— IndividualClubResults:Originalvs.FinalSupplementaryCalls The data from the main reference table is displayed graphically without any analysis for each Club. The graphs show the original estimated supplementary call and the actual call for each Club over the period 1995 to 2010. Displaying the graphs together facilitates the comparison of individual Clubs’ supplementary call trends.

Summary of INformatIoNThe following pages provide comparative information on the supplementary/deferred call history of the market.

In recent years a number of Clubs have changed terminology to use the phrase ‘deferred premium’ rather than ‘supplementary call’. Similarly, instead of ‘estimated total call’ (‘advance call’ + ‘supplementary call’) several Associations have introduced expressions such as ‘mutual premium’, ‘estimated total premium’ etc. These changes in terminology are purely cosmetic and have no impact on the underlying principle. All the International Group Clubs remain mutual insurers and have the ability to charge additional premiums or allow rebates on originally estimated premiums.

In the following pages we have tried to compare ‘like with like’ regardless of the actual terminology used by individual Clubs.

Policy Year: 1994 / 1995 1995 / 1996 1996 / 1997 1997 / 1998 1998 / 1999 1999 / 2000 2000 / 2001 2001 / 2002

supplementary /

deferred Call Estimate:

original Current original Current original Current original Current original Current original Current original Current original Current

American Club 65 65 50 68 25 34 25 25 25 25 25 45 25 115 25 60

Britannia 40 -5 25 -10 25 -7.5 25 0 25 10 25 15 25 25 25 25

Gard 40 35 30 15 30 0 30 0 30 0 25 15 25 25 25 25

Japan Club 20 0 20 20 20 10 20 10 20 0 20 15 20 20 20 10

liverpool & london 40 170 25 112.95 25 116 25 172 25 25 25 25 n/a n/a n/a n/a

london steamship 40 30 40 30 40 40 40 30 40 20 40 40 40 40 40 40

north of England 40 40 40 40 40 40 40 40 40 40 40 40 25 25 25 25

shipowners 25 0 25 0 25 0 25 0 25 0 25 0 25 0 25 0

skuld 20 20 20 20 20 20 20 20 20 30 20 45 20 65 20 20

standard (Bermuda) 25 25 25 10 25 0 25 0 25 0 25 15 25 25 25 25

standard (london) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

steamship 40 40 40 40 40 40 40 40 40 40 40 60 43 86 43 100

swedish 0 0 0 0 0 0 0 0 0 -10 0 0 0 0 0 0

uK 40 40 40 30 40 25 40 25 40 30 40 30 33 33 33 33

West of England 50 50 50 50 50 50 50 50 50 50 50 50 50 50 20 20

2002 / 2003 2003 / 2004 2004 / 2005 2005 / 2006 2006 / 2007 2007 / 2008 2008 / 2009 2009 / 2010 2010 / 2011

original Current original Current original Current original Current original Current original Current original Current original Current original Current

40 70 20 56 0 0 0 20 0 35 0 30 0 25 20 20 25 25

40 40 40 40 40 30 40 30 30 30 30 30 40 40 40 40 40 40

25 25 25 25 25 25 25 20 25 20 25 25 25 25 25 10 25 25

20 20 30 10 30 30 30 30 30 60 30 30 30 30 40 40 40 40

n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

40 40 40 40 40 40 40 40 40 89 40 89 40 75 40 40 0 0

25 25 25 25 0 0 0 0 0 0 0 0 0 0 0 0 0 0

25 0 25 0 25 0 25 0 25 0 25 0 25 10 10 10 10 10

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

39 39 39 39 39 39 39 39 39 39 39 39 39 39 39 39 39 39

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

43 43 43 43 43 43 43 43 0 12.5 0 14 0 20 0 0 0 0

0 0 0 0 0 0 0 0 0 35 0 35 0 0 0 0 0 0

33 33 33 33 33 33 33 33 33 60 33 67 33 60 33 33 33 33

20 20 20 20 20 35 20 35 20 55 20 55 20 65 30 30 30 30

Where Clubs charge on an Estimated Mutual Basis, the supplementary/deferred call figure provided refers to the percentage charged after expiry of the policy period (relative to the premium charged during the policy year). These are shown in red.

