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Protection & IndemnityMarket Review 2007/2008

Summary 4MarketFinancialCommentary 8PoolDevelopment 16GeneralIncreases 24InternationalGroupReinsurance 28AverageExpenseRatio(AER)Comparisons 36IntroductiontoClubPages 40ClubFinancialPages– American 44– Britannia 46– Gard 48– Japan 50– London 52– NorthofEngland 54– Shipowners 56– Skuld 58– Standard(Bermuda) 60– Steamship 62– UKClub 64– WestofEngland 66– Liverpool&London 68– Swedish 69SupplementaryCallhistory 72ComparisonofOriginalandActualSupplementaryCalls 74PercentageVariationfromInitialEstimatedTotalCall 78SupplementaryCallHistorySummary 82ReleaseCalls 86P&IFixedPremiumMarket 90Contacts 98

Protection&IndemnityMarketReview2007/2008

Summary

� Willis P&I Review 2007/08

Summary

Willis P&I Review 2007/08 �

Summary

Introduction

Our aim with this annual report is to provide an overview, primarily of the quantitative aspects of the Protection and Indemnity (P&I) market. We have attempted to separate facts from opinions and wherever possible to try to arrive at balanced conclusions regardless of outside rhetoric.

The following summary highlights a number of the themes that are explored in more detail throughout this report.

We hope the report proves to be informative and debate provoking, but it can only be a broad summary of the market at a point in time. The market constantly evolves and the Willis P&I team would be happy to expand on any of the issues raised and how they might affect individual operators.

Contrasting Results of the 2006/07 Financial Year

The 2006/07 Financial Year was one of contrasting highs and lows for the P&I Market.

The year registered the highest ever level of outstanding claims. This in turn lead to probably the worst incurred underwriting result ever experienced by the market.

Investment income was however exceptionally high, sufficient to counterbalance the underwriting result.

The overall surplus, made possible only by the huge investment income levels, in turn lead to record levels of Assets and Free Reserves.

The market therefore stands in the apparently contradictory position of being the strongest it has ever been financially, but looking at potentially the worst ever claims and underwriting trends.

Surging Pool Claims

The development of very large claims was one of the primary factors in the increase in outstanding claims noted in the financial results of the Clubs.

2006/07 will represent the worst ever Pool claims cost result for the market. The leap in the cost of large claims and their inevitable impact on P&I rating going forward has been one of the key points of discussion during 2007/08.

The increase in Pool claims alone (compared to the average claims levels of the previous two years) is equivalent to between 8 and 9 percent of the entire premium into the International Group.

International Group Reinsurance

As expected a number of significant changes in International Group (IG) Club cover and structure were pushed through at the renewal at 20 February 2007.

The most fundamental change was that the limit of P&I Club cover for passenger and crew risks combined was reduced to USD 3 billion each vessel, each accident, with a sub-limit for passenger risks of USD 2 billion each vessel, each accident.

In conjunction with this limit amendment, additional reinsurance was purchased by the IG to protect a further USD 1 billion layer in excess of the current IG excess of loss reinsurance programme.

Finally, at the base of the programme, individual Club retentions increased from USD 6 million to USD 7 million at 20 February 2007.

Despite the additional USD 1 billion of protection purchased, the changes in the reinsurance programme led to very marginal cost reductions per entered ton for all vessel types other than passenger vessels. Passenger vessels experienced an enormous cost increase, of 71 percent, in their reinsurance rates. An increase of this size, in a single year, targeted at a single class of ship, is unprecedented in the history of the IG.

No major changes in retention or structure are expected at 20 February 2008 although there is pressure to address the terrorism issue in light of the Ratification of the Bunker Convention (to come in to force 21 November 2008).

The Clubs have the opportunity to respond to their Members’ needs in advance of this and subsequent Conventions with the same issue. It would be reassuring to see the IG take the lead in addressing insurance needs before, rather than react after such implementation.

Supplementary Call Accuracy

One of the surprises, particularly in terms of timing, during the lead up to 2008 renewal was the announcement in October of the Japan Club to charge an unbudgeted supplementary call of 30 percent for the 2006/07 policy year.

This is as a result of factors specific to the Japan Club, notable among these being the comparatively low investment result of the Club. Our expectation therefore continues to be that the supplementary call environment will be relatively stable, punctuated with only one or two isolated problems. The Japan Club is unlikely to be the only Club to announce unbudgeted calls, but such problems will be limited to Clubs with specific issues, and a widespread repetition in the market is not anticipated.

Fixed Premium Market

Following the consolidation in the fixed premium market over the last couple of years, the current trend for the existing insurers appears to be to try to expand their product to gain greater market share. We await further details of the long expected Vega Marine in due course, but in the meantime this sector remains an option only for smaller tonnage (up to a maximum of 10,000 GT).

2008 General Increases

Britannia started the 2008 round of general increases by setting a high benchmark. It is difficult to avoid the feeling that this sizable initial announcement had a material impact on a number of the Clubs’ subsequent announcements.

General increases for 2008 are roughly 10 percent higher on average than the preceding two years.

A couple of Clubs have specifically linked a proportion of their announced increases directly to their projections of Pool claims costs for 2008/09. It is reasonable and prudent to expect Pool claims levels to follow more in line with the 2006/07 year, rather than the preceding years, but this calling mechanism does open the possibility of difficult discussions in forthcoming years if Pool claims levels are not sustained at these high levels.

Despite the evidence of quite dramatic increases in claims levels overall, the majority of the losses are still concentrated largely on a minority of operators.

The perennial problem of persuading the majority of owners with positive loss records and well managed fleets to contribute significantly to overall losses will be challenging. These owners will again be applying pressure on underwriters to differentiate their renewals by the individual rating of risk, in spite of the announced general increases.

2006/07 will represent the worst ever Pool claims cost result for the market. The leap in the cost of large claims and their inevitable impact on P&I rating going forward has been one of the key points of discussion during 2007/08.

Market Financial CommentaryThe 2006/07 Financial Year was one of contrasting extremes for the P&I Market.

As a result of a surge in outstanding claims, the Market reported its worst ever incurred underwriting result in 2006/07. However the overall result for the year was transformed by an exceptionally high investment income result.

Consequently despite the underlying negative underwriting performance, 2006/07 is still the strongest the Market has ever been in terms of Assets and Free Reserves.

The following section expands on these points as part of a full analysis of the financial results of the Market.

� Willis P&I Review 2007/0�

Market Financial Commentary

Willis P&I Review 2007/0� �


Market Development of Paid Premiums and Gross Paid Claims Market Development of Operating Income and Net Paid Claims

Overview – Contrasting Extremes

In our P&I Review last year we made a number of financial predictions for the market. These expectations have again been broadly realised in the Clubs’ published financial results:

We expected the paid technical surplus to improve.We anticipated investment income returns would continue to be healthy. We were confident that the total Asset and Free Reserve levels would continue to grow and that 2006/07 would represent a new high point for the market.

If anything all three of these measures exceeded expectations.

In particular 2006/07 was a spectacular year for investment income. The majority of Clubs recorded returns in excess of 10 percent and overall the 2006/07 financial year investment income result was the second highest ever recorded by the International Group (IG) market.

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Against the backdrop of these positive results however, dark clouds are looming. We highlighted in the Review last year that it was probable that the recent years’ rise in estimates for outstanding claims provided a better indication regarding future claims trends than paid claims results. This prediction was supported by the 2006/07 results, although again the size of the actual increase exceeded expectations. Outstanding claims estimates increased by over 10 percent, to reach another all time high point for the market.

Consequently while the headline figures continue to be positive, the reality is that the underlying incurred technical result was the worst ever for the market, and the overall result was saved only by the exceptional level of investment income.

The financial position for the market is therefore one of contrasting extremes.

On one hand, in terms of total assets and reserves the market has never been stronger. On the other hand, surging estimates for outstanding claims sound a large warning signal for the future.

Note (Basis of Figures)

The figures used in the following sections are collated from the International Group (IG) P&I Clubs. The basis on which we have extracted and summarised the Clubs’ figures is consistent with our previous P&I Reviews. A definition of what is included under each financial heading is outlined in the Introduction to the Club Financial Pages (pages 40 to 42). The following sections therefore represent the P&I Market results for approximately �0 percent of the world fleet. All the figures are based on the consolidated financial year results and are in USD, 000’s.

Paid Technical Results Improve

Total premiums paid increased by �.5 percent, though after discounting the unbudgeted calls from the West of England, the underlying growth was nearer 7 percent (2006/07 financial year figures).

Overall, market operating expenses and reinsurance costs largely kept pace with premium, these also increased by approximately 7 percent. Gross paid claims were relatively stable (increased by less than 2 percent) while net paid claims increased by just over 6 percent overall. This resulted in a continued improvement in both the ‘gross’ and ‘net’ paid underwriting surpluses.

The historical developments of paid premiums compared to gross paid claims, and operating income (premium less reinsurance and operating expenses) compared to net paid claims are shown in the graphs below.

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10 Willis P&I Review 2007/0�


Willis P&I Review 2007/0� 11


Incurred Underwriting Development

Dramatic Deterioration in the Incurred Technical Result

The most significant result of the whole 2006/07 financial year was the dramatic increase in the provisions for outstanding claims.

Over the whole IG market, outstanding claims estimates increased by more than USD 450 million (over 10 percent increase from 2005/06). The ‘underlying’ increase is arguably even higher. If the UK P&I Club had not registered an exceptional reinsurance recovery in 2006/07, the total market increase in outstanding claims would almost certainly have exceeded USD 500 million.

The following graph demonstrates the impact of the deterioration in outstanding claims estimates. The paid technical result is set against the change in outstanding claims, resulting in the incurred technical deficit.

There has not been such a surge in outstanding claims since the late 1��0s and the incurred technical deficit is the highest the market has experienced, in at least the last 15 years, and quite possibly ever.

Investment Income Saves the Overall Position

As mentioned earlier in this section, 2006/07 was an exceptional year for investment income. Returns in excess of 10 percent were widespread and the investment income result transformed what would otherwise have been a very negative overall result for the market.

The impact of investment income on the overall result is clearly shown in the graph below. The exceptionally adverse incurred technical deficit was converted to an overall surplus due to the USD 5�0 million contribution from investment income.

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The market stands in the apparently contradictory position of being the strongest it has ever been in terms of Assets and Free Reserves, but looking at potentially the worst ever claims and underwriting trends.



Willis P&I Review 2007/0� 13


Market Reserves Grow to Highest Ever Level

The overall market surplus resulted in growth in total Assets and Free Reserves by just over ten percent. The trend in development of Total Assets and Free Reserves within the IG market over the last twelve years is highlighted in the following graph.

As mentioned earlier, outstanding claims estimates also increased by just over ten percent and this trend is incorporated below.

It is notable that the three measures in this graph, Total Assets, Free Reserves and Total Estimated Outstanding Claims, all represent new record high points for the market.

The key concern for many Clubs however has been the speed of growth in outstanding claims estimates in 2006/07. The obvious worry is whether the trend will continue, particularly as there is little expectation of investment income continuing to be as robust going forward as it has been in the last two financial years.

Background to Increased Outstanding Claims Levels

As has been outlined in previous reviews and discussed in the Market, there are several potential drivers pushing up claims levels.

The principle factors are reiterated below:

Greater utilisation and pressure on turnaround of ships as a result of the positive freight market resulting in a greater number and size of claims.Higher commodity prices pushing up repair costs and size of cargo claims.Insufficiently qualified and experienced crew, potentially leading to more human errors.Technological advancements make what was previously impossible, now possible (e.g. wreck removal / cargo removal from deeper water etc).With shipyards working at full capacity and very little scrapping, there are simply more ships operating.The general background of increasing limitation on ship owners and an increasingly onerous operating environment compound the above factors.

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Market Development of Asset and Free Reserves

All of these factors have been discussed in our previous Reviews, and all pointed towards the expectations of generally increased claims levels. This apprehension has been realised in quite a dramatic way in 2006/07.

To put the surge in outstanding claims seen during 2006/07 in context, over the previous ten years (1��7/�� to 2005/06) total outstanding claims increased by only 3 percent. In the single year between 2005/06 and 2006/07 outstanding claims estimates increased by 10 percent.

