2014 Financial Statements - Update

CIRCULAR REF: 2014/020

CIRCULATED TO ALL MEMBERS, BROKERS AND DIRECTORS      

The Board of Directors met on Thursday 15 May 2014 and approved the Club’s Financial Statements for the year ending 20 February 2014.  Detailed financial statements and commentary will be published in late June, and in advance of their publication we are providing Members with an update in respect of the Club’s financial position.

The financial year has again been challenging for our Members with sustained economic caution, slow recovery of shipping markets and continuing volatility in respect of marine liability claims.  In addition the Club has faced a change in international accounting rules introduced from 2014, which led to a significant financial impairment by way of absorption of a pension liability, and has somewhat suppressed an otherwise excellent overall technical result.

The free reserves of the Club have remained stable at US$312 million, this is despite a positive combined ratio of 90.1%, which produced an underwriting surplus of US$20 million, and an investment result of 1.94%, which produced a return of US$13 million. The pension deficit of US$33 million, primarily caused by the unusually low interest rate environment, has countered the underwriting and investment gains made during the year.

The Club has a strong financial position with an A (stable) rating from Standard & Poor’s and “AA” rated capital.  This is underpinned by a cautious financial approach, which includes a risk-averse investment policy and a cautious claims reserving methodology which is at a conservative 95% confidence level.  The financial strategy is also supported by a prudent underwriting approach, demonstrated this year with a combined ratio of 90.1% (a 5 year average of 94%).

At the recent February renewal the Club was seeking a 7.5% increase in premiums, as well as improvements in deductibles, it was a successful renewal and the overall increase achieved, including the projected value of higher deductibles, was slightly over 7%.  The Club continues to enjoy strong support from the membership and during the year owned tonnage increased by 4% to 131 million GT, which together with chartered tonnage, is projected overall to be around 180 million GT.

At their recent meeting the Directors also reviewed the position in relation to release calls, which they have decided should be set as follows:

Overall this has been a very positive financial year for the Club with a strong technical underwriting result, and further significant progress has been achieved in respect of the Club’s strategic objectives.

Further information will be available to Members when the detailed financial statements are published in June.

AA WILSON and PA JENNINGS

JOINT MANAGING DIRECTORS

The North of England P&I Association Limited