ar 2015 annual report 0415_v16_low-res_single page

ANNUAL REPORT 2015

2014/15 CAPITAL AND FREE RESERVES US$ 300.3m

Five year combined summary

Income and Expenditure (US$ millions)

2010/11 2011/12 2012/13 2013/14 2014/15

Earned premiums, net of reinsurance 173.8 189.7 200.1 213.1 211.1

Incurred claims (107.1) (118.2) (146.8) (158.5) (145.5)

Operating expenses (40.5) (43.0) (44.3) (52.3) (54.2)

Underwriting result 26.2 28.5 9.0 2.3 11.4

Investment result less taxation 26.7 18.0 31.9 20.9 (10.0)

Increase in free reserves 52.9 46.5 40.9 23.2 1.4

Combined ratio 85.0% 84.9% 95.5% 98.9% 94.6%

Balance Sheet (US$ millions)

2010/11 2011/12 2012/13 2013/14 2014/15

Investments at market value and cash 448.3 520.0 587.5 642.7 630.9

Other assets 29.8 33.5 38.0 42.3 53.0

Creditors (23.3) (21.5) (24.9) (30.9) (34.6)

Net assets 454.8 532.0 600.6 654.1 649.3

Net technical provisions (266.6) (297.2) (324.9) (355.2) (349.0)

Capital and free reserves 188.2 234.8 275.7 298.9 300.3

2014/15 COMBINED RATIO 94.6%

85.0 84.9 95.5 98.9 94.6

100

80

60

40

20

%2010/11 2011/12 2012/13 2013/14 2014/15

Financial Year Financial Year

188.2 234.8 275.7 298.9 300.3

300

250

200

150

100

50

US$ m2010/11 2011/12 2012/13 2013/14 2014/15

453

671

131

944

311

3,159

1,049

DIVERSE MEMBERSHIP

The diverse nature of our membership base delivers stability. Our Members operate in a variety of specialist sectors across the globe providing a spread of risk and low exposure to individual catastrophe.

MEMBERSHIP DOMICILE*

Barge 21.0%

6,726

Cargo 5.0%

1,586

Fishing 8.3%

2,652

Harbour 28.6%

9,157

PERCENTAGE OF VESSEL BY NUMBER*

Percentage of total Number of vessels

* Figures as at 20 February 2015

** Figures rounded to nearest thousand

453

671

131

944

311

3,159

1,049

MEMBERSHIP DOMICILE*

Offshore 15.1%

4,846

Passenger 13.1%

4,191

Tanker 4.7%

1,491

Yacht 4.2%

1,359

PERCENTAGE OF VESSEL BY NUMBER*

Percentage of total Number of vessels

CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT

Annual Report 2015 | 1

Africa

317,000

Europe

3,905,000

Southeast Asia & the Far East

11,109,000

Middle East & India

1,900,000

North America

736,000

Central & South America

2,124,000

877,000

Australia, New Zealand & the South Pacific

2,610,000

Trading Worldwide

GROSS TONNAGE BY TRADING AREA**

2 | Annual Report 2015

CONTENTSCHAIRMAN’S REPORT 3

CHIEF EXECUTIVE’S REPORT 6

STRATEGIC REPORT

Underwriting review 11

Claims review 16

Loss Prevention review 21

CORPORATE INFORMATION 24

BOARD OF DIRECTORS 25

BOARD AND GOVERNANCE 26

FINANCIAL REPORT

Report of the Directors 33

Report of the Réviseur D’enterprises Agree 38

Consolidated Balance Sheet 40

Consolidated Income and Expenditure Account 42

Notes to the Accounts 44


CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT

Chairman’s report

In July of 2014 I had the privilege of taking over as Chairman of the Shipowners’ Club. On behalf of all Members and my fellow Directors, I would like to thank my predecessor Donald A. MacLeod for his six years’ excellent leadership and for guiding us from strength to strength. Don will remain on the Board where we can utilise his knowledge and experience as Chairman of the Finance Committee.

We know that general trading conditions have been challenging for our Members for several years, and last year was no exception: the general consensus is that any recovery will be modest and slow in coming. It is for this reason that I reiterate

the Clubs mantra we provide security, stability and continuity for our Members. Accordingly, at our October Board meeting the Directors, having considered the capital adequacy and solvency position of the Club, chose not to apply a general increase – we were one of only two Clubs in the International Group to take this decision.

Turning to financial performance, I am pleased to report another year of underwriting surplus for the Club, additions to our free reserves and a further strengthening of our balance sheet. We retain our rating of A- and our balance sheet supports an AAA rating on the Standard and Poor’s model.

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 5yr average

10yr average

%

20

40

60

80

100

120

140

94.2 127.0 123.9 77.7 101.5 85.0 84.9 95.5 98.9 94.6 91.8 98.3

COMBINED RATIO 94.6%20 February 2015


The Club’s guiding principle remains underwriting prudence. Notwithstanding this I am pleased to report gross premium increased by 1.5% to US$ 247.3m. The Club once again produced an underwriting surplus by delivering a combined ratio of 94.6%. The average combined ratio for the Club over the last 10 years is 98.3%, and indeed 91.8% over the last 5 years. This is the result of the hard work, knowledge, skill and experience of our underwriting, claims management and loss prevention teams which is a trademark of the Club.

Claims have followed the trend of recent years in being few in number, on average, higher in value. During the year the Club managed three large claims, two in the Middle East and one in the Mediterranean. It is a testament to our robust reinsurance arrangements, those of the International Group and the pooling mechanism that these high-profile incidents were addressed quickly and had only a marginal impact on our technical account.

As a result of the above performance our capital and free reserves have surpassed the US$ 300m mark for the first time. This shows a 5 year continuation of increasing free reserves from the 2010 level of US$ 188.2m.

In respect of governance I can reassure Members that the Board has active and experienced Audit and Risk, Finance and Remuneration Committees which meet regularly and report to the Board at each of its quarterly meetings.

After 10 successful years as Chief Executive, Charles Hume retired from the Club on 9 March. On behalf of the Board and Members I would like to thank Charles for his 25 years’ distinguished and loyal service and wish him well in his retirement. In January this year the Board appointed Simon Swallow to succeed Charles as Chief Executive. Simon has been with the Club for 23 years and most recently held the position of Commercial Director. Simon is a very experienced operator well known to many Members and respected across the industry.

Moving into 2015/16 we have put in place a successful reinsurance programme. Early indications of renewals (at 20 February) are very positive, with a pleasing 99% retention of Members and net additional tonnage. And so, on this note, I would like to take this opportunity to thank our Members, brokers, reinsurers, investment advisers and all our stakeholders for their continued support. You are, together with our management team, what makes us the Club of choice for the small and specialist vessel owner.

Philip OrmeChairman

CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT



Chief Executive’s report

It is essential, despite increased levels of competition and an ever-changing protection and indemnity (P&I) environment, that we remain focused on providing the highest levels of P&I service to our membership – these are core values that we have concentrated on during the past year, and ones which date back to when the Club was established in 1855, but are today delivered with a modern twist.

It only seems like yesterday when, in 2005, the Club was celebrating its 150th anniversary. As we now enter our 160th

year, we would do well to reflect on what John Bagwell Holman, the founder of the Shipowners’ Protection Association, would think of the Club today.

In 1855 the objective was the sharing of risks, a claims-friendly approach in support of the membership, insurance at cost and, at all times, operating as a mutual insurer controlled by the Members. And those values still hold true today, albeit that we have adapted the way we work to suit the modern environment. The Club has grown substantially during that period.

Recently we have seen the P&I market change significantly, with greater levels of competition as commercial insurers move into the sector. This brings its own challenges, and means that we must focus even more strongly on the values of mutuality and the importance of service to our Members. We have also seen changes within the International Group: it is no longer uncommon to find the P&I Clubs offering additional insurance alongside their core P&I product.

We are a mutual insurer, so we have to ensure that the quality of membership – those who share the claims – is maintained. Sometimes this may mean that we have to cease underwriting a specific class of vessel, or cancel a Member’s entry due to poor claims performance. This was why we had to withdraw from underwriting US fishing vessels in 2013. At the same time, we have witnessed the consolidation of some large fleets, a proportion of which moved to

other established P&I insurers. Therefore, this year we report, for the first time in many years, a reduction during the year in our number of entered vessels, from 33,899 to 32,008. We very much remain the Club for the smaller and specialist vessel, but this must not, and never will, detract from the fact that we are proud to have some substantial and well established fleets that are well known in the maritime sector entered in the Club.

Membership also increased during the year which, given the reduction of more than 800 individual US fishing vessel Members, is encouraging. And controlled growth is good – but we will never compromise on looking after our existing business and delivering on our core values of providing service, stability and security. We are therefore particularly proud that, during the year, our renewal retention rate overall stood at 99%.

While the Annual Report traditionally focuses on the Club membership, it is important that we never forget the vital role that insurance brokers play. The relationship that we enjoy with almost 700 global brokers is very important to the Club, and we thank them for their support and hard work. We know that brokers require a prompt and attentive service, accurate and timely documents, and assurance that claims will be supported, and we strive to achieve this. During the year, our managers travelled to many parts of the world and, with the brokers, visited our membership, demonstrating the important tripartite relationship that exists between vessel owner, broker and P&I insurer.