A major factor in the claims profile in 2006/07 was however the impact of large claims. Much of the overall increase was accounted for by Pool Claims (in 2006/07 those claims over USD 6 million, up to USD 50 million). Due to the significance of this escalation, we have expanded on it further in a separate, ‘Pool Claims’ section on pages 16 to 20.

Future Trends

While most analysts expected claims costs to increase, the size of the claims leap in 2006/07 has taken many by surprise. Thus, the question of what will happen next is more open than it has been for many years.

There are a number of theories about whether 2006/07 will be a one-off; whether it is the start of a continuingly increasing claims trend; or whether 2006/07 simply represents a new plateau of claims level.

In the current climate no actuary or analyst can confidently predict the claims pattern for the next couple of years. All the claims drivers mentioned earlier will however continue to apply, and the general view is one of pessimism that things are more likely to deteriorate rather than improve.

It is also likely that there will be a greater volatility of overall claims levels. It is quite possible that the medium term average could be somewhere near the 2006/07 year but the potential for instability is substantial.

At the mid-year stage in 2007/0� most Clubs anecdotally stated that claims were running at roughly the same level or slightly higher than 2006/07 at the same time. This is clearly too early in the policy year to extrapolate too much, but assuming the incurred technical deficit remains similar overall, then investment income would need to exceed 6 percent for the market to break even.

Unfortunately 2007/0� has so far been a variable year for investment income and even returns in this region are by no means guaranteed.

We expect a fairly wide range of general increases to be announced for the renewal at 20 February 200�. It is likely that most of the market will be around the 15-20 percent level, but with one or two Clubs on or below 10 percent and with one or two in excess of the 20 percent mark.

The specific motivation behind the increases naturally varies from Club to Club, as retained claims patterns are not uniform. The cost of Pool claims however are shared across the whole IG.

The prime driver for most Clubs is to address their technical (underwriting) deficits to redress the claims surge, and consequently reduce the reliance on investment income to balance the books. In addition to each Club’s existing technical deficits (or surplus), the variances in general increases stem from each Clubs expectations regarding how claims costs will develop and to what extent they wish to try to build in a margin of error to protect against claims volatility.

All Clubs are in a market however, and even though the reasons for the increases are clear, achieving the levels announced will be challenging.


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Pool DevelopmentThe development of very large claims and their inevitable impact on P&I rating going forward has been one of the key points of discussion during 2007/08.

In this section we set out what has happened, explore the trends in the results and comment on where the market may be headed.

16 Willis P&I Review 2007/08

Pool Development

Willis P&I Review 2007/08 17

Pool Development

Introduction

The development of very large claims and their inevitable impact on P&I rating going forward has been one of the key points of discussion during 2007/08.

The total Pool claims recorded in 2006/07 are already by far the worst ever in the history of the market and could well deteriorate further from their current level.

In this section we intend to outline the historic results, explore any trends in the figures and comment on where the market may be headed.

Background

Any analysis of the recent surge in the overall cost of major claims needs to be put in context of their historical development.

This is less than straightforward due to the changes in retention levels of individual Clubs and the increasing excess levels insured by the Pool.

There has been a progressive increase in both individual Clubs’ retentions and the limits collectively insured by the Pool.

The two graphs on pages 17 and 18 show the developments of individual Club retention and of the Pool layers from 1988 to 2007. The trend for both has been periods of stability followed by clear steps up in exposure. For individual club retentions, the key increases were in the early 1990’s and again from 2005 to 2007. The timing for the increases in Pooling were similar (1992 to 1994 and 2004) however the increases in Pooling were arguably more dramatic. Between 1991 and 1994 the exposure on the Pool increased by USD 15.6 million each claim, and in 2004 with the introduction of the ‘Upper’ Pool the exposure further increased, in a single year, by USD 20 million each claim.

Just considering the Lower and Upper Pool layers the amount insured has increased by USD 32.6 million per claim, over a period of only 16 years. Two thirds of this increase in exposure was introduced in only 2004.

In addition to the Lower and Upper Pool layers, the International Group also retains 25 percent of each claim in excess of USD 50 million up to USD 550 million (i.e. potentially a further retention of up to USD 125 million in the event of a single catastrophic loss through this layer).

Both the Upper Layer of the Pool and the 25 percent coinsurance of the layer between USD 50 million and USD 550 million are retained by the International Group (IG) through the mechanism of a cell captive, called Hydra (explained further under the Reinsurance section of this Review).

The detail of the current structure (2007/08 policy year) of individual Club Retention, Pooling and the first layer of the International Group Reinsurance is outlined below.

In the remainder of this section, references to ‘Pooling’ will include 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.

IG Reinsurance Structure, Detail

Pool Results

Like all liability results, the Pool results change over time as cases are reported, estimated for, develop and are finally paid and closed.The International Group (internally) circulate the Pool claims results quarterly to all participating Clubs. The most recent figures were therefore collated as at 20 August 2007.

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. In this context therefore, even at 20 August 2007, the 2006 policy year was still very much in its development phase.As a ‘snap shot’ of the picture at 20 August 2007, we have included on page 19 a graph showing the number and cost of Pool claims for the period from 1988 to 2006. As mentioned above, the figures referred to as ‘Pool’ claims include all claims where the IG collectively shares the risk, i.e. directly in the Lower Pool, via Hydra in the Upper Pool and in the 25 percent coinsurance layer.

The trend is of a fairly dramatic reduction in number, and progressive reduction in cost, of Pool claims from 1990 to 2001. This is followed by gradual increase in number, but a very steep increase in cost, from 2001 to 2006.

Retention Development

This historic pattern is mostly explained by the changes in individual Club retentions and Pool retentions (outlined earlier in this section). To make the underlying trend clearer, we have calculated the number and cost of Pool claims over the same period, assuming that the current (2007 policy year) structure was in place for all years. The results of this ‘as if current structure’ analysis are shown in the subsequent graph (page 20).

The pattern of the ‘as if current structure’ graph is much nearer what we would have expected. This shows 16 years of relatively limited volatility (+/- USD 90 million) around an average claims cost of approximately USD 130 million each year. However the most recent three years, and particularly 2006, take the claims pattern to a whole new, more onerous, level.

One of the more worrying aspects of the 2006 year is that it is still relatively undeveloped. To put this in perspective, as at 20 February 2007 the total Pool claims estimated for the 2006 year stood at just over USD 310 million. By 20 May 2007 this had escalated to USD 407 million, and by 20 August 2007 to USD 467 million. A number of Clubs expect that the final figure for the 2006 policy year could be as high as USD 560 million.

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Pool Development

Why were the Pool Claims for the 2006 Year so Bad?

The analysis of the 2006 policy year Pool claims is important as it may identify whether 2006 is likely to be a ‘spike’ in the results, or whether 2006 is the start of a new trend.

Reviewing the basics first, there were 31 Pool claims in 2006 and the average claim value was just over USD 15 million.

The average number of claims over the previous four years was 22.5 per year and the average claim value was slightly over USD 10 million. (The equivalent figures when comparing only against the previous two years are: number of claims 26.5 and average value USD 10.6 million).

It is evident that 2006 experienced more claims than normal, but the more significant difference was the material increase in average cost of each claim (almost a 50 percent increase in average cost).

Initially, it seems the profile of the claims is remarkable by being unremarkable. Although there is no obvious culprit in terms of vessel type, age, profile of ship or nationality, there do appear to be identifiable themes behind this significant increase in claims.

Retention and Pooling Development

With most major claims the cause of the incident will often stem from multiple failures and similarly the final claim will fall under various claims type. For example, a grounding may occur as a result of a navigational error, compounded by adverse weather and proximity to land. The eventual claim may fall under various heads of cover including wreck removal liabilities, cargo liabilities, personal injury, pollution (from bunkers or cargo). We have categorised the types of claims below into broad areas, but the background causes will inevitably be more complex.

The four largest claims in 2006, ‘GIANT STEP’, ‘MSC NAPOLI’, ‘OCEAN VICTORY’ and ‘ROKIA DELMAS’ all involved ships that ran aground. Overall, groundings accounted for 10 of the 31 claims and roughly 62 percent of the total claims cost of the year.

The three pollution cases in 2006 were the second most costly area, accounting for just over 10 percent of the total claims cost of the year.

Five ships sank during 2006 and these were the next most costly area, responsible for just over seven percent of the overall cost.

The seven contact claims (collisions or damage to fixed or floating objects) contributed the same cost as the two claims caused by fire/explosion, both roughly accounting for just under seven percent of the overall claims cost.

The remaining seven percent emanated from cargo and personal injury claims (2 each).

There is no statistically identifiable profile of specific types of ships offending more than others. There is a good cross section of vessel types involved. The distribution broadly mirrors the world fleet, though arguably weighted slightly more towards container ships and somewhat under represented by tanker tonnage.

Similarly there is no obvious indication of sub-standard shipping involved. If anything, the notable characteristic is the number of top quality operators in the list.

Often between Clubs there is implied criticism regarding underwriting discipline (or lack of it) however in the case of 2006 every Club in the IG contributed at least one claim to the Pool.

As 31 claims is not a statistically large set of data, it is impossible to draw definitive conclusions. The background theme of the results however suggests that there is an increased incidence of claims arising from navigational errors, resulting in groundings and collisions.

This theme is generally supported by industry-wide evidence highlighting the need to address the world-wide crew skill shortage.

Pool Claims – Actual – As at 20 August 2007

The second, more obvious but possibly more significant factor suggested by the results is that the cost of individual large claims is increasing. We have discussed this potential in previous Reviews, and have again summarised the key drivers behind increases in claims costs in the Market Financial Commentary section of this Review.

Prospects for the Future

The key question of course is whether 2006/07 is a ‘spike’ within a more benign trend in claims, the start of a new more onerous ever increasing upward trend, or a position somewhere in between.

From the general increases announced so far, the majority of Clubs have signalled that they expect the claims levels as seen in 2006 to become the norm, rather than the exception.

As at 20 August 2007, seven Pool claims had been registered in the current (2007/08) policy year. The overall estimate was nearly USD 85 million at that point.

It is too early to extrapolate from this figure, but as a benchmark 2007 was at a higher level at 20 August, than 2006 was at the same point last year. Yet, this is an extremely early stage and as such is likely to be statistically misleading.

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Pool Development

Regardless of the position at 20 August, high profile casualties continue to fill the front pages of the trade press and we can be sure the number and cost of Pool claims in 2007 will escalate as the year progresses.

As mentioned earlier, arguably the most significant differentiator between the 2006 claims profile and those of the previous years was the average cost per claim. This is likely to be the key factor behind why overall claims levels seen in 2006 will not just be a one off. Assuming this high average individual claim level is sustained, it will be almost certain that the overall level of Pool claims experienced in 2006 will be repeated.

This will particularly be the case if as highlighted earlier crew/navigational error continues to be one of the principal drivers regarding the number of claims. As a result of the booming shipping market, the time pressure on ships, the number of ships being built and the time taken to train and give crew experience, this issue is unlikely to be solved imminently.

Pool Claims – ‘As If’ Current Structure As at 20 August 2007

As a final point on the Pooling issue, due to the increased stretch insured by the IG under the Pooling arrangements over the last four years, the other dominant factor that we expect to see is volatility. With the expansion of retained risk with the Upper Pool, and coinsurance, the IG has broadly doubled their exposure to large claims. While this theoretically makes sense long term in order to control claims at ‘cost price’, it inevitably introduces the short term potential of substantially increased volatility.

Any prediction for the trend in large P&I claims over the next five years, based on the (relatively) tiny amount of statistical information available, is inevitably tentative. It is reasonable to expect however a more volatile Pool claims pattern going forward, possibly averaging at a level around the current 2006 position.

2004

2005

2006

1988

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Policy Year

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ber of Claims

Pool + Coinsurance/Hydra ‘As-If’ Current Structure

Number of Pool Claims

General IncreasesLead by Britannia, the announced general increases will be roughly 10 percent higher on average than the preceding two years.

The announcements are not going to hit quite the high levels of 2002 and 2003, but a stiffening of resolve by Clubs for renewal at 20 February 2008 appears inevitable.

The following page provides a summary of the historic general increase performance of the market.