Closed Open

— IndividualClubResults:PercentageVariationfromoriginalEstimatedTotalCall Pages 68-70 provide a more direct comparison of all the Clubs’ supplementary call results. Each graph shows the percentage variation from original estimated total call for each Club over the period 1995 to 2010. The graphs are on the same scale and provide direct comparison of the individual Clubs’ supplementary call performance and trends over the period.

InrecentyearsanumberofClubshavechangedterminologytousethephrase‘deferredpremium’ratherthan‘supplementarycall’.

120%amerICaN CluB BrItaNNIa

GarD japaN p&I CluB

loNDoN CluB North of eNGlaND

ShIpoWNerS SKulD

StaNDarD SteamShIp

ComparISoN of orIGINal aND aCtual SupplemeNtary CoStS

OriginalSupplementaryCallEstimateActualSupplementaryCallEstimate

SWeDISh uK p&I CluB

6 PROTECTION AND INDEMNITY MARKET REVIEW 2010/11

lIverpool & loNDoN - CluB IN ruN offWeSt of eNGlaND

perCeNtaGe varIatIoN from INItIal eStImateD total Call

PercentageVariationfromInitialEstimatedTotalCall

80%amerICaN CluB BrItaNNIa

GarD japaN p&I CluB

loNDoN CluB North of eNGlaND

ShIpoWNerS SKulD

SWeDISh uK p&I CluB

lIverpool & loNDoN - CluB IN ruN offWeSt of eNGlaND

StaNDarD SteamShIp

averaGe expeNSe ratIoS

Average Expense Ratios (AERs) were introduced in 1999 following pressure from the European Commission in an attempt to enable direct comparisons of operating costs between Clubs within the International Group.

The formula that all Clubs are required to adhere to when calculating their AER figure is as follows:

The AER formula is the five-year average of:

Operatingcostsx100(Premiumincome+Investmentincome)

In principle the AER is a reasonable idea, but in reality it is only ever a very approximate guide to the relative operating costs of Clubs. Direct comparisons between Clubs are by no means straightforward, therefore while the ratio is a crude guide to relative efficiency it is too simplistic to assume that the Club with the lowest AER is the most efficient and the Club with the highest the least efficient.

lImItatIoNS to DIreCt ComparISoNThere are a number of factors that affect the AER figure, examples of which include:— Disproportionately high levels of premium or

investment income will produce a lower AER.— Different Membership profiles also have

an impact. For example because the Shipowners’ Club has a Membership which consists of a large number of small ships paying relatively low premiums per vessel, they have a significantly higher AER than the other Clubs.

— The exact basis of calculation adopted is also material. For example, the increase in the Standard Club’s AER in 2004/05 was caused principally by the Club revising the basis upon which they calculated their AER. They moved to the methodology adopted by most other Clubs of including commissions within the calculation.

— Loss prevention programmes increase operating costs and therefore push up the AER. Naturally most Clubs would argue that such costs are more than offset by claims avoided.

— If a Club owns its offices, the Club’s operating costs will be less, therefore reducing the AER. The capital cost of the building will however not be available for investment, therefore potentially reducing investment income.

treND aNalySISThe following graph includes the last 10 years of published AERs. Even when analysing the trends of the ratio the results are not straightforward. Arguably, the changes in AERs show greater correlation with the combined effects of investment and premium income of the individual Clubs, rather than the level of reported expenses themselves.

Britannia

London

UK Club

North of England

Swedish

Steamship

Standard

West of England

American

Shipowners

0 5 10 15 20 25

2009/102000/012001/02

2002/032003/04

2004/052005/06

2006/072007/08

2008/09M

arket Average

Percentage

p&I fIxeD premIum marKet

The main players in the fixed premium P&I market have remained relatively stable, on the whole reporting modest inflationary growth over the last 12 months.

There have however been two new entrants to the market since our last review.

These two recently introduced agencies are:

eaGle oCeaN marINe Eagle Ocean Marine was developed by the managers of the American Club, the Shipowners Claims Bureau. Eagle Ocean Marine offer P&I cover with limits up to USD 25 million and FDD with limits up to USD 2 million. The facility is backed by underwriters at Lloyd’s.

hyDor Hydor is an agency established by Johan Gjernes (previously at Skuld) and backed by Brit Syndicate 2987. Hydor will similarly offer P&I cover for limits of up to USD 25 million. Claims and legal services will be outsourced to C Solutions Limited.