Another essential partner in the Club’s structure are the reinsurers. We are proud to be a member of the International Group of P&I Clubs. It is often said that the International Group insures over 95% of the world’s ocean-going tonnage for P&I liabilities: many of the Club’s entered vessels could not be described as ‘ocean going’ since they operate in coastal and inland waters, but the benefits of the International Group still apply, irrespective of the vessel’s


CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT

ENTERED VESSELS BY REGION

Africa

Australia, New Zealand & the South Pacific

North America

Central & South America

528

3,439

2,020

4,322

8,610

8,656

2,401

2,032

Europe

Middle East & India

Southeast Asia & the Far East

Worldwide

2,0000 4,000 6,000 8,000 10,000

Regi

on

Number of vessels

size. During the year we have experienced tremendous support from the International Group and its pooling mechanism, with two substantial multi-million dollar claims resulting from small ships. Small ships can certainly generate large claims, a trend that we have seen developing during the last few years. Looking ahead, we expect to see that same trend continue, especially with the proposed amendments to the 1996 Protocol to the Convention on Limitation of Liability for Maritime Claims coming into effect in June 2015, which will significantly increase the cost of claims. It is essential, therefore, that the solvency of the Club is maintained and never compromised. We can assure our brokers and our Members that this will remain an absolute priority for the Club and its Board.

Our fundamental reinsurers also have a very important role to play, not least when it comes to the solvency of the Club and balancing out peaks and troughs in claims. In 2014 we entered into a long-term

relationship with Swiss Re as our stop-loss reinsurers, covering claims up to US$ 1.5m and responding when a specific aggregate of claims are reached. The Lloyd’s market and Munich Re continue to provide exemplary support to the excess layers within the Club’s retention of US$ 9m, which is the amount currently set by the International Group. Lloyd’s underwriters also provide a comprehensive programme for our non-pooled tonnage up to ultimate limits of US$ 1bn. During the year we have worked closely with our reinsurers as we believe that the relationship should be seen as a partnership. Working with a professional reinsurance broker and with reinsurers that truly understand the Club’s business is essential.

In April 2014 we closed our Vancouver branch office. The work of Rosemary Adams and her colleagues in seeing this process through while ensuring business continuity was first class, and we would like to place our appreciation of this on record. Our

London-based dedicated claims and underwriting team now looks after our Canadian business, and they often travel to the region. We acknowledge the great support that we have received from brokers and Members in maintaining the entries despite the closure of the office, and we remain as focused today on Canada as we always have been.

Our branches in London, Singapore and Hong Kong continue to go from strength to strength. Our Singapore office, with around 40 staff, provides a full underwriting, claims and loss prevention service for the Asian and Australasian region, making it the largest regional office of all the P&I Clubs in Singapore. The Board met there in January and celebrated five years since we opened the office with a reception attended by many Members, brokers and Correspondents. Here is a good place to record, with thanks, the global support that we receive from the Club’s claims Correspondents, who fulfil an essential role.

Barge Cargo Fishing Harbour Offshore Passenger Tanker Yacht


We are conscious that the costs of claims are increasing, and we will need to monitor this carefully. But we also know that, for many, trading conditions are still difficult, hence the need to continue to offer ’insurance at cost’ with no hidden extras. We continue to apply a zero release and supplementary call strategy, and understand the need for stability of premiums for our membership. We also recognise that, while we stick to the traditions of mutuality and our core product of P&I, we do need to try to simplify our terms and conditions where we can and also to look at innovative products that work alongside the core P&I offer.

As the Chairman reports earlier, Charles Hume retired as Chief Executive as we ended the Club year. During just over ten years at the helm Charles has focused diligently on putting in place processes that have been so important as we have faced greater levels of regulatory oversight. This has also included a closer working relationship with the security rating agencies such as Standard & Poor’s and A.M. Best where, through Charles’s dedication, the Club maintains an A- rating. All at the Shipowners’ Club sincerely thank Charles for everything he has achieved, and we wish him a long and very happy retirement.

It will be very much ‘business as usual’ as we celebrate our 160 years, but we will always seek to do things a bit better, delivering the tradition of mutuality by offering the highest quality of service – but with that modern twist.

Simon SwallowChief Executive

CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT



STRATEGIC REPORT


CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT

The 2014 renewal saw us request a 5% increase in premium, against a backdrop of fierce competition from new and existing P&I markets. We know that any increase is always unwelcome, but ours was the joint lowest among the International Group, and reinforced our position of having the lowest cumulative increase over the last ten years. Overall, at 20 February, and despite the fierce competition, we were delighted to renew 99% of the 3,250 Members that renewed on that day.

For the first time in over 20 years we saw a reduction in the number of entered vessels in 2014, although total entered gross tonnage increased and our net income increased by 1.7% to US$ 216.7m. There were three main reasons for the reduction in total vessels entered: our decision to withdraw from the US fishing vessel business with which we had been involved for over 20 years; the loss of a book of European inland vessels which had been placed with us for a similar period; and the decision to withdraw from Canadian licensing which resulted in our no longer being able to provide cover on around 500 owner-operated yachts written locally under a Delegated Underwriting Authority.

Our US fishing vessel business had comprised around 800 small vessels operating in the states of Oregon, Washington and Alaska. With claims increasing in value at a faster rate than we were able to secure increases in premium, we reluctantly concluded that we should withdraw from this class of business. From the middle of August 2013 we ceased offering renewal as entries expired, and as a consequence the last entries left the Club during the first half of 2014. Both 2013 and 2014 have already proved to be among the worst for claims in the 25 years for which we have been involved in this business, vindicating our decision to withdraw.

With regard to European inland vessels, we had been involved with Oranje, a Dutch inland mutual, for over 20 years. Through our partnership with Euro P&I we were also providing cover to EFM, another Dutch

inland mutual. Oranje and EFM merged early in 2014 to form EOC , and the combined organisation re-marketed their cover, concluding that they could secure cheaper terms elsewhere, which we felt unable to match. As with the US fishing vessels, we sometimes have to accept that if we cannot get the premium and deductible levels that we believe are appropriate for the risk then we must reluctantly see that business leave. Having written both classes of business for well in excess of 20 years we know in general terms what level of claims to expect and the premium and deductible structure to apply. We wish EOC all the best for the future and hope that at some stage they will return to the fold.

Elsewhere we saw growth in the numbers of vessels entered in all sectors. The offshore sector remained very strong, with Members continuing to take delivery of new builds. These are increasingly larger and more specialist vessels, often not just to service existing offshore fields but also for the development of production capacity through providing accommodation, construction, and pipe and cable-laying. With high levels of activity in this sector, we have also continued to see complex charter arrangements being put in place, with back-to-back charters, often on differing terms, being used to engage vessels. We continue to review and provide advice on well in excess of 2,000 contracts per annum, many of which require additional contractual, specialist operations or extended towage covers.

Through our membership of the International Group we are also active participants on a number of sub-committees which discuss topical issues affecting Club Members, and in the case of the Production and Operations Sub-Committee, the extent of cover available through the Pool for vessels involved in oil and gas exploration and production activities. During the course of 2014 discussion took place on a number of matters concerning drilling and production activities, and on

reviewing the current exclusion for accommodation vessels, where such vessels are ‘integral’ to a production or exploration facility. While such vessels may historically have been ‘dumb’, anchored using an anchor spread, or possibly jacked up, increasingly larger platform supply vessels and the like have significantly greater accommodation capacity, and may position themselves for extended periods alongside rigs or platforms. They may be moored or anchored, or simply use dynamic positioning to keep themselves in place, either with or without a gangway to the production or exploration facility. As technology evolves the historical boundaries for cover need to be revisited, and it is our hope that this accommodation vessel exclusion can be removed in the interests of providing certainty of coverage and the broadest cover through the Pool.

The latter part of 2014 saw a dramatic reduction in the oil price which almost immediately impacted on many Members, particularly those involved in seismic and survey work. Budgets for future work started to be reduced and almost overnight it became a buyer’s market for offshore contractors. With so many new-build vessels being delivered over the last few years, and continuing to be delivered, it is inevitable that more vessels will be chasing less and less work. Aside from day charter rates reducing we have also seen more onerous contractual conditions being imposed on Members. This is of significant concern from a risk perspective as we are increasingly seeing knock-for-knock provisions in contracts being removed and replaced by conditions under which support vessels are liable for property damage. This increases our exposure and that of our Members, while at the same time reduced charter rates mean that Members cannot afford the additional premiums that these more onerous contracts should attract. Having settled two very large offshore property claims in the latter part of 2014, we will need to monitor these developments carefully.

In other sectors we have continued to see growth in vessel numbers, tonnage and

Underwriting review


income. Barges and harbour craft experienced the largest increases, with more modest upturns in dry cargo and tankers, despite the loss of the inland tonnage mentioned previously.

Following the implementation of the Maritime Labour Convention 2006 in 2013, requiring financial security to be put in place to cover the costs of repatriation of seafarers following abandonment due to insolvency of a member, 2014 saw the International Labour Organization extend these requirements to include unpaid wages and contractual claims for death and injury, to take effect in June 2016. Such claims would not ordinarily fall within the scope of cover and, this being the case, the Club’s Board, in common with all other International Group Club Boards, was asked to consider whether such obligations could be covered by the Club. The Board agreed at the October 2014 meeting that cover should be extended to pick up these mandatory obligations, and to provide the necessary financial security from 2016.

CASE STUDY – FINANCIAL STRENGTH

Members, regulators and rating agencies are all interested in the Club’s financial strength. It provides a measure of member protection, claims-paying ability and how the Club might withstand unexpected losses that might arise from the risks it faces in the course of doing business. As a result of its most recent review, credit rating agency Standard & Poor’s has rated the Club ‘AAA’ from a capital adequacy perspective, indicating that its financial strength lies towards the higher end of the industry capitalisation spectrum.