General Increases


General Increases

Average Market General Increases

% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 %

American 32 12.5 8.5 18 7.5 10 0 5 5 10 26 25 17.5 10 10 10 20 American

Britannia 25 10 5 0 5 0 0 0 0 10 28.8 15 8.5 7.5 -2.5 5 23.8*** Britannia

Gard 30 10 0 0 5 7.5 0 -3.85 5 10 25 15 7.5 5 7.5 5* 10* Gard

Japan 0 0 0 0 0 0 10 0 0 0 10 20 Japan

London 50 10 7.5 5 5 5 0 5 5 10 27.5 25 15 12.5 12.5 7.5 17.5 London

North of England 40 15 7.5 5 7.5 7.5 5 5 5 10 25 25 17.5 12.5 7.5 7.5 17.5 North of England

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

Skuld 30 - 75

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

Standard (Bermuda)

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

Steamship 22.5 15 4.5 5 7.5 5 0 0 5 10 25 25 20 12.5 5 9 15 Steamship

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

United Kingdom 50 15 0 7.5 5 5 5 5 0 7.5 20 25 17.5 12.5 12.5 7.5 17.5 United Kingdom

West of England 50 20 7.5 7.5 7.5 7.5 5 5 5 10 25 25 15 12.5 12.5 5 15 West of England

Average 36.39 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 Average

* The Gard did not announce figurative general increases in 2007 and 2008, but the approximate overall increases they are seeking are noted.** The Shipowners Club have not announced a general increase in 2008, however they will be seeking to selectively apply double digit increases.*** The figure noted for Britannia in 2008 represents the cummulative effect of the announced increase in the advance call plus the increase in deferred call estimate.

5%

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2008

International Group ReinsuranceThe following section summarises the results of the International Group Excess of Loss Reinsurance renewal at 20 February 2007, along with outlining our expectations for the forthcoming reinsurance renewal.





Structural and Cover Changes at 20 February 2007

As predicted in our 2006/07 Review, a number of significant changes in International Group (IG) Club cover and structure were pushed through at the 20 February 2007 renewal.

The most fundamental change was that the limit of P&I Club cover for passenger and crew risks combined was reduced to USD 3 billion each vessel, each accident, with a sub-limit for passenger risks of USD 2 billion each vessel, each accident.

2006/07

As a consequence of this change, additional reinsurance was purchased by the IG to protect a further USD 1 billion layer in excess of the current IG excess of loss reinsurance programme. The intention of this additional layer is to try to ensure that a USD 3 billion claim can not trigger an ‘overspill’ claim in the event of a passenger vessel catastrophe.

In addition, as our previous Review anticipated, individual Club retention increased from USD 6 million to USD 7 million at 20 February 2007.

The revised structure of the International Group Reinsurance Programme is outlined below:

2007/08

28 Willis P&I Review 2007/08 Willis P&I Review 2007/08 29

Cost Implications

Despite the additional USD 1 billion of protection purchased, the changes in the reinsurance programme led to very marginal cost reductions perentered ton for all vessel types other than passenger vessels. Passenger vessel owners were therefore understandably frustrated that the allocation of the cost was disproportionately weighted against them. Passenger vessels experienced an enormous cost increase (over 71 percent) in their reinsurance rates. An increase of this size, in a single year, targeted at a single class of ship, is unprecedented in the history of the IG.

The full reinsurance rates are outlined in the table below, with rate progression over the last fifteen years displayed in the accompanying graph (page 30).

Hydra

Hydra, the IG cell-captive established in Bermuda, was activated at 20 February 2005.

The extent of Hydra’s involvement in the programme is unchanged in 2007: it continues to reinsure each Club’s share of the upper Pooling layer, together with each Club’s 25 percent share of the first layer of the IG’s reinsurance programme.

The intention was that the premium paid to Hydra (and the investment income earned on that premium) would exceed claims on the captive and a capital base would thus start to accumulate, providing the IG with the option to retain progressively more risk over the medium term.

Following initial optimism, the extraordinary level of large claims in 2006 would have effectively wiped out Hydra’s reserves: the projected total claims cost on Hydra for the 2005 and 2006 years combined is USD 162 million, whereas net premiums into Hydra totalled USD 119 million.

Therefore, to avoid potential insolvency, an unplanned refinancing was effected in April 2007 by way of a USD 50 million capital call shared across all the IG Clubs.

The IG is currently reviewing the future premium and reinsurance protection that Hydra will require in order to fulfil its medium term objectives.

Catastrophe/overspill call liability of shipowners

5.4bn(approximately)

Fourth Excess Layer(Unlimited Reinstatement)

Third Excess Layer(Unlimited Reinstatements)

Second Excess Layer(Unlimited Reinstatements)

75% First Excess Layer(Unlimited Reinstatements)

Lower Pool

Upper Pool (Hydra)

Club Retentions

2.05bn

1.55bn

1.05bn

550m

30m

7m

Oil pollution1bn limit

50m

25%

Co-In

sura

nce

3.05bn

Collective Overspill Cover(One Reinstatement) Sub-limit in

respect of Passenger Risks 2bn limit

Aggregate ofPassenger andCrew Risk 3bn

Catastrophe/overspill call liability of shipowners

Fourth Excess Layer(One Reinstatement)

Third Excess Layer(Unlimited Reinstatements)

Second Excess Layer(Unlimited Reinstatements)

75% First Excess Layer(UnlimitedReinstatements)

Pool Retention

Increased Pool Retention (Hydra)

Club Retentions

2.05bn

1.55bn

1.05bn

550m

30m

6m

50m

25%

Co-In

sura

nce

Oil pollution1bn limit

5.4bn(approximately)

International Group Excess of Loss Rates

Vessel Type 2006/07 (USD, per GT, per annum)

2007/08 (USD, per GT, per annum)

Increase/Reduction (USD, per GT, per annum)

Percentage Change

Dirty Tanker 0.6799 0.6797 -0.0002 -0.029%

Clean Tanker 0.3201 0.3187 -0.0014 -0.44%

Dry/Other 0.2851 0.2837 -0.0014 -0.49%

Passenger 0.8006 1.3714 0.5708 71.30%

Tanker Chartered 0.1667 0.1635 -0.0032 -1.92%

Other Chartered 0.0825 0.0805 -0.0020 -2.42%

US Voyage Surcharges:Additional Fixed Premium, USD per GT, per voyage

2006/07 2007/08 Reduction (USD, per GT, per voyage)

Percentage Change

Vessels with SBT 0.105 0.096 -0.0090 -8.6%

Vessels without SBT 0.119 0.114 -0.0050 -4.2%





Summary of changes at 20 February 2007

Structural Changes:Individual Club Retention Increase from USD 6 million to USD 7 millionIntroduction of a USD 1 billion layer of ‘overspill’ protectionThe ‘fourth excess’ layer now has unlimited reinstatements

Cost Implications:Passenger vessel reinsurance increased by USD 0.5708 per GT (71.3% increase)All other vessel types, very marginal reductionsFurther incremental reduction in US voyage additional premiums

P&I War risksP&I war risks limit remained at USD 500 million in excess of an entered vessel’s proper value.

•

••

•

••

•

US Voyage Additional Premiums

The voyage surcharge system for tankers carrying persistent oils to the United States (US) has been in place since 1992. It was introduced largely as a response to the US Oil Pollution Act 1990 (OPA 90) in anticipation of greatly increased oil pollution exposure in US waters.

Since the surcharges were introduced, the record for US pollution claims from internationally trading tankers carrying persistent oil has generally been good. However, a number of Clubs feel that the current system should be reviewed and this continues to be discussed within the IG.

The US voyage surcharge system has always been a very crude method of assessing and transferring the cost of risk. As ever the debate revolves around the historic record versus exposure. There is little doubt that the cost of clean-up per barrel spilt in the US is higher than the rest of the world, however incident frequency is arguably lower.

In July 2006 the US approved the United States Coast Guard and Maritime Transportation Act of 2006, which under Title VI increased the limitation amounts under OPA 1990. The increases in limitation are dependant on vessel type, but broadly equate to a 60 percent increase for double hull tankers and dry vessels, and roughly a 150 percent increase for single hulled tankers. These changes clearly increase the exposure,

however the limitation amount under OPA 90 was never the primary concern of the P&I industry. The more onerous aspect of OPA 90 is the potential that limitation can be broken altogether: the test is certainly easier under OPA 90 when compared with International Conventions on pollution.

Interestingly, one of the cases that proved to be a catalyst for the change in OPA limitation was the spill involving the tanker ‘ATHOS I’ in the Delaware River in November 2004. It was subsequently established that limitation has been upheld for this case. Consequently the ship has been able to limit at USD 45.4 million allowing for a recovery of additional expenses incurred of over USD 70 million from the Fund.

The cost of the US voyage surcharges has been squeezed down over the last four years. It is hoped this trend will continue until a more significant reassessment of this system of tariffed additional premiums is concluded.

The development in cost of US voyage additional premiums is shown in the graph on the following page.

Vessels without SBT

2005

2006

2007

0.05

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, Per

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Per V

oyag

e

1995

1996

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2004

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2006

2007

Year

0

0.05

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Vessels with SBT

Passenger vessels experienced an enormous cost increase (over 71 percent) in their reinsurance rates. An increase of this size, in a single year, targeted at a single class of ship, is unprecedented in the history of the IG.

2005

2006

200719

93

1994

1995

1996

1997

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2004

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0

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1.6

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GT

Dirty Tanker Clean Tanker Passenger Other

International Group - Reinsurance Rates International Group - US Voyage Additional Premiums




Expectations for the reinsurance renewal at 20 February 2008

As a general principle, there continues to be a stated aim of some of the larger or better funded Clubs to further increase individual Club retentions. However, bearing in mind the background level and volatility of major claims, we would be surprised if any Club was actively seeking to push for another increase in retention at 20 February 2008.

There have been four losses that have gone into the Excess of Loss programme in 2006/07, of which MSC NAPOLI is the most significant. There has also been an increase in the world fleet, which increases overall exposure. These imply some upward pressure on premium rating for the programme, but in our view any increases (if any) are likely to be minimal.

At the same time the IG is reviewing the way they handle war risks: there is the possibility that terrorism risks will cease to be excluded, and the war programme, in a revised form, will be absorbed in to the main IG Excess of Loss programme.

As ever consensus is needed across a diverse range of Club Boards to acheive this, but with a number of forthcoming International Conventions imposing strict liability, requiring compulsory insurance and allowing direct action against insurers, it would be timely if this change could be made before 20 February 2008. The most imminent of these Conventions is the Bunker Convention (2001) which obviously has an extremely wide application (entry into force due on 21 November 2008). This will be followed by the Wreck Removal Convention (2007), Hazardous and Noxious Substances Convention (1996) and the 2002 Protocol to the Athens Convention.

Therefore, while it is very possible that there will be an amendment to the structure of the war / terrorism cover within the programme in 2008/09, we are not expecting the overall cost of the IG reinsurance programme, when translated to USD per GT applied to individual ships, to be materially different from 2007/08.

Average Expense RatiosAverage Expense Ratios (AERs) were intended to be a transparent method of directly comparing the operating costs of each P&I Club in the International Group. The following section sets out the range of AERs in the market, but equally importantly, outlines the limitations of this measure in practice.


Average Expense Ratios (AER)


Average Expense Ratios (AER)

Average Expense Ratios (AERs) were introduced in 1999 following pressure from the European Commission to improve transparency of costs between the Clubs.

The intention was to enable direct comparisons of operating cost efficiency between all the International Group Clubs. Consequently all Clubs are required to follow the same format when calculating their AER figure.

The ratio is a five-year average of:

Operating costs x 100

(Premium income + Investment income)

AERs are a reasonable idea in principle, and provide a broad indication of relative cost efficiency, however direct comparisons between Clubs are not completely straightforward. It is too simplistic to assume that the Club with the lowest AER is the most efficient and the Club with the highest the most inefficient.

Factors influencing direct comparisons

There 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.Loss prevention programmes increase operating costs and therefore push up the AER. Most Clubs however would argue that such costs are more than offset by claims avoided, therefore such overall costs to Members are reduced.If a club owns its office space, the Club’s operating costs will be less, therefore reducing the AER. Owning property however is not automatically a benefit, as it means the costs associated with the purchase are not available for investment.

•

•

•

The Shipowners’ Club has a significantly higher AER than the other Clubs. This is also to be expected as their Membership consists of a large number of small ships paying relatively low premiums per vessel.