Both facilities are targeting vessels of up to 10,000 GT. At the time of writing neither facility had insured any tonnage, but we will report further on the development of these ventures in future reviews.

Fixed premium P&I insurers do not announce ‘General Increases’, as this is very much a mutual concept. The fixed market reviews each insured’s loss record in the context of the wider environment like any other commercial insurer at renewal. At this renewal, there will be the usual inflationary pressures and increased reinsurance costs to contend with. As usual the insurers will try to pass on their increased costs to the ship operators, providing the commercial environment allows.

Competition in this sector should increase as a result of the new entrants to the market. Any increases are therefore likely to be modest, if any, in 2011.

FixedPremiumFacility MaximumP&I Standardand NumberofVessels Limit(USD) Poor’sRating (OwnedP&I)British Marine 500 million1 A+ (QBE) 10,945Ingosstrakh 500 million BBB- 1,047RaetsMarine 500 million A– (Amlin 4,100 Insurance N.V.) Navigators 50 million A 1,400Osprey 100 million A+ (Lloyd’s) 2,100Eagle Ocean Marine2 25 million A+ (Lloyd’s) n/aHydor2 25 million A+ (Lloyd’s) n/a

NonInternationalGroupMutualP&IFacilitiesSouth of England 500 million Mutual/Unrated 932

FacilitiesforCharterersLiabilityOnlyCharterama 50 million A (REAAL n/a Schadeverzekeringen)Charterers Club 350 million AA- (Great Lakes/ n/a Munich Re Group)Norwegian Hull Club 500 million A– n/a 1 USD 1 billion in exceptional circumstances2 New facilities

NoN-INterNatIoNal Group p&I marKet Summary

BrItISh marINewww.britishmarine.com

south chartbrit ingo nav osprey raets

Eastern Europe 10%

Dredger 1%

Bulker 12%

Americas & Caribbean 8%

Middle East 10%

Yacht 2%

Tanker 7% Fishing 7%

Australasia and Pacific Ocean 1%

General Cargo 32%

British Marine Luxembourg SA (British Marine) completed a successful demutualisation in February 2000.

In late 2005 the British Marine was bought by QBE Insurance Group (QBE) and from 1 January 2009 British Marine’s security transferred from British Marine SA to QBE Insurance (Europe) Limited. Following the merger, the British Marine no longer publish a separate balance sheet and their figures form part of QBE (Europe) Limited. Since our last review, the integration continued with the British Marine team physically moving into the QBE Europe Headquarters. Robert Johnston has now assumed the position of Chairman of QBE’s Marine and Energy Division with Tim Harris appointed Head of the British Marine brand.

Despite the changes, the British Marine continue to operate in much the same way as before, with the retention of the existing brand.

British Marine’s strategy continues to concentrate on their traditional core business consisting of smaller vessels generally up to a maximum 10,000 GT. Europe remains the largest source of business (54% of the total book) followed by the Far and Middle East (17% and 10% respectively). The spread of vessel type remains consistent with previous years, with dry cargo vessels continuing to represent the largest class of vessel (32% of the total book).

The British Marine aims, with some success, to combine a mutual-style service with a fixed premium product. In addition to P&I, the British Marine also has the ability to offer Charterers Liability, Hull and Machinery insurance and Freight Demurrage and Defence.

The number of Owners purchasing P&I from the British Marine has consistently grown each year. The reported gross premium income for 2009 equals USD 131,000,000 and is made up by slightly less than 11,000 vessels.

The British Marine favoured maximum limit is USD 500 million, but on select accounts it can offer limits up to USD 1 billion each incident.

The British Marine has always been able to write charterers liability insurance although it has never been a key field for the insurer. However, during 2007 they revamped their reinsurances and now seriously target charterers business. They are able to write Charterers P&I, Damage to Hull, Freight Demurrage and Defence and loss of charterers’ bunkers for all types of charterer for vessels up to a guideline limit of 30,000 GT.