Solvency II, the new European insurance regulatory regime, is due to come into force on 1 January 2016. In addition to updated governance, reporting and disclosure requirements, Solvency II provides a new measure of capital adequacy and financial strength which is more tailored to the specific risks that each organisation faces through its underwriting, investment and operational activities. The Club is well capitalised as a result of many years of disciplined underwriting and prudent financial management and expects to comfortably meet the new capital requirements.

CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT



TOTAL ENTERED TONNAGE

TOTAL ENTERED VESSELS

2014

2013

2010

2009

2008

2007

2011

2012

50

Million GT

10 15

15.3

15.4

16.3

17.8

19.8

21.9

23.6

23.5

20 25

5,000

Vessels entered

0 10,000 15,000 20,000 25,000 30,000 35,000

2014

2013

2010

2009

2008

2007

2011

2012

28,030

28,588

28,200

28,998

31,341

32,781

33,899

32,008



CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT



The rising frequency of claims has been a consistent theme since 2010 with indications that we would reach the high frequency levels of claims recorded for pre-2010 policy years. We therefore find it encouraging that 2014 is the first policy year since 2010 to show a reduction, albeit a modest one. However, the cost of claims, in pure incurred values, rose by 14% when compared with the 2013 policy year. This volatility is for the most part attributable to a small number of claims in excess of US$ 7m – and it is here where small increases in the number of claims have the most dramatic impact. This year two cases produced claims in excess of US$ 7m. The most significant in terms of cost occurred as a result of one of our entered container vessels Yusuf Cepnioglu grounding off Mykonos, Greece. The resulting wreck removal was ultimately successful but was hampered by periods of adverse weather. While oil pollution was minimal it was impossible to avoid containers that were lost overboard spilling their contents. A number of these containers were filled with plastics which quickly contaminated the local beaches. The initial clean-up was successful; however, the plastics which entered the water column continue to wash up on the shoreline, leading to continuing periodic clean-ups.

It is clear, however, that if we exclude claims in excess of US$ 7m, those of lower value have decreased. Reflecting this, and despite the effect of claims in excess of US$ 7m, the average value of files has decreased by 6% when compared with the previous policy year. This, together with a modest drop in claims frequency, is encouraging, particularly when viewed against a backdrop of stability in the cost of claims when measured in dollars per ton.

There have been fluctuations in the frequency of claims reported in the different vessel categories. In common with 2013 all claims categories have decreased in terms of dollars per ton, with one exception. This year that exception is environmental claims. Historically, wreck removals dominate this claims category in terms of cost and this

trend is again apparent with the Yusuf Cepnioglu, noted above. Of the six claims reported above US$ 1m two occurred in Europe and four in South East Asia. Of the non-European claims two high-profile claims took place in Malaysia and Taiwan. The first happened when one of our entered small oil tankers was loading cargo. While the quantity of oil spilled was modest a large area of the Port of Tanjung Pelepas in Malaysia, including approximately 2 kilometres of wharfs/berths and 200 metres of shoreline, was contaminated. Working with the Port and with the assistance of ITOPF, we made arrangements with a local contractor and successfully concluded the clean-up on schedule. The second claim occurred when one of our entered seismic survey vessels sank off Taiwan in heavy weather. The coastguard and navy responded to the Master’s distress call and all 45 crew and researchers were recovered from life rafts or directly from the sea. Unfortunately, two of the researchers died before reaching hospital. The dramatic rescue, tragic loss of life and subsequent pollution concerns attracted significant media and political attention. We quickly appointed international salvors although, with the consent of the authorities, wreck removal has been delayed pending a weather window. Our policy of early and continued engagement with the authorities as well as our focus on strict tender procedures and negotiation of appropriate contract forms has assisted us in controlling costs within this claim category.

We are encouraged to note for the second year running a significant decrease in the value of crew claims. Despite this reduction we have had to deal with a small number of multiple fatality claims. The most significant of these occurred in Ecuador during the second quarter when the refrigeration system on board one of our entered tuna fishing vessels was damaged by stevedores during discharge of catch. The resulting escape of ammonia gas caused the immediate death of four stevedores and the hospitalisation of over 50 people. Tragically, the chief engineer and a further

two stevedores later died in hospital. Of the non-fatalities we are dealing with eight significant injury claims.

Passenger claims have also fallen for the second year, with only two claims in this category reported in excess of US$ 100,000. There were no fatality claims reported this year.

Last year we reported a degree of claims inflation in relation to crew claims in general. We are pleased to note that, despite some jurisdictions where the cost of claims is arguably inflated, this has not been our overall experience this year. While we have very small exposure to US claims it comes as little surprise to report high-value claims brought by US crew, arguably as a consequence of high levels of protection afforded to them as a result of the Jones Act. While we have very little exposure to these claims we wait to see whether the recent Fifth Circuit Court of Appeals ruling that punitive damages are not available in Jones Act or unseaworthiness actions for death or injury to seamen will reduce the quantum of such claims.

For the second year running we can report a reduction in the value of cargo claims in terms of dollars per ton. While not the highest quantum claim we have received in this claims category, perhaps the most topical concerned a cargo of sunflower seed oil shipped on one of our entered product tankers from Kerch in Ukraine to Tartous in Syria. A dispute arose in relation to possible contamination of the cargo. Despite dialogue the vessel was arrested pending provision of a bank guarantee. On investigation we were satisfied that the state of Syria was not subject to international sanctions and further that the European and US sanctions against individuals were not triggered. However, it transpired that the majority of European banks were unwilling to provide security in Syria. Similarly it was not possible to secure the release of the vessel by making a cash deposit into court as, although the Ministry of Justice in Syria was not a sanctioned entity, we feared that such

Claims review


CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT

TOTAL INCURRED VALUE OF CLAIMS

FILES INCURRED v VESSEL COUNT

50,000,0000

Polic

y ye

ar

Total incurred US$ m

100,000,000 150,000,000 200,000,000 250,000,000 300,000,000

2008

2010

2013

2006

2007

2009

2011

2012

2014

45,000

40,000

35,000

30,000

25,000

20,000

2007 2008 2009 2010

Policy year

2011 2012 2013 2014

15,000

10,000

5,000

Vessel count

6,000

5,000

4,000

3,000

2,000

1,000

0 0

Cla

ims

files

ope

ned

Files opened in Q1 Files opened in Q2 Files opened in Q3 Files opened in Q4 Vessel count

A: 0–5,000 B: 5,000.01–100,000 C: 100,000.01–250,000 D: 250,000.01–500,000 E: 500,000.01–1,000,000

F: 1,000,000.01–5,000,000 G: 5,000,000.01–6,000,000 H: 6,000,000.01–7,000,000 I: 7,000,000.01+


CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT

a transfer of funds would potentially involve the Syrian Central Bank which was sanctioned. These issues complicated what was a relatively straightforward cargo claim and resulted in the vessel’s extended detention until deadlock was finally broken by negotiation.

Towage claims have reduced significantly in frequency and in terms of dollars per ton. One particular claim again highlighted the importance of Members vetting their contracting parties and fully appreciating the difficulties inherent in working within particular jurisdictions. Our Members in this case contracted to perform a scrap tow on the basis of a knock-for-knock contract. It quickly became apparent that the charterers would not respond to the underlying claims presented by the local port authority and environmental agency, and we discovered that the insurance policy for the tow had been cancelled immediately prior to the voyage. As a result our Member’s tug was prevented from leaving by the authorities who demanded a bank guarantee. Efforts to arrange such a guarantee were unsuccessful as local Ukrainian banks were not inclined to provide security – on the basis that the claims were advanced by government agencies. Eventually, a payment into court was made as security and the claims were settled. This claim and the cargo claim noted above remain a stark reminder of the costly consequences of inadequate due diligence when entering into new fixtures, especially those that involve trade in countries where sanctions may apply or where there is limited judicial redress.

Navigational claims have increased in terms of dollars per ton. These claims encompass damage to sub-sea pipelines and cables as well as collisions between vessels, and contact with berths, piers, dolphins and other structures. This was particularly highlighted in the third and

fourth quarters where we had four offshore claims reported in excess of US$ 1m. The largest of these occurred in the Middle East as a result of one of our offshore platform supply boats making contact with a platform. Against the backdrop of deterioration in similar prior policy year claims in jurisdictions not party to the main limitation regimes, the importance of contracting on appropriate terms becomes ever more important.

There are a number of International Conventions conferring direct rights of action against liability insurers – notably the International Convention on Civil Liability for Oil Pollution Damage and the International Convention on Civil Liability for Bunker Oil Pollution Damage (not forgetting the pending Nairobi International Convention on the Removal of Wrecks 2007). In addition there are a growing number of jurisdictions in which domestic legislation confers the right of direct action against insurers. Turkey and Spain are two such jurisdictions which have recently enacted new Maritime Codes conferring such rights. This legislation highlights a risk of claims

being brought in forums other than the UK as provided for in our Club Rules, but also that contractual defences, most notably the ‘pay to be paid’ rule, can be circumvented or declared unenforceable in the local courts. As a result of the Yusuf Cepnioglu case we have had to obtain and maintain an anti-suit injunction preventing charterers from prosecuting a direct claim in Turkey against the Club. This has been successful to date but serves to highlight the potential effect on claims and the continued importance of defending our Members’ positions, and upholding the protection afforded by the Club Rules.