The value of trends

Acknowledging that the ratio could only be a crude guide to relative efficiency there was hope that reviewing the trends of particular Clubs over a number of years might assist owners in understanding how well their Club is operating.

We have included all nine years published AERs in the following graph.

When reviewing the trends however, even this analysis does not prove to be directly helpful. The timing of the changes in AERs arguably show greater (inverse) correlation with the combined effects of investment and premium income of the individual Clubs rather than the level of reported expenses themselves.

The most recent reported years show this very clearly. Between 2005/06 and 2006/07 the market average AER reduced by 6 percent, however over the same period the actual operating expenses reported by the market increased by over 6 percent. The variance is explained by the cumulative effects of premium and investment income increases skewing the ratio.

Similarly, taking the longer view, between 1998/99 and 2006/07, both the market average AER and actual reported operating expenses increased. The interesting factor however is that while the actual operating expenses across the whole market increased by approximately 60%, the average AER only increased by 32%. Again progressive premium increases and investment income contributions diluted the ratio.

As a footnote, to further confuse the trend analysis, the large ‘jump’ in the Standard Club’s AER in 2004/05 was caused by the Club revising the basis upon which they calculated their AER (to move to the basis adopted by most other Clubs of including commissions within the calculation).

2005/06 2006/072004/052003/042002/032001/022000/011999/001998/99

0 5 10 15 20 25

Shipowners

American

Steamship

West of England

Skuld

Standard

UK Club

Swedish

North of England

London

Gard

Britannia

Japan

Average Expense Ratios

It is too simplistic to assume that the Club with the lowest AER is the most efficient and the Club with the highest the most inefficient.

Club Financial PagesThe following section sets out the key financial information of each Club individually. Each Club’s page includes a summary of their consolidated financial year results along with the key data displayed graphically.

As in previous Reviews our main aim in presenting each Clubs’ financial information has been consistency. We have amended the presentation slightly this year to show the impact of the increased claims levels more clearly, however as usual we have tried as far as possible to compare ‘like with like’ by adopting the same approach for all Clubs.


Gross Underwriting Development

Overall Financial Year Result

Highlights


Net Underwriting Development

Assets and Free Reserves


Tonnage Distribution by Vessel Type

Tonnage Distribution by Nationality of Management

Introduction to Club Financial Pages

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:

Calls and Premiums All calls (less brokerage).

Reinsurance Premiums All reinsurance premiums.

Operating Expenses All general management, administrative and audit expenses (including claims management costs and brokerage).

Operating Income Calls, less reinsurance costs, less expenses.

Gross Paid Claims Paid gross claims, including Pool contributions (not including claims management costs).

Net Paid Claims Gross paid claims less reinsurance and Pool recoveries.


Operating income, less net paid claims.

Net Change in Provision for Claims

Change in net estimated outstanding claims.


Paid technical surplus (deficit), plus/minus net change in provision for claims.

Investment Income All investment income, including, exchange gains/losses, tax etc.


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 (Including Forecast Supplementary Calls)

Net assets, plus forecast additional calls, less outstanding claims.

Paid Results vs. Incurred Results

In the past we concentrated predominantly on amounts paid in to the Clubs and paid out by the Clubs in each reporting period. This approach was adopted because it is the most consistent approach over the longest period, and it does not rely on Club estimates of outstanding claims, movements in provisions etc.

Over the last ten to fifteen years, when reviewing the market overall, the ‘paid’ and ‘incurred’ results correlated quite closely, therefore the certainty of the paid results was favoured in our approach. However over the last three years, there has been an increasing divergence between the two ways of looking at the technical results. This is particularly evident in the 2006/07 year results (the last year reported) due to a material increase in outstanding claims estimates.

We had always included information on outstanding claims levels; however in order to demonstrate the trend in outstanding claims more clearly, we have slightly amended the presentation of each Club’s figures this year to specifically highlight the impact of the change in outstanding claims on each Club’s financial year’s results.

The change is the inclusion of the ‘Net change in provision for Claims’ which leads to highlighting the ‘Incurred Technical Result’ for each Club’s financial year. This is also reflected in two new graphs on each Club Page. The first graph (Net Underwriting Development) highlights the paid technical result, compared with the change in outstanding claims to arrive at the incurred technical result. The second graph (Overall Financial Year Result) starts with the incurred technical result and combines it with the investment income result, to arrive at the overall financial year result for each Club.

When reviewing the incurred figures however it is relevant to keep in mind that different Clubs estimate outstanding claims in different ways, and that estimated claims are exactly that. With all ‘long tail’ claims it is possible that estimates can be too conservative, or too optimistic.

Undisclosed Information

A number of Clubs are unwilling to disclose all the figures used in our analysis, consequently in the following pages we have been forced to make a number of educated estimates. These are highlighted as follows (all figures USD, 000’s):

Policy Year 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

Britannia

Brokerage 4,340 3,899 4,077 5,000 5,000 6,000 8,500 10,000 10,500 10,500 11,500

Claims management expenses:

5,500 5,500 5,500 6,700 5,500 6,500 7,500 8,500 12,000 14,000 15,000

Standard


3,179 3,594 5,000 4,600 5,500 7,000 6,500 7,000 7,000 7,000 7,500

UK Club

Brokerage 9,000 9,000 11,000 13,000 13,000 15,000 17,000 20,000 20,000 20,000


18,000 18,000 19,000 18,000 18,000 22,000 20,000 23,000 23,000 23,000

West of England


9,050 8,540 9,700 10,000 11,000 12,000 14,000 14,000 14,500

Most of the financial analysis we include in this report is based on the consolidated financial year results of the Clubs.




Highlights







Club Financial Pages Notes:

Britannia With 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 means 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 with previous years, we have included Boudicca’s assets in the figures. The assets of Boudicca as disclosed by the Club are as follows:

1997/98 USD 62 million


1999/00 USD 97.5 million








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. As all open years for the Newcastle Club have now been formally closed we have not included a separate page for this Club.

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 not included a full 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. It is worth noting that when an interactive rating is undertaken, the rating of the particular Club usually shows some form of improvement from the public information rating.

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

Introduction to Club Financial Pages




Highlights







American

Consolidated Financial Year Summary (USD 000’s)

2004/05 2005/06 2006/07

Calls and Premiums 118,006 146,528 147,007Reinsurance Premiums -9,104 -10,868 -12,010Operating Expenses -16,548 -21,660 -23,910Operating Income 92,354 114,000 111,087Gross Paid Claims 56,574 75,566 97,040Net Paid Claims 52,527 66,472 81,914Paid Technical Surplus (Deficit) 39,827 47,528 29,173Net Change in Provision for Claims 41,591 73,222 24,598Incurred Technical Surplus (Deficit)

-1,764 -25,694 4,575

Investment Income 4,779 5,659 12,076Overall Surplus for Year (Deficit) 3,015 -20,035 16,651

Net Assets (Market) 116,806 179,113 208,341Net Outstanding Claims / IBNR 132,809 209,948 228,514Receivables / Unbilled Assessments 50,967 45,764 51,753Free Reserves 34,964 14,929 31,580

Entered Tonnage (GT)

2005 2006 2007

Owned / Mutual 19,300,000 15,446,194 14,064,721 Chartered / Fixed 2,400,000 3,071,119 4,941,234Total 21,700,000 18,517,313 19,005,955

S&P Rating2005 2006 2007

BB+* B+* BB-*

Owned entered tonnage reduced by nearly 9 percent. Premiums stable.Net paid claims increased by 23 percent.Net Outstanding Claims increased by USD 24.6 million.Investment income of USD 12 million, more than double the level of 2005/06.Overall surplus for the 2006/07 Financial Year of nearly USD 16.7 million.Assets increased by just over 16 percent, Free Reserves more than doubled.

•••••

•

•



)

USDm

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

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3

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4

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160

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USDm




97/9

8

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9

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0

00/0

1

01/0

2

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3

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4

04/0

5

05/0

6

06/0

7

-60

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10

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40

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-80

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50

60

Investment Income



USDm

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

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4

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05/0

6

06/0

7

0

-30

-25

-20

-15

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-5

5

10

15

20

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Net Outstanding ClaimsNet Assets (market)

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

0

25

50

75

100

125

150

175

200

225

250General Cargo7%

Container / RoRo7%

Tankers21%

Bulk Carrier50%

Passenger6%

Others1%

Tug / Barge8%

Asia14%

Middle East4%

Europe64%

Other1%

North America17%




Highlights








2004/05 2005/06 2006/07

Calls and Premiums 216,712 211,301 219,542Reinsurance Premiums -39,495 -37,855 -36,861Operating Expenses -20,912 -23,704 -25,738Operating Income 156,305 149,742 156,943Gross Paid Claims 183,208 173,655 151,729Net Paid Claims 132,228 144,065 139,786Paid Technical Surplus (Deficit) 24,077 5,677 17,157Net Change in Provision for Claims 27,219 20,631 55,124Incurred Technical Surplus (Deficit) -3,142 -14,954 -37,967Investment Income 27,361 20,065 65,961Overall Surplus for Year (Deficit) 24,219 5,111 27,994

Net Assets (Including Boudicca Assets)

755,041 791,053 848,924

Net Outstanding Claims 485,475 506,106 561,230Additional Calls Not Yet Debited 19,200 13,700 13,800Free Reserves (Including Supplementary Calls Not Yet Debited, and Including Boudicca)

288,766 298,647 301,494


2005 2006 2007

Owned / Mutual 75,800,000 81,700,000 88,000,000Chartered / Fixed 23,600,000 28,500,000 39,000,000Total 99,400,000 110,200,000 127,000,000

S&P Rating2005 2006 2007

Api Api Api

Total entered tonnage increased by 15 percent.Paid premiums increased by 3.9 percent.Reductions in gross and net paid claims of 12.6 and 3 percent respectively.Paid technical surplus improved by USD 11.5 million, but overshadowed by USD 55 million increase in estimated outstanding claims.The growth in outstanding claims resulted in nearly a USD 38 million incurred technical deficit.This technical deficit was however transformed by a three fold increase in Investment income into a positive overall result for the year.Investment income of almost USD 66 million, produced an overall surplus of nearly USD 28 million.Assets increased by just over 7 percent, Free Reserves by just under 1 percent.

•••

•

•

•

•

•

Britannia



)

USDm

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

0 0

25

50

75

100

125

150

175

200

225

20

40

60

80

100

120

140

Investment Income



USDm

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

-60

-40

-20

20

40

60

80

100

0

USDm

Free Reserves(Including Forecast Supplementary Calls)


95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

0

100

200

300

400

500

600

700

800

900

Asia48%

Middle East2%

Australasia1%

Europe17%

Scandinavia23%

Americas9%

Bulk Carrier28%

Others1%

Tankers45%

General Cargo4%

Container / RoRo22%




USDm

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

-60

-50

-40

-30

-20

-10

10

20

30

40

0




Highlights








Gard


2004/05 2005/06 2006/07


3,466 -14,697 -49,510

Investment Income 54,317 61,778 103,107Overall Surplus for Year (Deficit) 57,783 47,081 53,597

Net Assets (Market) 841,639 933,231 1,077,628Net Outstanding Claims 497,031 536,768 632,013Forecast Additional Calls 41,010 33,181 37,626Free Reserves (Including Forecast Supplementary Calls)

385,618 429,644 483,241


2005 2006 2007


S&P Rating2005 2006 2007

A* A* A+*

Total owned entered tonnage increased by over 17 percent.Premiums increased by over 16 percent.Increases in gross and net paid claims of 17.9 and 9 percent respectively.Paid technical surplus eclipsed by a USD 95 million increase in estimated outstanding claims.The substantial increase in outstanding claims estimates resulted in nearly a USD 50 million incurred technical deficit.This technical deficit was however turned around by an outstanding level of Investment income in 2006/07.Investment income of USD 103 million, resulted in an overall surplus of USD 53.6 million.Assets increased by 15.5 percent, Free Reserves by 12.5 percent.