The maximum limits available on the chartered side are USD 100 million for Charterers P&I and USD 50 million for Charterers Damage to Hull. Freight Demurrage and Defence limits tend to be fixed case by case but would normally be in the region of USD 1 to USD 2 million.

QBEEuropeisA+ratedbyStandardandPoor’s.

INGoSStraKh INSuraNCe Cowww.ingos.ru

Ingosstrakh have been offering P&I insurance for more than 35 years. Their current portfolio consists mainly of owners/operators from Russia and other eastern European countries. The remaining portfolio, while appearing to be of an international nature, has in most cases a Russian or former Russian connection.

Ingosstrakh P&I cover is similar to that provided by the International Group Clubs. Freight Demurrage and Defence cover is also available.

Historically, limits of liability were offered up to a maximum of USD 100 million, although the majority of owners require limits of no more than USD 10 million. Since 2005 Ingosstrakh have been able to offer limits up to USD 500 million for P&I and USD 1 million for Freight Demurrage and Defence.

Ingosstrakh cover a large range of vessels, from very small ships operating inland and coastally, to larger ocean going vessels, in excess of 20,000 GT. They will not write large tankers, cruise vessels or US registered or operated craft.

Ingosstrakh currently insure approximately 900 vessels, the majority of which are dry cargo ships.

Ingosstrakh have been offering charterers cover for ten years. The maximum limit available is USD 100 million.

IngosstrakhareratedBBB-byStandardandPoor’s,withaNationalScaleratingofruAA+.

toNNaGe DIStrIButIoN By year of BuIlD

1980-1989 40%

Tanker 9%

1990-1994 13%

Passenger 3%

Fishing 12%

1959-1969 7%Scandinavia 3%

Far East 17%

Africa Continent 2%

Indian Sub-continent 4%

Southern Europe 21%

Northern Europe 24%

Tug 11%

Miscellaneous Carriers 9%

Unitised 11%

Smoothwater 8%

1995-1999 4%

2000-2005 4%

2006 4%

1970-1979 28%

Reefer 8%

RoRo 3%

Tug 13%

Container 2%Yacht 1%Other 6%

Barge 5%

Bulk Carrier 4%

General Cargo 34%

NavIGatorS proteCtIoN aND INDemNItywww.navpandi.com

America 12%

General Cargo 64%

Asia and Australasia 19%

Fishing 3% Tanker 7%

Europe/ Scandinavia 41%

Container 2%

Navigators P&I facility began underwriting on 1 January 2004, following the appointment by Navigators Insurance Group (Navigators) of the team who originally set up Terra Nova P&I.

The underwriting team has changed since 2004 with the two founders of Terra Nova P&I retiring from underwriting. The succession continues to run well with Navigators remaining committed to their P&I product.

Since 2007 Navigators have been able to offer a limit of USD 50 million (previously USD 25 million was the maximum) any one accident or occurrence for P&I.

Navigators focus on vessels engaged in coast-wise, inland and short sea trades, and seek only to insure vessels up to 10,000 GT.

European / Scandinavian tonnage constitutes 41% of the total tonnage, with general cargo vessels representing 64% of the facility’s portfolio.

In addition to Owned P&I, Navigators are also able to provide cover for contractual liabilities by way of contractual extensions to the main P&I cover. Navigators also have a Charterers facility with a maximum combined single limit of USD 50 million. Cover is provided with identical vessel underwriting parameters as the owned book.

NavigatorsareAratedbyStandardandPoor’s.

oSprey uNDerWrItING aGeNCy ltDwww.osprey-uwr.co.uk

Osprey was founded in 1991 as an agency underwriting on behalf of Lloyd’s dedicated to the US brown water market.

Osprey was the first fixed premium insurer concentrating on smaller vessels, with relatively limited trading. Now Osprey offers cover on a worldwide basis, focusing on providing cover to owners that do not require the limits offered by the mutual Clubs. Osprey have recently expanded it’s P&I account to include larger dry cargo vessels up to a maximum of 25,000 GT.

Along with other fixed premium insurers and in response to competition and demands from ship operators, 2007 saw Osprey double the maximum limit of liability available to USD 50 million any one accident or occurrence. In 2008 they have increased the limit further to USD 100 million.

