Capital & Reinsurance

Capital

The Solvency II regulatory regime came into force on 1 January 2016. North's Own Risk and Solvency Assessment (ORSA) dictates its capital needs and its business decision making requirements, ranging from renewal pricing and reinsurance purchasing, to investment strategy. Encapsulated within this is the need to ensure that North has adequate capital to:

  • reflect its business risks;
  • comply with regulatory requirements;
  • provide a sufficient buffer so as to negate the need for unbudgeted additional calls in any ordinary underwriting cycle; and
  • to maintain the Group’s current “A” (stable) rating from Standard & Poor’s (S&P) even during periods of volatility.

North complies with the requirements of Solvency II and comfortably meets Solvency II capital requirements. S&P also reaffirmed the Club’s “A” (stable) credit rating for the twelfth consecutive year in January 2016. The rating reflects North’s strong competitive position, strong capital and earnings, robust risk management and conservative reserving practices. The ratings also apply to North’s fishing and aquaculture subsidiary, Sunderland Marine (SMI). It equally reflects the strong record that North has not had to resort to unbudgeted additional calls for 25 consecutive years.

The Board is nevertheless currently working with actuarial and investment consultants to both identify the most appropriate investment approach for North as well as to agree the basis for establishing the optimum level of capital required to meet the various risks identified in the Risk Register. The results will be reported later in the year.

Reinsurance

Comprehensive reinsurance programmes underpin the cover that the Club provides. The IG secured favourable terms in the renewal of the General Excess of Loss (GXL) reinsurance contract at 20 February 2016, resulting in significant rate reductions across all vessel categories. The overall premium reduction amounted to approximately 7.5%.

The individual Club retention has increased to US$10 million for the 2016/17 year, but the attachment point on the GXL contract remains unchanged at US$80 million. The IG Pool now also only has two layers:

  • a Lower Pool from US$10 million to US$45 million, and;
  • a single Upper Pool from US$45 million to US$80 million.

There has also been a slight alteration to the structure of the first two layers of the GXL, with a further 5% multi-year US$1 billion (excess of US$100 million) private placement having been effected.

North has renewed its various existing retention reinsurance programmes, whilst also introducing new additional reinsurance partners to the current panel. In the light of the depression in the shipping freight markets, it has been an imperative for the Club to continue to focus on achieving efficiencies in its reinsurance purchasing strategy.

Reinsurance Diagram 2016V2