CASE STUDY – COLLISION DAMAGE

On 2 March 2013 one of our Members’ general cargo vessels, the Thuan My, was involved in a serious collision with a bulk carrier, the Beks Halil, off the coast of Singapore. Thankfully no one was injured and there was no resultant pollution, but the Thuan My was partially submerged – only prompt crew action stopped the ship from sinking.

The Club’s Singapore Branch leapt into action, and on the same day helped to engage salvors to recover the vessel and cargo (concrete pipes). The Thuan My was towed to a safe anchorage where she was stabilised and temporarily repaired; her cargo was eventually unloaded and sold off to a local buyer. The ship was then moved to dry dock where permanent repairs were undertaken.

Negotiations were complex, but we handled the detail proactively and helped to achieve a quick and successful outcome for the Member in Vietnam, a relatively new market for the Club. Collision liability has now been agreed with the interests representing the Beks Halil, the deal being in our Member’s favour.


CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT

Loss Prevention review

The focus of the Club’s Loss Prevention team remains on trying to mitigate our Members’ exposure to risk and reducing the level of avoidable claims. We do this by providing general loss prevention advice, an ongoing condition survey programme, management audits and the production of claims case studies. These activities are ongoing with the objective of providing the highest standard of advice to members.

The condition survey programme continues to monitor the quality of tonnage and standards of management that are in place with the aim of ensuring that all tonnage entered with the Club is of a consistently high level and of mutual benefit to all. To help in targeting vessels for a condition survey, we have developed a matrix based on the Club’s ship inspection and claims experience coupled with industry statistics and reviews (for example, Paris Memorandum of Understanding port state control data and flag/class performance tables). During the 2014 policy year 300 vessels were surveyed, and the results are shown by vessel category in the graph above.

As can be seen, in this time period 11 vessels that were surveyed scored 5 and were therefore considered not suitable for entry. Of interest 3 of these vessels were re-surveyed at the Member’s cost and still reviewed as unsuitable for entry. This equates to 3.6% of the tonnage surveyed being considered not of an appropriate standard, a 0.3% rise from the 2013 policy year.

The experienced mariners within our team continue to work in tandem with the underwriters and claims handlers, providing technical advice and risk analysis on both new and existing business, and an assessment of the primary root cause of claims. An example of the Loss Prevention team investigating a serious incident involving the escape of ammonia from a fishing vessel is the subject of the case study overleaf.

Our team continues to develop initiatives for our membership in order to raise awareness of potential risks or to highlight issues that other Members in the Club have come across. This sharing of information

is an important aspect of the help that we give to Members so that they can learn from each other and thereby mitigate loss. During the 2014 policy year we produced a number of information bulletins, briefings on claims cases involving Members of the Club, and posters. One of the main documents that we published was Towards Effective Navigation, the third booklet in a series on the subject, which highlights and explains basic navigational techniques. Work has also started on an updated passenger claims booklet, which will incorporate our more recent claims experience in this sector.

Within the year, we undertook two management audits as a result of claims that questioned the effectiveness of the management systems in place for the Members concerned. These reviews started in the shore-side offices to review procedures and the standards set by the management teams, with follow-up surveys on fleet vessels to review the effectiveness of the ship-to-shore communication flow, and to ascertain whether the systems in place were appropriate and sufficient.

Barges

Cargo

Fishing

Harbour

Offshore

Passenger

Tankers

No. of surveys

100 20 30 40 50 60 70 80

1. Satisfactory in all respects 2. Some minor issues to address 3. Acceptable subject to remedial measures

4. Serious issues to address 5. Unacceptable in present condition Follow-up

NUMBER OF SURVEYS UNDERTAKEN IN 2014 POLICY YEARby Vessel Category and Resulting Score (1 to 5)


Both Members have since taken proactive measures in response to all the points raised, ensuring swift rectification of any problems.

One important role that the department plays is to assist Members who, as a result of the nature and size of their tonnage, may fall below convention levels or may be suffering an increase in reported claims incidents. We often tailor this bespoke advice to a particular issue – for example, on-board assessments for passenger carrying vessels experiencing an increase in injury claims. This may involve making presentations to shore-side management and crews about the consequences of incidents and the cost of the claims that may result. In the past such exercises have sought to ensure better liaison on technical deficiencies between ship- and shore-based staff, in order to reduce preventable claims. Assistance of this type can be requested by any Member, regardless of their type of operation, and at any time. We will be very happy to assist in any way that we can.

During 2014 we undertook some market research to help us to ascertain the areas in which the Loss Prevention team could provide more assistance to Members. This provided some very useful feedback which will be incorporated into our plans for the future.

CASE STUDY – AMMONIA LEAKAGE

In 2013 a fishing vessel was being discharged when a shore crane, operated by a stevedore, made heavy contact with one of the vessel’s refrigeration pipes, causing it to rupture at the weld and leak ammonia gas into the hold. Unfortunately a stevedore who was near to the pipe when it ruptured suffered severe ammonia burns to his eyes and lungs. His injuries were so severe that they resulted in instant hospitalisation, with the prognosis of ongoing medical care for the rest of his life.

It is industry practice to isolate a hold’s refrigeration system by draining back the ammonia into the reserve storage before unloading commences. This is to ensure that no leakage of ammonia gas occurs if there is a breach in the system. However, in this case it was found that the vessel’s refrigeration system, which utilised ammonia, had not been fully isolated and therefore ammonia gases had not been vacuumed from the system.


CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT


Corporate information

NOTICE OF MEETING

Notice is hereby given that the Annual General Meeting of the Members of The Shipowners’ Mutual Protection and Indemnity Association (Luxembourg) will be held at Le Royal Hotel, 12 Boulevard Royal, L–2449 Luxembourg on Thursday 9th July 2015 at 09:00 hours for the following purposes:

1. To approve the Report of the Directors and the Accounts for the year ended 20th February, 2015, and the Report of the Auditors thereon.

2. To elect Directors.

3. To approve the change of the financial year end of the Association to 31st December.

4. To transact any other ordinary business of the Association.

By order of the Board:

Pascal HerrmannGeneral Manager 16, Rue Notre-Dame L–2240 Luxembourg

18th May 2015

Note:A Member entitled to attend and vote is entitled to appoint a proxy to attend and on a poll to vote instead of him. A proxy need not be a Member of the Association.



CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT


Board of Directors

The current Directors of the Club held office throughout the year. In addition, Roland Frising, George Kailis and Christian Van Meerbeeck retired from the Board on 17th July 2013, 13th December 2013 and 25th October 2013 respectively. Messrs D.A. MacLeod, A.D.W.

Allan, W.D. Everard, A.R.H. Knight and I.T. Webb-Wilson all retire by rotation in accordance with the Constitution at the forthcoming Annual General Meeting. Each of these, being eligible and with their agreement, offer themselves for re-election.

CHAIRMANPhilip OrmeDubai

VICE CHAIRMANDavid JamiesonUnited Kingdom

DIRECTORSAlistair AllanUnited Kingdom

Alfred HübnerChile

Lim Teck ChengSingapore

Dr. Yves WagnerLuxembourg

Tony BriggsAustralia

Les JourdainCanada

Donald MacLeodCanada

Iain Webb-WilsonUnited Kingdom

William Everard CBEUnited Kingdom

Richard KnightUnited Kingdom

Ong Kok WahSingapore

Mark WhitakerUnited Kingdom

Dr. David HoHong Kong

Rodney LenthallUnited Kingdom

Dato’ Capt. Ahmad SufianMalaysia


Board and governance

The Club’s Board meets four times a year, with the meetings timed to coincide with the quarterly and year-end financial results. The Finance Committee meets just before each Board meeting to review the results in detail, and then reports back to the Board.

At each Board meeting the Managers also present their review of the previous quarter’s claims. The Managers analyse claims trends by vessel sector and trading area, and also consider the development of the number and value of new claims, as well as in value bands, comparing the current year with previous years. In addition, the Board considers written notes of any claims for consideration and the top five claims by value which have arisen in the previous

quarter, and receives an oral presentation of new Pool claims made by other Clubs. In this way, the Board is able to track the development of claims during the year, and identify emerging trends early on.

LUXEMBOURG – APRIL 2014

A total of 14 Directors were present for the Board’s meeting in Luxembourg, the Club’s domicile. As has become customary in recent years, the Club Directors were joined by Directors from the Club’s reinsurance subsidiaries, which hold the majority of the Club’s financial assets, and listened to a presentation from Dr Holger Schmieding, Chief Economist of Berenberg Bank. Dr Schmieding talked about the global economic climate as

the backdrop to the investment of the Club’s funds.

The Board also received a report from the Managers on the renewal position as at 20 February, noting that the market was very competitive but that there had been a very satisfactory retention of existing business and, on the balance of gains and losses, a small overall increase in terms of vessels, tonnage and premium. The Managers reported that the reinsurance renewal had been concluded as anticipated at the previous meeting, the main new feature being the underlying three-year stop-loss policy placed with Swiss Re covering claims up to US$ 1.5m.

CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT


The Board agreed the draft financial statements for the Club year ending 20 February 2014, subject to there being no substantive changes a;t the time of the Audit and Risk Committee’s review of the final figures.

In addition, the Board reviewed the Club’s quota share reinsurance treaties with its reinsurance subsidiaries, S.O.P. (Bermuda) Limited (85%) and Spandilux S.A. (5%). After analysing the basis of the agreements, the performance of the reinsurance contracts and the costs incurred, the Board agreed to renew the treaties.

The Managers reported a very substantial new claim arising from a small Turkish flag

container vessel which had run aground in bad weather on the island of Mykonos, Greece, which had necessitated a wreck removal operation.