Unlike the other fixed premium facilities mentioned in the Review, Osprey continues to insure US domiciled operators. In terms of premium income the US market represents 65% of their portfolio. Tugs and Barges also equate to almost half of Osprey’s P&I book (47%).

Osprey’s P&I wording, along with that of the other fixed premium providers, offers similar ‘heads of cover’ to the mutual Clubs. Besides standard P&I, Osprey are able to provide cover for:

— Maritime Employers’ Liability exposures: for those who do not operate vessels but whose employees work within the maritime industry. Maximum limit USD 1 million.

— Third Party Liability coverage for owners and / or operators of shipyards, terminals, stevedores, wharfingers and other marine contracting companies. Maximum limit USD 2 million.

— Hull and Machinery insurance for vessels up to 10,000 GT and USD 10 million in value and in conjunction with the P&I.

In addition to the above Osprey, as a company also has a dedicated yacht underwriting Agency, Osprey Special Risks.

Osprey’spolicyformsarebackedbyLloyd’ssecuritywhichisA+ratedbyStandardandPoor’s.

Craft 9%

Passenger 4%

Rest of World 1%

Tug and Barge 47%

Fishing Vessel 31% General Cargo 3%

North America 65%

Dredger 1%

Middle East 10%

North America 6%

Russia 9%

Africa 3%

Other 2%Tug and

Barge 15%

Bulk Carrier 7%

Asia 8%Caribbean 3%

Europe 15%

South America 6%

Middle East 2%

Other 5%

raetSmarINewww.RaetsMarine.com

Asia Pacific 17%

General Cargo 14%

Passenger 2%

Central South America 4%

Middle East inc. India 9%

Multi-purpose 3%

Workboat 8%

Europe 68%

RaetsMarine’s head office is located in Rotterdam with branch offices in London, Paris and Singapore. RaetsMarine offer the following P&I and marine liability products:— Charterers Liability for all types of charterers, traders, operators etc.— Protection and Indemnity insurance for all types of seagoing vessels

up to 10,000 GT.— Protection and Indemnity insurance for all types of inland craft.— MultiModal, Port & Logistics Insurance for Marine Related Companies.

RaetsMarine began in 1994, initially only writing charterers’ liability business.

They are able to write any type of charterers’ business irrespective of size. The majority of the portfolio is from tramp chartering (both voyage and time charters) and commodity traders who are chartering vessels to carry their own cargoes. Gross premium income is anticipated to reach around USD 36 million for the 2010 policy year

The Owned P&I cover on a fixed premium basis was launched in 1999. RaetsMarine currently insure around 4,100 vessels, equating to just over 6 million GT. Like much of the fixed premium P&I market, RaetsMarine focus on vessels up to around 10,000 GT. Their preferred tonnage is dry cargo ships, but they also write fishing vessels, tugs and other specialised craft.

Cover is restricted to those operators who do not regularly trade trans-Atlantic, trans-Pacific or to the USA. P&I for inland craft was established in January 2003 to provide P&I cover to inland craft operators. The intention was to target owners of such vessels, mainly in northern Europe, and there are currently around 4,000 vessels in the portfolio.

MultiModal P&I was established in early 2006. It provides P&I cover to marine related companies including stevedores, port authorities, container terminal operators, freight forwarders and shipping agents.

The maximum limit of liability available for RaetsMarine P&I and Charterers Liability is USD 500 million any one accident or occurrence. For Freight Demurrage and Defence the available limit is USD 2 million any one accident or occurrence.

RaetsMarine changed their security at the beginning of 2010. Despite announcing a long term deal with Swiss Re (S&P A+ rated) the previous year, the decision was taken to move to Amlin Corporate Insurance (S&P A- rated) as their preferred partners. All risks written by RaetsMarine are currently 100% ceded to Amlin Corporate Insurance N.V. (ACI) up to USD 50 million. USD 450 million in excess of USD 50 million are co-insured in the Lloyd’s market with Amlin as the leading underwriter.