•

••

•

•

•

•

•


)


USDm

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

0

50

100

150

200

250

300

350

0

20

40

60

80

100

120

140

160




USDm

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

0

-120

-100

-80

-60

-40

-20

20

40

60

USDm

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

-80

-60

-40

-20

0

20

40

60

80

100

120

140



Investment Income



95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

1,100

1,000

900

800

700

600

500

400

300

200

100

0

USDm

Asia18%

Other Europe20%

Germany15%

Greece12%

Norway24%

Americas11%

Bulk Carrier18%

Others3%

Cruise and Ferries4%

Mobile OffshoreUnits10%

General Cargo6%

Tankers39%

Container / RoRo20%




Highlights






Tonnage Distribution by Nationality of Registry


2004/05 2005/06 2006/07


21,972 1,319 -6,548

Investment Income -14,033 9,512 4,878Overall Surplus for Year (Deficit) 7,939 10,831 -1,670

Net Assets (Market) 236,795 226,345 232,199Outstanding Claims (P&I Only) 129,263 125,411 140,715Forecast Additional Calls 0 0 0Free Reserves 107,532 100,934 91,484


2005 2006 2007


S&P Rating2005 2006 2007

Unrated BBBpi BBBpi

Total entered tonnage increased by 10 percent.Premiums increased by 22 percent.Gross and Net paid claims increased by 56 and 31 percent respectively.Estimated outstanding claims increased by nearly USD 16 million.The increase in both paid and outstanding claims resulted in an incurred technical deficit of USD 6.5 million.Relatively modest Investment income improved this position, but not by enough to prevent a small overall deficit for the 2006/07 Financial Year (USD 1.7 million).Assets increased by 2.6 percent, Free Reserves reduced by 9.4 percent.

•••

•

•

•

•

Japan

0

20

40

60

80

100

120

140

160

180

0

10

20

30

40

50

60

70

80



)

USDm

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

Investment Income



USDm

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

-50

-40

-30

-20

-10

0

10

20

30

40

50

0

50

100

150

200

250

USDm

Free Reserves Outstanding Claims(P&I Only)

Net Assets (Market)

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

Hong Kong4%

Japan12%

Panama70%

Liberia4%

Other5%

Singapore3%

Philippines2%

Bulk Carrier49%

Others3%

Car Carriers11%

Tankers24%

General Cargo3%

Container / RoRo10%




95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

-50

-40

-30

-20

-10

0

10

20

30

40

50

USDm




Highlights








2004/05 2005/06 2006/07

Calls and Premiums 86,849 91,226 97,572Reinsurance Premiums -16,820 -17,147 -18,439Operating Expenses -21,917 -21,992 -23,573Operating Income 48,112 52,087 55,560Gross Paid Claims 79,192 97,087 84,261Net Paid Claims 74,995 75,672 73,712Paid Technical Surplus (Deficit) -26,883 -23,585 -18,152Net Change in Provision for Claims -11,226 -16,835 20,010Incurred Technical Surplus (Deficit)

-15,657 -6,750 -38,162

Investment Income 14,111 16,920 38,612Overall Surplus for Year (Deficit) -1,546 10,170 450

Net Assets 291,389 283,791 302,621Net Outstanding Claims 215,451 198,616 218,626Forecast Additional Calls 24,370 25,303 26,933Free Reserves (Including Forecast Supplementary Calls)

100,308 110,478 110,928


2005 2006 2007

Owned / Mutual 32,637,812 34,321,055 35,860,908Chartered / Fixed 1,005,543 931,011 1,189,498Total 33,643,355 35,252,066 37,050,406

S&P Rating2005 2006 2007

BBBpi BBBpi BBBpi

Total entered tonnage increased by 5 percent.Paid premiums increased by nearly 7 percent.Reductions in gross and net paid claims of 13.2 and 2.6 percent respectively.Paid technical deficit improved by USD 5.5 million.However a USD 20 million increase in estimated outstanding claims further deteriorated this position, leading to a USD 38 million incurred technical deficit.The overall picture for the 2006/07 financial year was salvaged by very positive Investment income.Investment income of USD 38.6 million, produced an overall surplus of nearly USD 0.5 million.Assets increased by 6.6 percent, Free Reserves stable.

•••

••

•

•

•

London


95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

USDm

Entered Tonnage (GTm)

100

80

60

40

20

120

0

25

20

15

10

5

30

0

35

40

USDm


Change in Net Outstanding Claims


95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

40

30

20

10

0

-10

-20

-30

-40

-50

-60

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

Investment Income



USDm

60

50

40

30

20

10

0

-10

-20

-30

-5095

/96

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

Net Assets Free Reserves (Including Forecast Supplementary Calls)

Net Outstanding Claims

450

400

350

300

250

200

150

100

50

0

USDm

Northern European6%

Southern European56%

Other3%

Middle East3%

Americas3%

Far East29%

Bulk Carrier48%

Tankers37%

General Cargo2%

Container / RoRo13%

Highlights


2004/05 2004/06 2006/07

Calls and Premiums 164,766 166,690 182,103Reinsurance Premiums -32,669 -23,991 -28,631 Operating Expenses -22,455 -24,771 -28,471 Operating Income 109,642 117,928 125,001 Gross Paid Claims 101,525 94,605 103,213 Net Paid Claims 91,614 88,723 96,692 Paid Technical Surplus (Deficit) 18,028 29,205 28,309Change in Provision for Claims 30,576 29,865 70,603Incurred Technical Surplus (Deficit)

-12,548 -660 -42,294

Investment Income 20,900 23,729 62,950 Surplus for Year (Deficit) 8,352 23,069 20,656

Net Assets (Market) 485,510 541,105 633,942 Net Outstanding Claims 343,235 373,100 443,701 Forecast Additional Calls - - - Free Reserves 142,275 168,005 190,241


2005 2006 2007


S&P Rating2005 2006 2007

A* A* A*

Gross Underwriting DevelopmentTotal entered tonnage increased by over 15 percent Paid premiums increased by 9.25 percentGross and Net paid claims increased by approximately 9 percentUSD 70 million increase in net outstanding claims dwarfs the USD 28 million ‘paid’ technical surplusIncurred technical result consequently a USD 42 million deficit for 2006/07 An outstanding investment income result (165 percent higher than 2005/06) The USD 63 million contribution of investment income produces an overall surplus of USD 20.7 millionAssets increased by 17 percent, Free Reserves increased by 13 percent

•••

•

•

•

•

•


95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

USDm




-80

-60

-40

-20

0

20

40

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

USDm

Net Assets (market) Free Reserves (Including Forecast Supplementary Calls)

0

100

200

300

400

500

600

700


Overall Financial Year Result Assets and Free Reserves


95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

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05/0

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06/0

7


)

USDm

0

20

40

60

80

100

120

140

160

180

200

0

10

20

30

40

50

60

70

80

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

USDm

Investment Income



-60

-40

-20

0

20

40

60

80

North of England



Bulk Carrier 36%

Others 6%

Tankers 33%

General Cargo 3%

Container / RoRo 22%


Middle East 15%

Far East 18%

North America 5%

Scandinavia 12%

Northern European 24%

Southern European 25%

Other 1%





Highlights









2004/05 2005/06 2006/07


1,310 5,833 -30,190


Net Assets (Market) 220,682 265,508 325,667Net Outstanding Claims 112,817 138,600 195,958Forecast Additional Calls 0 0 0Free Reserves 107,865 126,908 129,709


2005 2006 2007

Owned / Mutual 9,906,601 11,537,740 13,880,387Chartered / Fixed 352,236 407,187 350,000Total 10,258,837 11,944,927 14,230,387

S&P Rating2005 2006 2007

Api Api Api

Total entered tonnage increased by 20 percent.Paid premiums increased by nearly 11 percent.Gross and net paid claims increased by 40 and 25 percent respectively.Paid technical surplus reduced by 14 percent, but still very positive.Despite the paid surplus, a huge (USD 57 million) increase in estimated outstanding claims, lead to a USD 30 million incurred technical deficit.Investment income of nearly USD 33 million, was two and half times higher than 2005/06.The exceptional investment income levels partially counterbalanced the extraordinary increase in outstanding claims, allowing a modest (USD 2.8 million) overall surplus for 2006/07.Assets increased by nearly 23 percent, Free Reserves by just over 2 percent.

•••

•

•

•

•

•

Shipowners


95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7


)

USDm

0

2.5

5

7.5

10

12.5

15

100

80

60

40

20

120

0

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

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06/0

7

USDm




40

30

20

10

0

-10

-20

-30

-40

-50

-60

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

USDm

Investment Income



50

40

30

20

10

0

-10

-20

-30

-4095

/96

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

USDm

Net Assets (market) Free Reserves Net Outstanding Claims

325

300

275

250

225

200

175

150

125

100

75

50

25

0

Europe27%

North America6%

Other6%

Far East & Australasia42%

Middle East & Africa10%

Latin America9%

Passenger6%

Harbour11%

Fishing8%

Inland5%

Dry Cargo12%

Tankers12%

Offshore15%

Barges31%




Highlights








2004/05 2005/06 2006/07

Calls and Premiums 142,322 148,976 164,634Reinsurance Premiums -19,931 -16,880 -19,028 Operating Expenses -28,469 -32,902 -35,990 Operating Income 93,922 99,194 109,616 Gross Paid Claims 115,482 74,455 94,772Net Paid Claims 92,735 70,752 91,569Paid Technical Surplus (Deficit) 1,187 28,442 18,047Net Change in Provision for Claims -21,125 7,719 11,308Incurred Technical Surplus (Deficit)

22,312 20,723 6,739


Net Assets (Market) 358,124 399,026 451,378Net Outstanding Claims 245,059 248,317 260,012Forecast Additional Calls 0 0 0Free Reserves (Including Forecast Supplementary Calls)

113,065 150,709 191,366


2005 2006 2007


S&P Rating2005 2006 2007

BBB* BBB+* A-*

Owned entered tonnage increased by 11.5 percent. Premiums increased by 10.5 percent.Gross and net paid claims increased by 27 and 29 percent respectively.Paid technical surplus of USD 18 million, reduced by USD 10 million from the 2005/06 result.Relatively modest increases in outstanding claims estimates (only USD 11.3 million) allowed an incurred technical surplus of USD 6.7 million. Very strong investment income result (USD 33.7 million) produced overall surplus only marginally less than the 2005/06 result. Assets increased by just over 13 percent, Free Reserves by just under 27 percent.

•••

•

•

•

•

Skuld


95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

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5

05/0

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06/0

7


)

USDm

0

20

40

60

80

100

120

140

160

180

0

10

20

30

40

50

60

70

80

USDm




0

20

-20

10

-10

30

-30

40

-40

-60

-50

-70

-80

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

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5

05/0

6

06/0

7

USDm



95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

50

100

150

200

250

300

350

400

450

0

USDm

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7



Investment Income

20

0

40

60

-80

-20

-60

-40

Europe (Excluding Scandinavian)33%

Other2%

Scandinavian34%

Americas3%

Far East28%

General Cargo12%

Container12%

Bulk Carrier22%

Passenger3%

Others3%

Tankers48%




Highlights








2004/05 2005/06 2006/07

Calls and Premiums 163,558 170,378 152,350Reinsurance Premiums -28,400 -30,746 -32,040Operating Expenses -19,869 -20,386 -22,899Operating Income 115,289 119,246 97,411Gross Paid Claims 120,619 123,018 133,800Net Paid Claims 116,477 113,119 114,755Paid Technical Surplus (Deficit) -1,188 6,127 -17,344Net Change in Provision for Claims 28,987 22,836 23,279Incurred Technical Surplus (Deficit)

-30,175 -16,709 -40,623


Net Assets (Market) 552,160 595,364 643,761Net Outstanding Claims 380,251 403,087 426,366Forecast Additional Calls 0 0 0Free Reserves (Excluding Forecast Supplementary Calls)

171,909 192,277 217,395


2005 2006 2007


S&P Rating2005 2006 2007

A* A* A*

Total entered tonnage stable. Paid premiums reduced by 10.6 percent.Gross paid claims increased by nearly 9 percent, net paid claims relatively stable.Paid technical deficit of USD 17 million, before a USD 23 million increase in estimated outstanding claims is applied.Incurred technical deficit of just over USD 40 million. Despite the technical results, very strong investment result (over USD 65 million) produces a USD 25 million overall surplus for the 2006/07 financial year. Assets increased by just over 8 percent, Free Reserves by 13 percent.