The Board received a report from the Remuneration Committee advising that the Managers had initiated a formal succession planning process for senior management which would be developed over the following months.

The Managers reported that the Assistant Commissioner of Insurance in Hong Kong had visited the Club’s newly established branch office there during March. They also stated that the Club’s Canadian branch would close at the end of April,

with the business being underwritten in future by the Managers in London.

The Board considered a note concerning the intentions of the Standard Club to issue US Oil Pollution Act Certificates of Financial Responsibility (COFRs) direct to the US Coastguard, contrary to a longstanding International Group policy that such COFRs should not be provided by Clubs themselves but only through established COFR providers. The Board decided that it was not in the interests of shipowners that Clubs should provide such COFRs. This decision was echoed by all but one of the International Group Club Boards, and the Standard Club subsequently decided not to go ahead.


CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT

HALIFAX – JULY 2014

Some 15 Directors were present for the last Board meeting to be chaired by Donald MacLeod, and it was appropriately held in his home city.

The Chairman introduced Stefan Keitel, Berenberg’s Global Chief Investment Officer, to the Board, along with Max Hefele, whom the Board had met previously. The Chairman noted that it had been 30 years since Berenberg had first assumed responsibility for the Club’s investment portfolio, and that it had been an enduring and successful relationship. Mr Keitel gave a presentation to the Board on the investment markets.

The Managers gave a detailed presentation on the Club’s draft Own Risk and Solvency Assessment (ORSA), a feature of Pillar 2 of the Solvency II regime. This included a thorough explanation and analysis of the different elements of the ORSA, which had been prepared on the ‘standard model’ basis. The ORSA allows the Board to assess the solvency position of the Club by monitoring its internal and regulatory capital targets in the light of any planned change to the Club’s risk profile or its strategic business plans, and with reference to expected developments in its external environment. The Directors raised a number of questions and noted that the ORSA was still a work in progress, it being in need of further development and refinement. The Board subsequently approved the ORSA for submission to the Commissariat aux Assurances (CAA) on a ‘best efforts’ basis, this being what the CAA had been expecting from all insurance entities first time around.

The Board agreed to close the 2011 policy year without additional call, and to maintain its policy of nil additional calls and nil release calls on all open policy years.

The Board received the annual compliance report from the Managers. There were no particular issues requiring the Board’s attention.

The Managers reported on the triennial actuarial valuation of the management

company’s retirement benefits scheme which had been carried out as at 1 January 2014. Preliminary results had identified a deficit of £433,000. The Board agreed a recovery plan under which the deficit would be repaired by monthly contributions of £10,000 over five years.

At the conclusion of the meeting, Mr MacLeod thanked the Board and the Managers for their support during his tenure as Chairman and proposed that Philip Orme be appointed as his successor. The Board unanimously agreed and Mr Orme took the chair. On behalf of the Board, Mr Orme thanked Mr MacLeod for his great commitment to the affairs of the Club over six years which had gone from strength to strength despite major upheaval in the shipping and financial markets. Mr Orme proposed that Mr MacLeod be appointed as Chairman of the Finance Committee, and the Board agreed unanimously. Mr Orme then proposed that David Jamieson be appointed as Vice-Chairman, the Board again agreeing unanimously. The Board also gave their assent to the appointment of Richard Knight to the Finance Committee, and of Dr David Ho and Mark Whitaker to the Audit and Risk Committee.

HAMBURG – OCTOBER 2014

All 17 Directors were present at the meeting.

The Chairman of the Audit and Risk Committee reported on a special meeting that had been held in Luxembourg in September to review the appointment of external auditors. He explained that three firms of auditors had made presentations and that KPMG had impressed the Committee – both as individuals and as a team. The Committee felt that KPMG could bring new energy and ideas to the audit process. Accordingly, the Board agreed with the unanimous recommendation of the Committee that KPMG should be appointed as auditors to the Club and its subsidiary companies for a period of five years, subject to annual approval by the Board.

The Managers reported that they had recruited a new Chief Actuary, thus bringing the previously outsourced actuarial function back in house. They anticipated that the Chief Actuary would take on the role of Chief Risk Officer as well.

The Board considered the Managers’ annual review of the Club’s business, which overall demonstrated reasonable underwriting results in all sectors, and a general growth in business, despite the decision in 2013 to withdraw from the US fishing vessel sector.

The Board reviewed the half-year figures for 2014, noting that income was below budget but that claims were lower still, so that the overall underwriting result was positive with a combined ratio of 95.5%. Considering the Club’s strong reserves, which were ahead of budget, the favourable claims position and the probability of a good reinsurance renewal, the Board decided that there should be no general increase in premiums for the 2015 year. The Board agreed the terms of a half-year report which was subsequently circulated to the membership.

The Board noted the Annual Review, which had been prepared by the Managers for the annual presentations to the rating agencies, A.M. Best and Standard & Poor’s, which had taken place at the beginning of October. The Board noted that the Annual Review was a useful additional overview of the Club’s business profile, to work alongside the ORSA.

The Board expressed its displeasure to the Managers about an internal lapse in compliance in relation to a failure to complete a regulatory return in Hong Kong by the appropriate deadline. The Managers reported that they had reinforced procedures and had moved responsibility for compliance issues in Hong Kong to the Singapore branch.

In contrast, the Board was pleased to note the impending end of the 12-month staging process for the Canada branch which the regulator there, the Office of the Superintendent of Financial Institutions


(OSFI), had initiated in 2013. The Board noted that the run-off of the Canada branch was proceeding satisfactorily and that it would be possible to consider the position more fully in 2015 once the year-end results were available.

The Managers made a presentation to the Board about a concept for a new service for Members, CTRL Services Limited. They would be able to manage claims, technical, risk and legal (CTRL) matters for Members who did not have enough internal resources to do this for themselves. The Board welcomed the idea and approved the creation of a subsidiary company as a vehicle to deliver this, subject to any regulatory approval that might be required in relation to legal services.

The Board agreed in principle to the proposal being put to all International Group Club Boards that the Clubs should provide the financial security which would be mandatory under the Maritime Labour Convention from 2016 to cover unpaid crew wages for four months, in addition to the costs of repatriation for abandoned crew.

The Board noted with concern an accident on board a tuna fishing vessel in Ecuador which had resulted in the deaths of seven crew and stevedores and injury to many more. This had been caused by a fishing net catching on a pressure valve in the vessel’s refrigeration system, resulting in a sudden release of ammonia. The Board asked the Managers to carry out further research into the fitting of ammonia-based refrigeration systems, and to consider the associated risks of underwriting such vessels.

SINGAPORE – JANUARY 2015

The day before the meeting the staff at the Singapore branch gave the Board a presentation about the business that was currently being done through the branch. Some 16 Directors were present at the Board meeting itself.

The Chairman of the Audit and Risk Committee reported on a meeting which had taken place in Luxembourg in

November, at which the new external auditors, KPMG, had been present for the first time. There had been a thorough review of the risk register, specifically including the 25 most significant risks, and the Managers had updated the Committee on the steps that were being taken to mitigate these risks. The recently recruited Chief Actuary/Chief Risk Officer would make a full presentation at the next Audit and Risk Committee meeting.

Bearing in mind reservations that had grown over time about the performance of the outsourced internal auditors, the Committee had agreed to appoint Moore Stephens to the role with immediate effect.

The Board decided to introduce a training and competency framework to help the Directors to develop their individual understanding of the risk management environment in which the Club operates, in line with growing expectations of Board governance that Directors should be able to demonstrate to the membership their fitness for their roles. The Board agreed a preliminary set of competencies which Directors needed and to a process to assess their fulfilment of those competencies.

The Managers presented their business plan and proposed budget for the 2015 policy year, this being part of a three-year rolling cycle of planning for the future. The Board was pleased to note the emphasis on disciplined, organic growth on the back of continuing investment in internal efficiencies, and approved the plan and budget.

The Board noted that two substantial claims from the Club’s offshore membership sector had come to a head very suddenly, following a notice which Saudi Aramco, as claimants, had issued to their contractors and sub-contractors that the Club would no longer be considered acceptable as P&I security after the 20 February renewal. Following a meeting with Saudi Aramco it had been possible to agree settlement of their claims and the withdrawal of their notice. Nevertheless, the Board was concerned that there should be no

recurrence of these circumstances in future and the Managers agreed to report back on the underwriting and claims-handling implications of the episode.

The Board exercised its discretion to support two claims which were presented in accordance with the terms of the Legal Assistance and Defence heading of the P&I cover provided by the Club. The Board noted with concern the very poor operational procedures on board a tanker which had caused a pollution incident resulting from the overflow of cargo while loading in Malaysia.

The Board received a report from the Managers on the reinsurance renewal, noting that there would be no change to the structure.

The Board also agreed to some amendments to the Management Services Agreement by which The Shipowners’ Protection Limited, as Managers, provide agreed management services to the Club. The amendments were to address technical issues resulting from the Club now having branches in both Singapore and Hong Kong. The Board decided that there should in future be an annual appraisal of the Managers’ fulfilment of the terms of the Management Services Agreement.

The Chairman of the Remuneration Committee reported on the conclusion of the process which had been approved by the Board at an earlier meeting concerning the appointment of a new Chief Executive. The Board was very pleased to accept the recommendation of the Committee that Simon Swallow should be appointed to succeed Charles Hume as Chief Executive with effect from 9 March.

On behalf of the Board, Mr Orme thanked Mr Hume for his loyal service during his 25 years with the Club, and particularly his ten years’ excellent service as Chief Executive. The Board further wished Charles a healthy and fulfilling retirement.

CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT



FINANCIAL REPORT


CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT

Report of the Directors

The Directors have pleasure in presenting their report and the financial statements of the Club for the year ended 20th February, 2015.

ACTIVITIES

The principal activities of the Club during the year were the insurance and reinsurance of Protection and Indemnity Risks on behalf of Members. There are no major changes planned to these activities during the current financial year.

DIRECTORS

The current Directors of the Club are shown on page 1, and they held office throughout the year.

Messrs Alistair Allan, David Jamieson, Les Jourdain, Ong Kok Wah, Phil Orme and Dr Yves Wagner all retire in accordance with the Constitution at the forthcoming Annual General Meeting. Each of these, with the exception of Mr Alistair Allan and Mr Les Jourdain, being eligible and with their agreement, offers themselves for re-election.

FINANCIAL REVIEW

The Consolidated Income and Expenditure Account for the Club has once again seen a growth in earned income during the year. Gross premiums earned have increased by 1.5% to US$ 247.3m. Earned premiums net of reinsurance have decreased by 0.9% to US$ 211.1m due to higher costs of reinsurance purchased during the year.

The 2014 policy year has experienced a reduction in claims frequency of 4% over the preceding year, although the gross average value of open claims files increased by 52%. With the cost of other club’s claims declared to the International Group Pool reducing and an improvement in the claims reserves made for prior years, the ultimate value of claims, net of reinsurance, has reduced by 8% over the preceding year to US$ 145.5m.

Operating expenses, comprising business acquisition costs (brokerage) and administrative expenses, increased by 3.7% to US$ 54.2m, with acquisition costs remaining stable at US$ 30.7m and administrative expenses increasing by 8.9% to US$ 23.5m.

Overall, the resulting underwriting surplus of US$ 11.4m represents a combined ratio of 94.6%.

The investment portfolio produced an overall loss of US$ 5.4m representing a negative return of 0.9% on capital. The main performance drivers on the investment portfolio were:

� positive absolute equity returns;

� emerging market equities underperforming with a negative return;

� the fixed income segment outperforming its benchmark;

� bonds being dragged into a negative terrain due to currency losses;

� substantial negative currency effects on the overall return.

The overall investment return, after expenses and exchange rate movements, amounted to an overall deficit of US$ 11.1m for the year, and after adjustments for taxation the resulting surplus on ordinary activities amounted to US$ 1.4m, increasing the capital and free reserves of the Club to US$ 300.3m.

BRANCHES

The Club has branches in London, Singapore, Canada and Hong Kong.

RISK MANAGEMENT

Risk is the potential for loss or failure to meet the Club’s corporate objectives as a consequence of internal or external events. The key objectives of the Club’s risk management framework are therefore to:

� manage the risk profile of the business to maximise the opportunities to achieve the corporate objectives

� identify and mitigate any hindrances to achieving the corporate objectives

� manage the risk exposure, to minimise the exposure to losses and the solvency capital requirement

� embed risk management within the business to prevent unintended consequences of strategic and/or operational decisions

� operate within the risk appetite defined by the Board

� meet all regulatory requirements. Effective risk management is fundamental to the operation of the business, and is embedded through Board-level commitment, management buy-in, understanding and defining what is required from managers and staff, continuous improvement through effective monitoring and risk reporting, and cross-process communication. The Club’s risk management framework has been designed to ensure compliance with the risk management requirements of the Solvency II regulatory regime which is due to come into force in 2016.

The Club is exposed to risk through its principal activity of providing insurance and reinsurance cover to its Members. In addition, it is exposed to financial and operational risk through its financial assets, financial liabilities, reinsurance assets and policyholder liabilities.


Through an established risk management framework, the Club has identified all realistic risks, including emerging risks that are faced in the process of implementing the business strategy. Risks are analysed by reference to their likelihood of occurrence and potential severity of impact, and an acceptable level of risk (‘risk appetite’) is identified for each risk and controls established to ensure that this level is not exceeded. Employees receive training to ensure that they understand and adopt this approach, and the Managers monitor the efficiency of the controls and the procedures which support them and are independently reviewed through the internal audit process.

Oversight of the Club’s risk management framework lies with the Board of Directors through its Audit and Risk Committee. A summary is presented below of how the key risks faced by the Club have been addressed.

Underwriting risk This is the risk inherent in any underwriting contract represented by the unpredictability of the insured event occurring and the uncertainty about the quantum of the resulting claim. The potential risk to the Club is that business is written for insufficient premium or provides inappropriate cover, or that the frequency or severity of insured events is higher than expected.

The Club’s underwriting strategy documents its appetite for risk as well as its pricing and reinsurance policy. The pricing policy reflects the loss experience and quality and management of vessels entered and is commensurate with the cover provided. The underwriting risk is further mitigated by maintaining a well balanced and diverse insurance portfolio, in terms of both vessel type and geographical spread.

Reinsurance is a key tool used to reduce the underwriting risk exposure and to stabilise underwriting results, and is subject to an annual review and agreement by the Board of Directors. In addition to its own reinsurance programme, the Club is party to the International Group Pooling Agreement,

whereby for the 2014 policy year individual claims between US$ 9m and US$ 80m are pooled. Above this level, the International Group purchases reinsurance protection up to US$ 3bn on behalf of all Members of the Group.

Reserving risk This represents the risk associated with reserves established in the balance sheet being insufficient to meet the cost of outstanding claims, as a result of inadequate case reserves or inadequate reserves for claims that have been incurred but not reported. The Club has an established conservative estimating policy in place, based on always estimating the cost of the claim in the appropriate currency, always reflecting the most up-to-date information available and not deviating from a pessimistic basis (worst reasonable likely outcome) for estimating a claim.

The reserving process uses a variety of statistical and actuarial techniques, with the level of reserves calculated using internal actuarial resources and being maintained on a conservative basis.

Regulatory risks This represents the risk to the Club of a loss or reputational damage resulting from a failure to respond to and comply with a changing regulatory landscape. The Club actively adheres to regulatory requirements in worldwide jurisdictions where it operates and, additionally, monitors all entities within the insurance and accounting systems against relevant sanction lists on a daily basis.

The Club has a defined process to monitor compliance with worldwide regulatory issues and to respond to any new developments as they are identified.

Credit risk This is the risk to the Club of a loss resulting from a counterparty being unable to meet its contractual obligations.

The main credit risk arises from the potential for reinsurers failing to meet their obligations under the terms of the reinsurance policy. The Club manages this risk by ensuring

that the reinsurance security used is both strong and diverse. The financial standing of reinsurers is kept under constant review.

The Club is also exposed to its Members not paying premiums when due. Strong credit control procedures are in place to mitigate this risk. In addition, the Rules of the Club allow it to terminate an entry from inception in case of non-payment of premiums. Further, the payment of claims in respect of a policy is suspended if premiums associated with that policy are outstanding.

Market risk This represents the risk associated with the fluctuation in the value or income generated from investments, including the impact of fluctuations in interest and exchange rates.

The Club has an investment strategy in place which is aligned to its business plan, and is designed to preserve its capital so that its liabilities can always be met within risk tolerances agreed by the Board. The investment policy is regularly reviewed and the portfolio is well diversified to reduce the impact of fluctuations in interest rates, market prices and foreign currency exchange rates.

The investment management and custodian functions are outsourced, and are regularly monitored by the Finance Committee of the Board as well as by the internal audit function.

Currency risk The Club has worldwide insurance operations and undertakes financial transactions in various currencies. As a consequence it is exposed to foreign currency exchange rate fluctuations.

Through the process of matching assets and liabilities in the appropriate currencies, the Association carries out a hedging exercise to minimise the impact of currency fluctuations as far as possible.

CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT



Liquidity risk This represents the risk that the Club could fail to meet its financial obligations due to a difficulty or inability to liquidate investments at short notice, or that cash flow requirements had not been anticipated.

The daily cash flow requirements are forecast and monitored, and the Club maintains a high concentration of liquid assets to ensure that adequate funds are always in place to meet its financial obligations. The investment portfolio has a mix of short-, medium- and long-term investments to satisfy the Club’s cash flow requirements.

The Club does not have any borrowings but does have credit and guarantee facilities in place with major banks. These facilities are rarely utilised to meet short-term financial obligations.

Operational risk The major sources of operational risk for the Club are those associated with process reliability, information security and financial crime. The Club has a number of key performance indicators in place to identify and manage operational risk, and systems are constantly under review to ensure that they are streamlined and responsive to the needs of the business.

Capital management The Club manages the risks it faces through a series of processes and controls which are reviewed on an ongoing basis. In addition, the Club holds capital to cover unexpected losses arising from the risks it faces and to meet its regulatory requirements. As a result of its most recent review, credit rating agency Standard & Poor’s has rated the Club ‘AAA’ from a capital adequacy perspective.

The Club is conscious that its capital should be appropriately utilised. The Club is well capitalised as a result of many years of disciplined underwriting and prudent financial management and expects to comfortably meet the capital requirements imposed by the upcoming Solvency II regulatory regime. However, the Club believes it is appropriate to wait until the Solvency II regime is fully embedded and its impact on the industry as a whole is understood before any decisions about how capital is utilised in the future are taken.

AUDITORS

During the year, the Board invited proposals from internationally recognised accounting firms for the conduct of the external audit of the Club, its branches and subsidiary companies. As a consequence, KPMG Luxembourg S.A.R.L. was appointed as auditor of the Club, and they have expressed their willingness to be reappointed as auditors of the Association during the forthcoming year.