AmlinCorporateInsuranceN.V.areA-ratedbyStandard&Poor’s

other marKetS

souTh of EnGlAnd PRoTECTIon And IndEMnITy AssoCIATIon (BERMudA) lIMITEd (souTh of EnGlAnd)www.soem-pandi.com

Brighton-based Southern Seas changed their name from Southern Seas (UK) Limited to Southern Seas (Europe) Limited in 2005. The management behind Southern Seas created a separate mutual insurer, ‘The South of England Protection and Indemnity Association (Bermuda) Limited’ (South of England), which commenced underwriting on 20 February 2004.

The South of England has now taken over day-to-day underwriting of Southern Seas (Europe) (which is now limited to simply a Lloyd’s facility providing specialist cover for tug and barge operations and concessionaire’s liability etc).

The South of England is a mutual P&I Club which, unlike most of the fixed premium insurers mentioned earlier in this section and can provide cover for vessels in excess of 10,000 GT. Their focus is on vessels trading internationally, but excluding those ships with a predominantly US trading pattern or which are US flagged and/or crewed.

The premium income for the 2009 policy year was just under USD 54 million. For 2010 the gross premium is expect to reach USD 60 million by the end of the policy year, with a total tonnage of 9.5 million.

The majority of South of England’s tonnage (67%) is made up of bulk carriers. The average year of build of ship is mid 1980s.

The South of England is able to offer limits up to USD 500 million, using a reinsurance facility placed excess of USD 250,000, which is almost entirely Lloyd’s security (the first USD 4,750,000 excess of USD 250,000 is placed with Allianz although we understand they are likely to be replaced shortly).

The Club have advised that they are seriously looking at the possibility of being able to offer USD 1 billion of coverage for the 2011 policy year. If the South of England were to go ahead with this plan it may change the security composition of their reinsurance arrangements.

The South of England is able to provide Charterers cover up to a Maximum limit of USD 25 million although this is normally reinsured 100% from the ground up.

TheSouthofEnglandProtectionandIndemnityAssociation(Bermuda)Limitedisamutualinsurerunratedbyanyinternationalratingagency.

Sierra Leone 2%

General Cargo 16%

Barge 3%

Nigeria 4%

Others 37%

Other 5%

Bulker 67% Tanker 9%

Algeria 2%

Other 2%

Others 33%

Barge 7%Yacht 5%

Bulk Carrier 12%

Tug 6%

Fishing 10%

Cambodia 6%Panama 39%

St. Vincent and Grenadines 2%Kiribati 3%

Taiwan 2%Liberia 1.5%

St. Kitts and Nevis 1.5%

2 PROTECTION AND INDEMNITY MARKET REVIEW 2010/11

ChartererS oNly faCIlItIeSThere are now three facilities, other than the commercial subscription markets, dedicated solely to charterer’s liability. These stand alone facilities do not write any Owned vessel P&I, but are included below for the sake of completeness.

The most established is the Charterers P&I Club, but they were joined by Norwegian Hull Club’s charterers liability facility in 2008 and by Charterama in 2009.

ChARTERAMAwww.charterama.nl

Charterama was established in 2009 by two individuals previously employed by RaetsMarine. The facility provides charterers’ liability, damage to hull, cargo owners legal liability and charterers freight demurrage and defence covers.

CharteramaarebackedbyREAALSchadeverzekeringen,whichisAratedbyStandardandPoor’s.

ThE noRWEGIAn hull CluBwww.norclub.no

The Norwegian Hull Club has long been established in the hull and machinery and loss of hire markets. In 2008 the Club made a move into the charterers liability sector employing a team with many years experience from the IG P&I Club Skuld. The Norwegian Hull Club Charterers’ facility is now approaching the end of its third underwriting year and the premium and portfolio have grown progressively over the period. The premium income has grown from USD 5 million in the first year to a projected third year figure around USD 10 million. They currently insure 116 charterers. The majority of the Club’s clients are currently from Europe and Asia. The Club has the ability to offer limits up to USD 500 million. In addition to the traditional charterers P&I, damage to hull and freight demurrage and defence covers, they also have access to a range of ancillary covers for charterers. The Club has its own dedicated claims handling team.

TheNorwegianHullClubis“A-”byStandard&PoorandhasreinsuranceplacedintheLloyd’smarket.

ThE ChARTERERs P&I CluBwww.else.co.uk

The Charterers P&I Club, established in 1986, offers charterers’ liability and charterers freight demurrage and defence cover.