•••

•

••

•

Standard (Bermuda)


95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7


)

USDm

180

160

140

120

100

80

60

40

20

0

80

70

60

50

40

30

20

10

0

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

USDm




40

30

20

10

0

-10

-20

-30

-40

-50

-60

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

USDm

Investment Income



100

80

60

40

20

0

-20

-40

-6095

/96

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

USDm

Net Assets (Market)

Free Reserves (Excluding Forecast Supplementary Calls)

0

100

200

300

400

500

600


Europe54%

Asia / Pacific20%

North America22%

Other2%

South America2%

General Cargo12%

Bulk Carrier20%

Others7%

Passengers4%

Tankers28%

Offshore8%

Container21%




Highlights








2004/05 2005/06 2006/07

Calls and Premiums 191,479 202,387 209,831Reinsurance Premiums -28,105 24,843 -30,314Operating Expenses -31,800 -30,734 -32,835Operating Income 131,574 196,496 146,682Gross Paid Claims 189,018 155,303 234,826Net Paid Claims 157,632 138,425 149,930Paid Technical Surplus (Deficit) -26,058 58,071 -3,248Net Change in Provision for Claims -1,156 60,667 47,525Incurred Technical Surplus (Deficit)

-24,902 -2,596 -50,773

Investment Income 23,110 22,651 51,546Overall Surplus for Year (Deficit) -1,792 20,055 773

Net Assets (Market) 477,548 557,683 644,431Net Outstanding Claims 397,423 458,090 505,615Forecast Additional Calls 57,242 57,779 19,329Free Reserves (Including Forecast Supplementary Calls)

137,367 157,372 158,145


2005 2006 2007


S&P Rating2005 2006 2007

BBBpi BBBpi BBBpi

Total entered tonnage increased by 6 percent. Paid premiums increased by 3.7 percent.Gross and net paid claims increased by 51 and 8 percent respectively.Net Outstanding claims estimates increased by USD 47.5 million.Incurred Technical deficit of USD 50.8 million. Investment income of over USD 51 million, more than double the level of the previous year. This outstanding Investment income result allowed a modest (USD 0.8 million) overall surplus for the year.Assets increased by 15.6 percent, Free Reserves increased marginally (0.5 percent).

•••

•

••

•

•

Steamship



)

USDm

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

0

50

100

150

200

250

300

0

10

20

30

40

50

60

70




USDm

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

-100

-80

-60

-40

-20

0

20

40

60

80

100

Investment Income



USDm

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

-60

-40

-20

20

40

60

80

100

0

-80

USDm



95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

0

100

200

300

400

500

600Bulk Carrier32%

Others3%

Passenger8%

Tankers27%

General Cargo9%

Container 21%

Far East33%

North America9%

Latin America4%

Middle East / Africa10%

European37%

Indian Sub-Continent7%




Highlights








2004/05 2005/06 2006/07

Calls and Premiums 320,305 334,943 338,419Reinsurance Premiums -19,539 -128,560 -78,308Operating Expenses -45,717 -44,294 -44,129Operating Income 255,049 162,089 215,982Gross Paid Claims 376,164 368,948 202,348Net Paid Claims 282,170 251,144 243,272Paid Technical Surplus (Deficit) -27,121 -89,055 -27,290Net Change in Provision for Claims 26,579 -51,126 -1,431Incurred Technical Surplus (Deficit)

-53,700 -37,929 -25,859

Investment Income 40,479 48,535 71,556Overall Surplus for Year (Deficit) -13,221 10,606 45,697

Net Assets 965,746 925,226 969,492Net Outstanding Claims 759,293 708,167 706,736Forecast Additional Calls 0 0 0Free Reserves (Including Forecast Supplementary Calls)

206,453 217,059 262,756


2005 2006 2007


S&P Rating2005 2006 2007

A* A* A*

Total entered tonnage increased by nearly 5 percent. Premiums relatively stable.Gross paid claims reduced by 45 percent.Net paid claims appear skewed, due to the Club making a USD 44 million net rebate to market reinsurers in the 2006/07 year as a result of a reimbursement of funds from the National Pollution Funds Center in respect of the ‘ATHOS I’ claim.The small change in estimates for Outstanding claims does not necessarily represent the underlying trend, as these were improved by a USD 54 million recovery from the long term reinsurance contact with Swiss Re.Exceptional investment income, with the Club achieving a return of just under 10 percent on funds invested.Overall surplus for the year consequently over four times higher than 2005/06.Assets increased by 4.8 percent, Free Reserves by 21 percent.

••••

•

•

•

•

UK Club



)

USDm

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

400

350

300

250

200

150

100

50

0

180

160

140

120

100

80

60

40

20

0




USDm

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

80

60

40

20

0

-20

-40

-60

-80

-100

-120

-140

Investment Income



USDm

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7150

100

50

0

-50

-100

-150

USDm


Outstanding ClaimsNet Assets

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

1 ,200

1,000

800

600

400

200

0

Asia-Pacific28%

Americas14%

Europe58%

Container / RoRo14%

Bulk Carrier25%

Others1%

Tankers45%

Passenger8%

Other Dry Cargo7%




Highlights








2004/05 2005/06 2006/07

Calls and Premiums 224,209 237,440 309,317Reinsurance Premiums -41,700 -45,875 -48,583Operating Expenses -35,161 -38,164 -39,121Operating Income 147,348 153,401 221,613Gross Paid Claims 243,312 240,120 256,277Net Paid Claims 154,437 170,341 177,101Paid Technical Surplus (Deficit) -7,089 -16,940 44,512Net Change in Provision for Claims 27,375 12,119 34,646Incurred Technical Surplus (Deficit)

-34,464 -29,059 9,866

Investment Income 27,398 28,160 48,769Overall Surplus for Year (Deficit) -7,066 -899 58,635

Net Assets (Market) 515,087 524,861 611,996Net Outstanding Claims 407,309 419,428 454,074Forecast Additional Calls 26,530 27,105 46,730Free Reserves (Including Forecast Supplementary Calls)

134,308 132,538 204,652


2005 2006 2007


S&P Rating2005 2006 2007

BBBpi BBBpi BBBpi

Entered tonnage reduced by 12 percent. 2006/07 Financial year Premiums skewed by contribution of USD 67.7 million of unbudgeted calls.The underlying premium similar to 2005/06.Gross and net paid claims increased by 6.7 and 4 percent respectively.Substantial (USD 34.6 million) increase in estimated outstanding claims. 12 percent return on investment (roughly a 73 percent improvement on 2005/06). The excellent investment income result increases the overall surplus for the year (including the contribution of the additional calls) to USD 58.6 million.Assets increased by nearly 17 percent, Free Reserves by just over 54 percent.

••

••

•

•

•

•

West of England



)

USDm

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

0

10

20

30

40

50

60

70

80

90

50

100

150

200

250

300

0




USDm

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

50

40

30

20

10

0

-10

-20

-30

-40

-50

-60

Investment Income



USDm

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

780

60

40

20

0

-20

-40

-60

USDm


Net Outstanding ClaimsNet Assets (Market)

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

600

500

400

300

200

100

0

Middle East, Asia,Africa and Australasia35%

Americas17%

European(including Russia)48%

Bulk Carrier33%

Others6%

Ferries / Passenger9%

Tankers24%

General Cargo8%

Container / Roro 20%




Highlights


2004/05 2005/06 2006/07

Calls and Premiums 171 731 2Reinsurance Premiums 107 - 40Operating Expenses -2,586 -2,360 -1,367Operating Income -2,308 -1,629 -1,325Gross Paid Claims 2,484 8,251 3,423Net Paid Claims 2,979 6,003 2,530Paid Technical Surplus (Deficit) -5,287 -7,632 -3,855Net Change in Provision for Claims -7,199 -9,777 4,073Incurred Technical Surplus (Deficit)

1,912 2,145 -7,928

Investment Income 2,143 1,036 6,941Overall Surplus for Year (Deficit) 4,055 3,181 -987

Net Assets 82,808 76,212 79,298Net Outstanding Claims 48,992 39,215 43,288Forecast Additional Calls 0 0 0Free Reserves 33,816 36,997 36,010

Club in Run-Off.Continued positive developments in the claims run off, assisted by a very healthy Investment Income in 2006/07. USD 4 million increase in provisions for Outstanding Claims offset by USD 6.9 million contribution of Investment Income.Assets increased by 4 percent.Free Reserve 2.7 percent lower than 2005/06, but still just over USD 36 million as at 20 February 2007.Following approval of the UK Financial Services Authority in summer 2007, the Club voted to return USD 25 million of the Free Reserve to the Membership. This USD 25 million was redistributed across ‘eligible members’, effectively those Members remaining in the Club when it ceased active underwriting. The redistribution was based on the premium paid and tonnage entered across the ten years leading up to 19 February 2000.The USD 25 million represents approximately a 40 percent return of one year’s premium income (based on the average premium received by the Club in the last five years of operation).The final three policy years (1997, 1998 and 1999) remain open, though at the time of the redistribution, Members were given the discretionary option to continue underwriting the risk, or release themselves from further exposure.

••

•

••

•

•

•

•

Liverpool & London

2005/06 2006/07

Calls and Premiums 41,892 46,898Reinsurance Premiums -6,599 -8,891Operating Expenses -4,619 -5,336Operating Income 30,674 32,671Gross Paid Claims 47,247 125,820Net Paid ClaimsNet Change in Provision for Claims

33,482-10,469

27,732-502

Technical Surplus (Deficit) 7,661 5,441Investment Income 9,487 4,598Surplus for Year (Deficit) 17,148 10,039

The Swedish Club

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. It is therefore difficult to produce meaningful financial

comparisons with other P&I Clubs.

Combined Club Financial HighlightsAcross all Classes (H&M, P&I and FD&D) the Club had a gross premium income of USD 120 million in 2006. This is a 5 percent increase on the previous year (USD 114 million in 2005).Underwriting deficit on the P&I/FD&D Class (USD 0.9 million) offset by the surplus on the H&M Class (USD 5.5 million). Overall combined operating deficit (including administrative expenses) worsened from USD 8.2 million in 2005 to USD 10.6 million in 2006.Very positive investment income, increasing from USD 4.2 million in 2005 to USD 21.6 million in 2006.Investment income result was strong enough to compensate for the technical deficit, allowing an overall surplus of USD 11 million for the 2006 year across all classes (contrasting with the overall deficit of USD 4 million in 2005).This overall surplus led to a 12 percent increase in combined free reserves between 2005 and 2006 (from USD 90.4 million to USD 102 million).

P&I Class Summary

•

•

•

•

•

•

In terms of premium income the Swedish Club continues to be the smallest

Club in the IG (roughly half the premium income of the next smallest Club).

The Club has developed a much more international P&I Membership over

the last decade. Swedish tonnage now represents only 8 percent of their

portfolio, compared with around 50 percent ten years ago.

Highlights


Calls and Premiums Gross Paid Claims

USDm

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

0

10

20

30

40

50

60

70

80

Paid TechnicalSurplus (Deficit)


Incurred TechnicalSurplus (Deficit)

USDm

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7-50-40-30-20-10

10203040

0

USDm

Free Reserves(Including Forecast Supplementary Calls)

Outstanding ClaimsNet Assets

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

-20

0

20

40

60

80

100

120

140

160

180

Asia33%

Sweden8%

Northern Europe29%

Southern Europe28%

Middle East2%

Bulk Carrier22%

Others1%

Passenger2%

Tankers19%

General Cargo2%

Container / RoRo54%




2005 2006 2007


S&P Rating2005 2006 2007

BBB* BBB* BBB*

Supplementary Call HistoryThe following section outlines the Supplementary Call History of the market.

The information is displayed figuratively and graphically for each individual Club. The relative position of each Club is then summarised and compared against the overall market.


Supplementary Call History


Supplementary Call History

Introduction

The 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.

The analysis is broken down as follows:

Table with Basic Data 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 2008/09.

Individual Club Results – Graphical Depiction of Original vs. Final Supplementary CallsThe 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 1992 to 2007. Displaying the graphs together facilitates the comparison of individual Clubs’ supplementary call trends.

•

•

Individual Club Results – Direct Graphical Comparisons (Percentage Variation from Original Estimated Total Call)Pages 78 to 81 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 1992 to 2007. The graphs are on the same scale and provide a direct comparison of the individual Clubs’ supplementary call performance and trends over the period.

• NB: Percentage Variation from Original Estimated Total Call

This measure enables the Clubs’ supplementary call performance to be directly compared. It is necessary for 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.