By order of the Board:

Philip D. Orme Chairman of the Board

18th May 2015

CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT



Report of the Réviseur D’enterprises Agree

REPORT ON THE CONSOLIDATED ACCOUNTS

Following our appointment by the Board of Directors dated October 8, 2014, we have audited the accompanying consolidated accounts of The Shipowners’ Mutual Protection and Indemnity Association (Luxembourg), which comprise the consolidated balance sheet as at February 20, 2015 and the consolidated profit and loss account for the year then ended, and a summary of significant accounting policies and other explanatory information.

BOARD OF DIRECTORS’ RESPONSIBILITY FOR THE CONSOLIDATED ACCOUNTS

The Board of Directors is responsible for the preparation and fair presentation of these consolidated accounts in accordance with Luxembourg legal and regulatory requirements relating to the preparation of the consolidated accounts, except for the valuation of other investments, and for such internal control as the Board of Directors determines is necessary to enable the preparation of annual accounts that are free from material misstatement, whether due to fraud or error.

RESPONSIBILITY OF THE RÉVISEUR D’ENTREPRISES AGRÉÉ

Our responsibility is to express an opinion on these consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the Commission de Surveillance du Secteur Financier. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated accounts are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated accounts. The procedures selected depend on the judgement of the Réviseur d’Entreprises agréé, including the assessment of the risks of material misstatement of the consolidated accounts, whether due to

fraud or error. In making those risk assessments, the Réviseur d’Entreprises agréé considers internal control relevant to the entity’s preparation and fair presentation of the consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the consolidated accounts.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the consolidated accounts give a true and fair view of the consolidated financial position of The Shipowners’ Mutual Protection and Indemnity Association (Luxembourg) as of February 20, 2015, and of the consolidated results of its operations for the year then ended in accordance with the basis of accounting as defined in Note 1.

BASIS OF ACCOUNTING

Without modifying our opinion, we draw attention to Note 1, which describes the departure from the valuation rules for other financial investments defined by the law of December 8, 1994, specifically the use of mid-market value rather than the lower of cost and market value, applied in the preparation of these consolidated accounts. The consolidated financial statements are prepared to assist The Shipowners’ Mutual Protection and Indemnity Association (Luxembourg) to meet the requirements of the International Group of P & I Clubs. As a result, the financial statements may not be suitable for another purpose.

OTHER MATTER

The Shipowners’ Mutual Protection and Indemnity Association (Luxembourg) has prepared a separate set of consolidated accounts for the year ended February 20, 2015 in accordance with Luxembourg legal and regulatory requirements relating to the preparation of consolidated accounts on which we issued a separate auditor’s report to the Members of The Shipowners’ Mutual Protection and Indemnity Association (Luxembourg) dated May [x], 2015.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

The consolidated management report which is the responsibility of the Board of Directors, is consistent with the consolidated accounts.

Luxembourg, [x] May 2015

KPMG Luxembourg Société coopérative Cabinet de révision agréé

S. Nye

CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT



Consolidated Balance Sheet

Consolidated Balance Sheet 20 February 2015 Note2015

US$ ’0002015

US$ ’0002014

US$ ’0002014

US$ ’000

Assets

Investments

Other financial investments 3

Shares and other variable yield transferable securities and units in unit trusts

144,060 153,697

Debt securities and other fixed income transferable securities

362,834 399,869

Participation in investment pools - -

Deposits with credit institutions 48,967 15,720

555,861 569,286

Reinsurers’ share of technical provisions

Claims outstanding 4 80,321 113,403

Debtors

Debtors arising out of direct insurance operations

Policy holders 30,338 25,423

Intermediaries 25 -

Debtors arising out of reinsurance operations 5 8,922 4,238

Other debtors 1,803 2,331

41,088 31,992

Other assets

Tangible assets 6,510 5,456

Cash at bank and in hand 72,666 71,100

79,176 76,556

Prepayments and accrued income

Accrued interest 2,362 2,271

Deferred acquisition costs 4,902 4,471

Other prepayments and accrued income 543 595

7,807 7,337

Total assets 764,253 798,574

Philip D. Orme, Chairman Dr. Yves Wagner, Director Approved by the Board on 18th May 2015

The notes on pages 42 to 49 form part of these accounts.


CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT

Consolidated Balance Sheet 20 February 2015 Note2015

US$ ’0002015

US$ ’0002014

US$ ’0002014

US$ ’000

Liabilities

Capital and reserves 6

Legal reserve 300 300

Contingency reserve 300,036 298,555

300,336 298,855

Technical provisions

Provision for unearned premiums 39,161 35,283

Claims outstanding – gross amount 4 390,177 433,332

429,338 468,615

Provision for other risks and charges

Provision for taxation - 872

Creditors

Creditors arising out of direct insurance operations

Policy holders 6,967 5,512

Intermediaries 7,659 6,045

Creditors arising out of reinsurance operations 12,392 9,384

Other creditors 1,083 3,343

28,101 24,284

Accruals and deferred income 6,541 5,948

Total liabilities 764,316 798,574


For the year ended 20 February 2015 Note2015

US$ ’0002015

US$ ’0002014

US$ ’0002014

US$ ’000

Technical account

Earned premiums, net of reinsurance

Gross premiums written 7 251,221 243,959

Outward reinsurance premiums (36,243) (30,664)

Change in the gross provision for unearned premiums (3,879) (244)

211,099 213,051

Allocated investment return transferred from the non-technical account

(11,077) 21,818

Claims incurred net of reinsurance

Claims paid:

Gross amount (325,223) (137,310)

Reinsurers’ share 169,657 8,840

Net claims paid 8 (155,566) (128,470)

Change in the provision for claims outstanding:

Gross amount 43,155 (48,393)

Reinsurers’ share (33,082) 18,401

Change in the net provision for claims 8 10,073 (29,992)

(145,493) (158,462)

Net operating expenses

Acquisition costs (31,107) (30,522)

Change in deferred acquisition costs 431 (166)

Administrative expenses (23,492) (21,567)

(54,168) (52,255)

Balance on the technical account 361 24,152

Consolidated Income and Expenditure Account

The notes on pages 42 to 49 form part of these accounts.


CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT

For the year ended 20 February 2015 Note2015

US$ ’0002015

US$ ’0002014

US$ ’0002014

US$ ’000

Non-technical account

Balance on the technical account 361 24,152

Investment income

Income from other investments 10,831 7,917

Value re-adjustments on investments 28,449 7,146

Gains on the realisation of investments 24,287 14,142

63,567 29,205

Investment charges:

Investment management charges 9 (28,971) (3,478)

Value re-adjustments on investments (42,688) (2,359)

Losses on the realisation of investments (2,985) (1,550)

(74,644) (7,387)

(11,077) 21,818

Allocated investment return transferred to the insurance technical account 11,077 (21,818)

Other income 10 41 583

Tax on surplus or deficit on ordinary activities 11 1,079 (1,449)

Surplus on ordinary activities after taxation 1,481 23, 286

Other taxes not shown under the preceding items (63) (64)

Extraordinary Income - 583

Surplus for the financial year 6 1,418 23,222


Notes to the Accounts

1. General

The Shipowners’ Mutual Protection and Indemnity Association (Luxembourg) (the Club) is registered in the Grand Duchy of Luxembourg. It is a mutual insurance association, whose principal activity is the insurance and reinsurance of marine protection and indemnity risks of behalf of its membership. As a mutual insurance association, the Club does not have a share capital and the liability of its members is limited to the calls and supplementary premiums set by the Directors of the Club.

Presentation of Financial Statements Apart from the valuation of other financial investments these consolidated financial statements have been prepared in accordance with the modified Luxembourg Insurance Accounts Law of December 8, 1994 on the annual accounts of insurance and reinsurance companies, and with the accounting policies generally accepted and applied within the insurance and reinsurance industry in the Grand Duchy of Luxembourg. In addition to these consolidated financial statements the entity has prepared a set of consolidated financial statements that are in conformity with those accounting policies.

As a consequence of this deviation and difference in the valuation of the other financial investments the contingency reserve presented in these consolidated financial statements is not representing the statutory contingency reserve of the Company.

Basis of Consolidation The consolidated financial statements have been prepared in US dollars and comprise the accounts of the Association and its affiliated undertakings as shown below. The profits and losses of affiliated undertakings are consolidated as from the effective date of acquisition or to the effective date of disposal.

Affiliated UndertakingsThe Club’s affiliated undertakings, listed below, are all entities over which the Association has the power to govern the financial and operating policies so as to obtain economic benefits. The investment in the Hydra Cell of Hydra Insurance Company Limited, a Bermuda Segregated Account Company, is also reported as an investment in an affiliated undertaking.

The Shipowners’ Protection Limited – UK Shipowners’ North America Protection Limited – Canada S.O.P. (Bermuda) Limited – Bermuda Spandilux S.A. – Luxembourg Hydra Insurance Company Limited, Shipowners Cell – Bermuda Shipowners Management Limited – UK CTRL Marine Solutions Limited – UK

Management of the AssociationThe Association is managed by The Shipowners Protection Limited (SPL). SPL provides administrative, underwriting, accounting and claims processing services to the Club.

2. Accounting policies

(i) Translation of Items Expressed in Foreign CurrenciesAssets and liabilities in foreign currencies are converted into US Dollars at the rates of exchange ruling on the Balance Sheet date. Income and Expenditure items are converted at the rate prevailing at the transaction date. Differences arising on currency translation are included in the exchange gains and losses in the non-technical account. Exchange differences are either allocated to open Policy Years or retained as the Directors consider appropriate.