Originally run as a mutual, the Club demutualised in 1999 and became a fixed premium provider, working as an agency backed by the security of underwriters at Lloyd’s. In 2009 the Charterers Club switched their security to Great Lakes Munich Re Group (S&P AA-).

All claims handling and underwriting support is provided by Michael Else and Co, the Managers of the Club, combining internal expertise with a worldwide network of correspondents.

The Charterers’ Club can provide a limit of USD 2 million for freight demurrage and defence, while on the liability side their standard maximum limit is USD 50 million, though they can provide options up to USD 350 million, subject to certain underwriting restrictions.

The Charterers’ Club’s gross premium has remained relatively stable. In both the 2008 and 2009 policy years the combined defence and liability classes generated premiums of approximately USD 25.5 million per year.

The Charterers’ Club currently insures around 220 clients, from liner operators to trading houses.

TheCharterers’ClubarebackedbyGreatLakes/MunichReGroupwhichisAA-ratedbyStandardandPoor’s.

Americas 8%

Other 2%

Africa 8%

Tanker 3%

Bulker 78% Liner 17%

Asia 35%Australasia 9%

Middle East/ India 10%

Europe 30%

CoNtaCtSBenAbrahamExecutive Director Email: abrahamb@willis.comDirect line: +44 (0)20 3124 7786

ChrisChadwickAccount HandlerEmail: chadwickc@willis.comDirect line: +44 (0)20 3124 7787

KateCollinsAccount HandlerEmail: collinskl@willis.com Direct line: +44 (0)20 3124 7755

JacquiCoplenAccount HandlerEmail: coplenj@willis.com Direct line: +44 (0)20 3124 8202

SpencerCraneAccount HandlerEmail: cranes@willis.com Direct line: +44 (0)20 3124 7709

EilertEilertsenDivisional DirectorEmail: eilertsene@willis.comDirect line: +44 (0)20 3124 8009

RichardFurnessExecutive DirectorEmail: furnessrd@willis.comDirect line: +44 (0)20 3124 7612

IanM.HarrisExecutive DirectorEmail: harrisim@willis.comDirect line: +44 (0)20 3124 8595

AnnaHarrisonAccount HandlerEmail: harrisonan@willis.comDirect line: +44 (0)20 3124 7704

PaulD.HarrisonDivisional DirectorEmail: harrisonpd@willis.comDirect line: +44 (0)20 3124 8291

AndreeaPetroAccount HandlerEmail: petrovi@willis.comDirect line: +44 (0)20 3124 7632

NickRoblinAccount HandlerEmail: nicholas.roblin@willis.comDirect line: +44 (0)20 3124 7332

RachelSebbornDivisional DirectorEmail: sebbornr@willis.comDirect line: +44 (0)20 3124 7718

CathySmithAccount HandlerEmail: smithca@willis.comDirect line: +44 (0)20 3124 7639

GeorgeH.McMenaminExecutive DirectorEmail: mcmenamingh@willis.comDirect line: +44 (0)20 3124 7419

ClaireBarryClaims BrokerEmail: barryca@willis.comDirect line: +44 (0)20 3124 8638

Bradleigh-AaronMcArthurClaims BrokerEmail: mcarthurbr@willis.comDirect line: +44 (0)20 3124 7713

loNDoN ClaImS team

loNDoN plaCING team

This Review is published for the benefit of clients and prospective clients of Willis. It is intended to highlight general issues relating to the subject matter which may be of interest and does not necessarily deal with every important subject nor cover every aspect of the subjects contained herein. If you intend to take any action or make any decision on the basis of the content of this bulletin, you should first seek specific professional advice and verify its content. Copyright Willis 2010. All rights reserved.

WillisLimited

The Willis Building51 Lime StreetLondon, EC3M 7DQUnited KingdomTel: +44 (0)20 3124 6000 Fax: +44 (0)20 3124 8223

www.willis.com

Willis Limited, Registered number: 181116 England and Wales.Registered address: 51 Lime Street, London, EC3M 7DQ.A Lloyd’s Broker. Authorised and regulated by the Financial Services Authority.

8814/12/10

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