•

•

•

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

Supplementary / Deferred Call Estimate:

Original Final 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

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

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

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

Liverpool & London 40 170 25 113 25 116 25 172 25 25 25 25 n/a n/a

London Steamship 40 30 40 30 40 40 40 30 40 20 40 40 40 40

Newcastle 40 96 40 130 40 164 40 140 n/a n/a n/a n/a n/a n/a

North of England 40 40 40 40 40 40 40 40 40 40 40 40 25 25

Ocean Marine 30 95 30 95 40 180 40 180 40 110 n/a n/a n/a n/a

Shipowners 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

Standard (Bermuda) 25 25 25 10 25 0 25 0 25 0 25 15 25 25

Standard (London) 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

Swedish 0 0 0 0 0 0 0 0 0 -10 0 0 0 0

UK 40 40 40 30 40 25 40 25 40 30 40 30 33 33

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

2001 / 2002 2002 / 2003 2003 / 2004 2004 / 2005 2005 / 2006 2006 / 2007 2007 / 2008 2008 / 2009

Original Current Original Current Original Current Original Current Original Current Original Current Original Current Original Current

25 60 40 70 20 56 0 0 0 20 0 35 0 5 0 0

25 25 40 40 40 40 40 30 40 30 30 30 30 30 40 40

25 25 25 25 25 25 25 25 25 20 25 20 25 25 25 25

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

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 40 40 40 40 40 40 40


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


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

20 20 0 0 0 0 0 0 0 0 0 0 0 0 0 0

25 25 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

43 100 43 43 43 43 43 43 43 43 0 0 0 0 0 0

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

33 33 33 33 33 33 33 33 33 33 33 33 33 33 33 33

20 20 20 20 20 20 20 35 20 35 20 70 20 20 20 20

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


naciremA

-20%

0%

20%

40%

60%

80%

100%

120%

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Original Supplementary Call Estimate Actual Supplementary Call

ainnatirB

-20%

0%

20%

40%

60%

80%

100%

120%

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007


draG

-20%

0%

20%

40%

60%

80%

100%

120%

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007


napaJ

-20%

0%

20%

40%

60%

80%

100%

120%

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007


nodnoL

-20%

0%

20%

40%

60%

80%

100%

120%

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007


dnalgnE fo htroN

-20%

0%

20%

40%

60%

80%

100%

120%

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007


srenwopihS

-20%

0%

20%

40%

60%

80%

100%

120%

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007


dlukS

-20%

0%

20%

40%

60%

80%

100%

120%

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007


Comparison of Original and Actual Supplementary Calls


dradnatS

-20%

0%

20%

40%

60%

80%

100%

120%

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007


pihsmaetS

-20%

0%

20%

40%

60%

80%

100%

120%

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007


hsidewS

-20%

0%

20%

40%

60%

80%

100%

120%

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007


bulC KU

-20%

0%

20%

40%

60%

80%

100%

120%

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007


West of England

-20%

0%

20%

40%

60%

80%

100%

120%

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007


-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

Liverpool & London

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007


eltsacweN

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007


eniraM naecO

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007


Comparison of Original and Actual Supplementary Calls


Percentage Variation from Initial Estimated Total Call



naciremA

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Percentage Variation from Estimated Total Call

-40%

-25%

-10%

5%

20%

35%

50%

65%

80%

ainnatirB

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-40%

-25%

-10%

5%

20%

35%

50%

65%

80%


draG

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-40%

-25%

-10%

5%

20%

35%

50%

65%

80%


napaJ

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-40%

-25%

-10%

5%

20%

35%

50%

65%

80%


nodnoL

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-40%

-25%

-10%

5%

20%

35%

50%

65%

80%


dnalgnE fo htroN

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-40%

-25%

-10%

5%

20%

35%

50%

65%

80%


srenwopihS

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-40%

-25%

-10%

5%

20%

35%

50%

65%

80%


dlukS

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-40%

-25%

-10%

5%

20%

35%

50%

65%

80%






dradnatS

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-40%

-25%

-10%

5%

20%

35%

50%

65%

80%


pihsmaetS

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-40%

-25%

-10%

5%

20%

35%

50%

65%

80%


hsidewS

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-40%

-25%

-10%

5%

20%

35%

50%

65%

80%


bulC KU

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-40%

-25%

-10%

5%

20%

35%

50%

65%

80%


West of England

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-40%

-25%

-10%

5%

20%

35%

50%

65%

80%


Liverpool & London

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007


-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

eltsacweN

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%


eniraM naecO

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%



Market Trend – Historic Supplementary Call Accuracy

The average supplementary call performance of the combined market, from 1987 to 2007, is shown in the graph below.

The graph highlights the market wide problems from 1987 to 1991 when the vast majority of Clubs were forced to charge substantial over-budget supplementary calls. However, this pattern improved dramatically, and the trend since 1992 is one of relatively isolated problems against a backdrop of stability.

The main Clubs over-calling in the mid 1990’s 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.

The Clubs forced to make unbudgeted calls since 2000 are the American Club, Skuld, Steamship, Japan and West of England.

Variance between Clubs

The divergence in the supplementary call performance of the Clubs is significant.

The three graphs below provide ‘snap shots’ of the average supplementary call performance of each Club over the last fifteen, ten and five year periods, and compare these with the market.

The chosen time periods emphasise the progression from the widespread unbudgeted supplementary call problems of just over fifteen years ago to more recent years where the majority of Clubs have performed on or below their budgeted levels.

The best performing Clubs are shown to the left of the graphs, with those Clubs over-budget towards the right.

The final graph emphasises that only three Clubs currently involved in active underwriting have on average been above unbudgeted levels in the last five years. Of these three, the American Club’s inherent issues 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.

Future Trends

As consistently highlighted in our recent reviews, we do not expect that the over-budget performance of a minority of Clubs will spread to the majority of the market as it did in the late 1980’s.

Despite the current volatile claims climate and the high general increases expected to be announced for the 2008 renewal, we anticipate that the very strongest Clubs will still be able to avoid charging their full estimated supplementary calls in the next couple of policy years.

‘Localised’ problems are likely to persist for the more vulnerable Clubs. However, the expectation is that the market will be relatively stable from a supplementary call perspective, only punctuated at opposite ends: one or two specific and isolated problems at the bottom, contrasted with one or two isolated rebates at the top.

Supplementary Call Accuracy: Market Average Market – Percentage Variation from Estimated Total Call (1992 – 2006)

Market – Percentage Variation from Estimated Total Call (2001-2006) (‘Live’ Clubs Only)

Market – Percentage Variation from Estimated Total Call (1997 – 2006)

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Average Variance in Estimated Total Call

0

10

-10

20

30

40

50

60

%

Ship

owne

rs

Brita

nnia

Japa

n

Gar

d

Stan

dard

(Ber

mud

a)

Unite

d Ki

ngdo

m

Lond

on

Swed

ish C

lub

Nor

th o

f Eng

land

Stan

dard

(Lon

don)

Skul

d

Wes

t of E

ngla

nd

Stea

msh

ip

Amer

ican

Club

-20

-15

-10

-5

0

5

10

15

20

%

Ship

owne

rs

Brita

nnia

Japa

n

Gar

d

Stan

dard

(Ber

mud

a)

Unite

d Ki

ngdo

m

Lond

onSw

edish

Clu

bN

orth

of E

ngla

nd

Stan

dard

(Lon

don)

Skul

dW

est o

f Eng

land

Stea

msh

ip

Amer

ican

Club

Live

rpoo

l and

Lon

don

Oce

an M

arin

e

-20

-10

0

10

20

30

40

50

60

70

%

-20

-10

0

10

20

30

40

50

60

Ship

owne

rsBr

itann

ia

Japa

nG

ard

Stan

dard

(Ber

mud

a)

Unite

d Ki

ngdo

mLo

ndon

Swed

ish C

lub

Nor

th o

f Eng

land

Stan

dard

(Lon

don)

Skul

dW

est o

f Eng

land

Stea

msh

ipAm

erica

n Cl

ubN

ewca

stle

Live

rpoo

l and

Lon

don

Oce

an M

arin

e

% ‘Localised’ problems are likely to persist for the more vulnerable Clubs. However, the expectation is that the market will be relatively stable from a supplementary call perspective, only punctuated at opposite ends: one or two specific and isolated problems at the bottom, contrasted with one or two isolated rebates at the top..

Supplementary Call History Summary

Release CallsThe intention of release calls is to remove potential future liability for further calls to the Club, following end of Membership in the particular Club.

The following section outlines each Club’s release call percentages for all open years, and discusses the divergence between the historic intention of release calls and the way they are used today.


The intention of release calls is to remove any potential future liability for further calls to the Club, following end of Membership in the particular Club.

By paying the release call the Member is ‘released’ from further obligation to pay future supplementary call contributions to the Club. In essence therefore 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.

Yet, this original intent does not appear to be mirrored in today’s practice.

We have included opposite a graph displaying the current release calls in force for all the Clubs. Evidently there is a wide range: Clubs like the Japan or Shipowners’ Club represent the lower end of the market with release calls set at 5 percent. At the higher end of the market nine Clubs have at least one open policy year with release calls set at 20 or 25 percent.

The lack of consistency in the range of release calls does not make obvious logical sense. For example, it is clearly not realistic to believe that the Standard Club or Gard are four or five more times more likely to make

an unbudgeted supplementary call than the Japan Club or Shipowners’ Club.

Of particular note this year is the UK Club, who until recently were a positive example for the market. However, in October they increased their release call percentages from 5 percent for all open years, to 15 percent for 2006/07 and 25 percent for both 2007/08 and 2008/09. This moves the UK Club more in line with the market average, but in our opinion it is something of a backward step.

Clubs have a wide variety of sophisticated modelling methods at their disposal. It is therefore curious that a Club at the higher end of the release calls range believes their claims may exceed expectation by a margin of 25 percent, even one or two years after the expiry of the policy year in question.

Release calls are a significant cost in the transfer of business from Club to Club. The release call levels of some Clubs appear more like a ‘penalty’ for moving, rather than a realistic assessment of the potential for unbudgeted supplementary calls.

2007/082006/072005/06

0 5 10 15 20 25

UK

West of England

Swedish

Steamship

Standard (London)

Standard (Bermuda)

Skuld

Shipowners

North of England

London Steamship

Japan Club

Gard

Britannia

American Club10

10

10

101010

10

15

1515

10

1025

6.5313.11

16.27

202020

20

20

2020

5

5

5

5

555

555

2525

25

252525

2525

25

Market - Release Calls

Release Calls

Release calls are a significant cost in the transfer of business from Club to Club. The release call levels of some Clubs appear more like a ‘penalty’ for moving, rather than a realistic assessment of the potential for unbudgeted supplementary calls.

P&I Fixed Premium MarketFollowing the consolidation in the fixed premium market over the last couple of years, the current trend for the existing insurers appears to be to try to expand their product to gain greater market share. We await further details of the long expected Vega Marine in due course, but in the meantime this section outlines the main fixed premium alternatives.


P&I Fixed Premium Market



British Marine Luxembourg SA

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). Following this acquisition, and in spite of being part of a larger group, the British Marine has continued to operate in much the same way as before, largely due to the retention of the existing brand and management team. While the management team has remained unchanged, the underwriting team has continued to expand by recruiting personnel from other small vessel P&I insurers.

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

British Marine’s strategy is to concentrate on their traditional core business consisting of smaller vessels up to a maximum of around 10,000 GT. Europe remains the largest source of business (57 percent of the total book) followed by the Far and Middle East (16 percent and 10 percent respectively), and dry cargo vessels continue to represent the largest class of vessel (34 percent of the total book).

The British Marine has always been able to write charterers liability insurance, but it has never been a key field for the insurer. During 2007 they revamped their reinsurances in this area, with the intention of targeting charterers business more seriously going forward.

2007 has been another year of growth for the British Marine: the facility expanded by around 1,000 vessels during the course of the policy year (from 7,900 in 2006 to 9,000 in 2007). In terms of owned entered tonnage this now equates to approximately 10 million GT.

The British Marine favoured maximum limit is USD 500 million, but they can offer limits up to USD 1 billion each incident on a selective basis.

British Marine is A+ rated by Standard and Poor’s.


The primary trend for the fixed premium market in 2006 was one of contraction in the number of insurers seeking to compete.

2007 by contrast has been relatively stable, with the main theme being each insurer aiming to expand their market share by increasing limits or exploring new product areas.

We still await firm details of embryonic underwriting venture ‘Vega Marine’ mentioned in our P&I Review last year. This is a proposed Hull and P&I facility initially worked on by former Bergesen Worldwide insurance manager Terje Adolfsen, in conjunction with Kare Franseth, who was previously at Torvald Klaveness. During 2007 a number of announcements of further personnel joining the team were made, but outside of rumour and speculation, to date no definite details of the planned facility have been released.

It is understood Vega Marine will provide fixed P&I with limits of up to USD 1 billion aimed at Shipowners prepared to take significantly larger deductibles than normally seen in the P&I market. However we await more complete details of the facility, which are expected to become known in early 2008.

The fixed premium P&I market has responded to competition for market share, and to pressure from ship operators, by several providers increasing their limits of cover during 2007.

Both Osprey and Navigators P&I increased the limit of liability they offer from USD 25 million to USD 50 million (any one accident or occurrence) during 2007. Similarly, InterCoastal can now offer limits up to USD 500 million. (Somewhat separately, the maximum limit of liability offered by the mutual insurer South of England has also increased from USD 100 million to USD 500 million.)

In the same way as a number of International Group P&I Clubs have already appreciated, the fixed premium P&I market is now starting to view Charterers’ Liability cover as an opportunity for growth. The British Marine has put together a new reinsurance facility, which will enable them to more competitively target Charterers’ business. Navigators P&I is also introducing a new Time Charterers and Damage to Hull facility.

Fixed premium P&I insurers do not announce ‘General Increases’ as such, however they are broadly seeking to push up premiums by ‘inflationary’ margins to address increased reinsurance costs etc. Competition in the small vessel sector however remains intense and any increases (if any) will be modest compared to those announced by the International Group Clubs.

Fixed Market Summary Facility Maximum Limit (USD) Standard and Poor’s Rating Number of Vessels

British Marine 1 billion A+ 9,000

Ingosstrakh 500 million BB+ 1,200

InterCoastal 500 million A (Fortis Corporate Insurance NV) 1,600

Navigators 50 million A 1,500

Osprey 50 million A+ (Lloyd’s) N/A

Other Mutual Facilities

South of England 500 million Mutual / Unrated 700

British Marine Luxembourg SA

By Nationality of Management By Vessel Type

Tanker 6%

Unitised 11%

Smoothwater 13%

General Cargo 34%

Others 15%

Yachts 1%

Fishing 6%

Bulker 11%

Tugs 1%

Barge 2%

Australasia 3%

Southern Europe 26%

Indian Sub-Continent 4%

Northern Europe 19%

Other 2%

Far East 16%

Middle East 10%

Eastern Europe 12%

Scandinavia 3%

Americas 5%





The Charterers P&I Club

The Charterers’ Club, established in 1986, offers Freight Demurrage & Defence and Charterers’ liability 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.

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 & Defence, while on the liability side their standard maximum limit is USD 50 million, though they can provide options to USD 100 million if required and subject to certain underwriting restrictions.

In the 2006 policy year the Charterers’ Club’s gross premium was approximately USD 20.1 million (combined Defence and Liability Classes). 2007 saw this figure increase to approximately USD 22.7 million. The Club currently insures around 170 clients, from liner operators to trading houses, and anticipates further growth in 2008.

The Charterers’ Club is Lloyd’s security and thus A+ rated by Standard and Poor’s.

Navigators Protection and Indemnity

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

The 2007 policy year saw an increase in the maximum limit of liability from USD 25 million to USD 50 million any one accident or occurrence. Navigators concentrate on vessels engaged in coast-wise, inland and short sea trades, and seek only to insure vessels up to 10,000 GT.

European tonnage constitutes at least 40 percent of the total premium income, with general cargo vessels representing 65 percent of the facility’s portfolio. Gross premiums for the 2007 policy year are expected to total approximately USD 30 million.

The underwriting team has expanded since our last Review, with the appointment of two new Underwriters aiming to ensure the facility’s medium-term succession.

Navigators are looking to introduce a Time Charterers and Damage to Hull facility (in a similar way to the British Marine), in addition to providing cover for contractual liabilities. The P&I team are also seeking to take advantage of the wider Navigators Insurance Group to which they belong in order to offer an enhanced service. To this end, Navigators are looking to dovetail P&I with other elements of cover offered by the Navigators Transport and Liabilities division.

Navigators P&I do not underwrite US flagged vessels, but can arrange COFRs for those vessels trading to the US.

Navigators are A rated by Standard and Poor’s.

Navigators Protection and Indemnity


Middle East 13%

South America 14%

Europe 40%

Africa 6%

Caribbean 1%

Central America 8%

Far East 18%

Supply/Offshore 6%

Other 3%

General Cargo 65%

Fishing 3%

Bulk Carrier 6%

Tugs & Barges 7%

Tanker 10%


Bulker 62%

Liner 7%

Other 1%

Tanker 5%

General Cargo 25%

Asia 36%

Americas 9%

Australasia 9%

Europe 31%

Middle East/India 10%

Africa 5%

The Charterers P&I Club





Osprey Underwriting Agency Ltd

Osprey was founded in 1991 as an agency underwriting on behalf of Lloyd’s.

From the beginning, their focus was on providing cover only to owners that did not require the limits offered by the mutual Clubs. Consequently, Osprey concentrate on smaller vessels, with relatively limited trading.

However, along with other fixed premium insurers, 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.

Unlike the other fixed premium facilities mentioned here, Osprey is also willing to insure US domiciled operators. In terms of premium income the US market represents more than 70% of their portfolio. Tugs and Barges represent the largest class of vessel (34%) closely followed by Fishing vessels (27%).

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

Third Party Liability coverage for owners and/or operators of shipyards, terminals, stevedores, wharfingers and other marine contracting companies

Hull and Machinery insurance for vessels up to 10,000 GT engaged in the carriage of dry cargoes

Osprey’s policy forms are backed by Lloyd’s security and thus A+ rated by Standard and Poor’s.

•

•

•

Osprey Underwriting Agency Ltd


General Cargo 7%

Tugs & Barges 34%

Passenger & Pleasure 6%

Oilfield 5%

Fishing Vessels 27%

Others 3%

Crew Only 18%

Asia 13%

USA 72%

Caribbean 3%

Europe 7%

Middle East 1%

Australasia 1%

Canada 1%

South America 2%

Raets P&I

Raets P&I have a head office located in Rotterdam and branch offices in Singapore and Paris. They run four separate facilities, as below, along with offering Freight Demurrage & Defence cover:

RaetsClub Marine Insurance BV : exclusively for CharterersInterCoastal Shipowners’ P&I BV : exclusively for Shipowners’ P&IRaetsRiver P&I BV : exclusively for Inland Craft P&IRaetsMultiModal P&I BV : exclusively for Marine Related Companies

RaetsClub Marine Insurance BV began writing charterers’ liability business in 1994. They are able to write any type of charterers’ business irrespective of size, with the majority of the portfolio being tramp shipping business (both voyage and time charters). Gross premium income is expected to total around USD 32 million for the 2007 policy year.

InterCoastal Shipowners’ P&I was launched in 1999 to underwrite P&I insurance on a fixed premium basis. InterCoastal currently insures around 1,600 vessels, equating to just over 4 million GT.

Like much of the fixed premium P&I market, InterCoastal focuses on vessels up to around 10,000 GT. Their preferred tonnage is dry cargo

ships, but they also write fishing vessels, tugs, supply vessels and other specialised craft. InterCoastal is restricted to those operators who do not regularly trade trans-Atlantic, trans-Pacific or to the USA.

RaetsRiver P&I 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 1,100 vessels in the portfolio. The anticipated premium income for the 2007 policy year is EUR 1 million.

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

The maximum limit of liability available for P&I under the RaetsClub, InterCoastal and RaetsRiver policy is USD 500 million any one accident or occurrence. For FD&D the available limit is USD 2 million any one accident or occurrence.

All risks written by Raets P&I are 100% ceded to Fortis Insurance NV in the Netherlands.

Fortis Insurance NV are A rated by Standard and Poor’s.

InterCoastal Shipowners’ P&I B.V.

Asia Pacific 20%

Middle East Including India 10%

Europe 60%

Other 5%

Central South America 5%

Tankers 10%

Tugs & Barges 15%

General Cargo 60%

Other 5%

Fishing 10%






Southern Seas (Europe) Limited & South of England Protection and Indemnity Association (Bermuda) Limited (South of England)

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 simply to 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, 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 2007 policy year is expected to be in excess of USD 33 million with around 700 vessels entered. Approximately 40% of the entered tonnage originates from China and Hong Kong. Other areas where the Club is strong are South Korea, the Persian Gulf, Greece, Italy and Nigeria.

The South of England are 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 (a 6% line is placed with Arch Re on an underlying USD 24,750,000 excess of USD 250,000 layer).

The South of England Protection and Indemnity Association (Bermuda) Limited is a mutual insurer unrated by any international rating agency.

There are a number of other facilities offering fixed premium P&I cover. Of these Ingosstrakh (formerly the Russian State Insurance company for international business) is of note, particularly for Russian and ex-Russian business.

Ingosstrakh Insurance Co

Ingosstrakh have been offering P&I insurance for 30 years. Their current portfolio consist mainly of owners/operators from Russia and other eastern European countries. The remaining portfolio, whilst appearing to be of an international nature, has in most cases a Russian or former Russian connection.

Ingosstrakh cover is similar to that provided by the International Group Clubs.

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. However, since 2005 Ingosstrakh have been able to offer limits up to USD 500 million.

Ingosstrakh cover a large range of vessels, from very small ships operating inland 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 almost 1,200 vessels, with an annual gross premium income approaching USD 16 million.

Ingosstrakh are rated BB+ by Standard and Poor’s, with a National Scale rating of ruAA+.

Other Markets:

Ingosstrakh Insurance Co

By Sized of Vessel (GT) By Vessel Type

3,001 – 5,000 30%

1,001 – 3,000 32%

Over 20,001 2%

Below 1,000 18%

15,001 – 20,000 3%

10,001 – 15,000 4%

5,001 – 10,000 11%

RoRo 3%

Fishing 9%

Reefer 7%

Tankers 17%

General Cargo 42%

Bulkers 5%

Passengers 1%

Tug 3%

Container Ship 1%

Other 5%

Tugs 7%

London Placing team

Ben AbrahamExecutive Director Email: [email protected] line: +44 20 7860 9786

Anna BrandTechnicianEmail: [email protected] line: +44 20 7860 9704

Chris ChadwickAccount HandlerEmail: [email protected] line: +44 20 7860 9787

Spencer CraneAccount HandlerEmail: [email protected] Line: +44 20 7860 9709

Eilert EilertsenDivisional DirectorEmail: [email protected] line: +44 20 7488 8009

Richard FurnessExecutive DirectorEmail: [email protected] line: +44 20 7860 9612

Ian M. HarrisExecutive DirectorEmail: [email protected] line: +44 20 7488 8595

Paul D. HarrisonAccount HandlerEmail: [email protected] line: +44 20 7488 8291

Jacqui HoggTechnicianEmail: [email protected] Direct line: +44 20 7488 8202

Kate LowmanSenior TechnicianEmail: [email protected] Direct line: +44 20 7860 9755

David MahoneyExecutive DirectorEmail: [email protected] line: +44 20 7860 9717

Rachel SebbornDivisional DirectorEmail: [email protected] line: +44 20 7860 9718

London Claims Team

George H. McMenaminExecutive DirectorEmail: [email protected] line: +44 20 7860 9419

Claire BarryEmail: [email protected] line: +44 20 7488 8638

Bradleigh-Aaron McArthurEmail: [email protected] line: +44 20 7860 9713

MAR/5731/12/07

Willis Limited, Registered number: 181116 England and Wales.Registered address: Ten Trinity Square, London EC3P 3AX.

A Lloyd’s Broker. Authorised and regulated by the Financial Services Authority

Willis Limited

Ten Trinity SquareLondon EC3P 3AXTelephone: +44 (0)20 7488 8111

www.willis.com

protection & indemnity - willis.com · protection & indemnity market review 2007/2008....

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