(ii) PremiumsCalls and premiums incepting prior to the balance sheet date are shown gross of acquisition costs and net of refunds and are accounted for as and when charged to Members.

(iii) Reinsurance PremiumsReinsurance premiums are charged to the income and expenditure account on an accruals basis and allocated to the Policy Year to which they relate.

(iv) Claims PaidClaims, which include internal and external claims handling costs and the Club’s share of claims under pooling agreements, are charged to the income and expenditure account when they have been paid and do not include any estimated outstanding claims. Claims are allocated to the Policy Years in which the incidents occurred.

(v) Reinsurance RecoveriesThe liabilities of the Club are reinsured with similar associations under the International Group’s pooling agreement and with market underwriters. Reinsurers’ share represents actual recoveries received and due in respect of claims paid by the Club. They are allocated to the same Policy Year as the claims to which they refer.

(vi) Policy YearsCalls and reinsurance premiums are credited or charged to the policy year to which cover relates. Claims are included in policy years by reference to the date of the incident and reinsurance recoveries are matched accordingly. Management expenditure is allocated to the current policy year.

(vii) Administrative ExpensesAdministrative expenses include management costs and general expenses but exclude internal claims handling costs. They are dealt with on an accruals basis and charged to the income and expenditure account.

(viii) Investment ReturnInvestment return comprises all investment income, realised investment gains and losses, value re-adjustments, net of investment expenses, charges and interest. Dividends are recorded on the date on which the shares are quoted ex-dividend


CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT

and include the imputed tax credits. Interest and expenses are accounted for on an accruals basis. Realised gains and losses on investments are calculated as the difference between net sales proceeds and purchase price. Value re-adjustment gains and losses on investments represent the difference between the valuation at the balance sheet date and their purchase price.

(ix) Allocated Investment Return from Non-technical AccountA transfer of the investment return is made from the non-technical account to the technical account to reflect the return made on those assets directly attributable to the insurance business.

(x) TaxationThe charge for taxation is shown in the non-technical account.

(xi) InvestmentsInvestments are carried at their mid-market value at the Balance Sheet date.

(xii) DebtorsProvision has been made for debts which are thought not to be wholly recoverable.

(xiii) Tangible Fixed AssetsTangible assets are stated at historical cost less accumulated depreciation. Depreciation is provided on a straight line basis over the anticipated useful life of the assets concerned at the following rates:

Computer equipment – 50% per annum Furniture & Fixtures – 33.3% per annum Leasehold improvements – over the remaining life of the lease Communications hardware – 20% per annum Computer costs – either 33% or 20% per annum on completion of each individual project, depending on the nature of the asset

(xiv) Deferred Acquisition CostsAcquisition costs represent the brokerage and commissions attributable to the processing of proposals and the issuing of policies. Acquisition costs are deferred and amortised over the periods in which the premiums are earned.

(xv) Technical Provisions – Unearned PremiumsProvision for unearned premiums represents that part of gross premiums written that is estimated to be earned after the balance sheet date. The unearned premium reserve is calculated on a daily pro-rata basis.

(xvi) Technical Provisions – Claims OutstandingClaims are subject to prolonged delay, both as to notification and settlement. Accordingly, the likely final cost of claims outstanding, which include a projection for claims incurred but not reported (IBNR) as well as future development of reported losses, is based upon current information and the experience and judgement of the Directors. Large claims are assessed separately, being measured on a case by case basis in order to allow for the possible distortive effect of the development and incidence of these large claims. The ultimate costs thereof cannot be ascertained with certainty at the date of the Balance Sheet. Provision for the cost of claims handling is included within the IBNRs. Reinsurers’ share is accounted for on an accruals basis and allocated to the same Policy Year as the claims to which they refer.

(xvii) CreditorsCreditors are included in liabilities at settlement value.

(xviii) Accruals and Deferred IncomeThis item consists of both charges that relate to the current financial year but are payable after the balance sheet date and income received before the balance sheet date but relating to a subsequent financial year.


2015 Total

US$ ’000

2014 Total

US$ ’000

3. Investments

Shares and other variable yield transferable securities and units in unit trusts

Book value 131,843 127,388

Acquisition cost 136,768 128,801

Market value 144,060 153,697

Debt securities and other fixed income transferable securities

Book value 358,563 393,402

Acquisition cost 374,615 400,419

Market value 362,834 399,869

2015 Total

US$ ’000

2014 Total

US$ ’000

4. Technical provision – claims outstanding

Claims outstanding

Gross amount

Own claims 344,031 391,096

Other clubs’ pool claims 46,146 42,236

390,177 433,332

Reinsurers’ share

Pool (19,583) (54,769)

Group excess loss (179) -

Other reinsurers (60,559) (58,634)

(80,321) (113,403)

The amounts in respect of ‘Claims outstanding – Gross Amount’ and ‘Reinsurers’ Share’ as at 20 February 2014 have been changed to ensure their comparability with the amounts disclosed for the current year. The change has no impact on the results for the current or prior years.

Notes to the Accounts (Cont.)


CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT

2015 Total

US$ ’000

2014 Total

US$ ’000

5. Debtors arising out of reinsurance operations

Pool - -

Other reinsurers 8,922 4,238

8,922 4,238

2015 Legal

Reserve US$ ’000

2015 Contingency

Reserve US$ ’000

2015 Income and

Expenditure Account US$ ’000

2014 Legal

Reserve US$ ’000

2014 Contingency

Reserve US$ ’000

2014 Income and Expenditure

Account US$ ’000

6. Reserve movements

Balance at 20 February 2014 300 298,555 - 300 275,333 -

Excess of expenditure over income - - 1,481 - - 23,222

Transferred to contingency reserve - 1,481 (1,481) - 23,222 (23,222)

Balance at 20 February 2015 300 300,036 - 300 298,555 -

2015 US$ ’000

2014 US$ ’000

7. Gross premiums

The total gross direct insurance premiums result from contracts concluded in the:

Member state of the Head Office 1,153 1,116

Other EEC member states 43,776 44,634

Non-member states 206,292 198,209

251,221 243,959


2015 US$ ’000

2014 US$ ’000

8. Claims incurred net of reinsurance

Claims paid

Gross amount

Own claims (317,215) (126,078)

Other clubs’ pool claims (8,008) (11,232)

(325,223) (137,310)

Reinsurers’ share

Pool 112,841 6

Group excess loss 40,369 -


169,657 8,840

Change in the provision for claims outstanding

Gross amount

Own claims 47,065 (42,701)

Other clubs’ pool claims (3,910) (5,692)

43,155 (48,393)

Reinsurers’ share

Pool (35,186) (6,928)

Group excess loss 179 -


(33,082) (18,401)

2015 US$ ’000

2014 US$ ’000

9. Investment management charges

Exchange losses (26,533) (1,263)

Investment management charges (2,438) (2,215)

(28,971) (3,478)

10. Other income

During 2014, the Luxembourg tax administration finalised their assessments on previous years’ tax returns which resulted in the repayment of advance tax instalments paid. The Company received a total of EUR 41,373 (equivalent to US$ 47,155) for the year 2013 (2013: EUR438,128, equivalent to US$582,596 for the years 2009–2012).



CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT

2015 US$ ’000

2014 US$ ’000

11. Taxation

Luxembourg municipal and state taxes 3 (279)

UK Corporation Tax - (534)

Other taxes 1,076 (636)

1,079 (1,449)

12. Contingency reserve

In accordance with the Club’s Rules, all available funds after making full provision for claims outstanding have been, and will continue to be, transferred to the Contingency Reserve.

2015 US$ ’000

2014 US$ ’000

13. Auditor’s remuneration

The split of the fees paid to the auditors is as follows:

Audit fee 502 572

Fees for other services - 107

502 679

2015 2014

14. Personnel Employed During the Year

The average number of persons employed by the company during the year was: 146 140

The persons employed during the year fell into the following categories:

Administrative 65 57

Technical 56 59

Financial 25 24

146 140

Staff costs during the year were as follows:2015

US$ ’0002014

US$ ’000

Salaries 17,744 16,369

Social Security (including pensions) 1,680 1,129

Other charges 3,093 1,295

22,517 18,793


15. Directors’ fees

The aggregate amount paid to Directors during the year up to 20th Feburary 2015 was US$ 716,750 (2014 US$ 568,250).

16. Related party transactions

Luxembourg Law requires disclosure of material transactions with related parties. The Club has no share capital and is controlled by the members who are also the insureds. The subsequent insurance transactions are consequently deemed to be between related parties, these are the only transactions between the Club and the members. No single transaction with related parties is of such materiality and nature as to require disclosure.

17. Average expense ratio

In accordance with Schedule 3 of the International Group Agreement 1999 we are required to disclose the Average Expense Ratio for the Club’s P&I business for the five years ended 20th February, 2015. The ratio of 22% has been calculated in accordance with the Schedule and the guidelines issued by the International Group of P&I Clubs and is consistent with the relevant Financial Statements.



CH

AIRM

AN

’S REPO

RTC

HIEF EXEC

UTIV

E’S REPO

RTU

ND

ERWRITIN

G

REVIEW

CLA

IMS

REVIEW

LOSS PREV

ENTIO

N

REVIEW

CORPO

RATE

INFO

RMATIO

NBO

ARD

&

GO

VERN

AN

CE

FINA

NCIA

L REPO

RT

Closed Years

US$ ’0002012

US$ ’0002013

US$ ’0002014

US$ ’000Total

US$ ’000

18. Consolidated policy year statement – 20 February 2015

Balance available for outstanding claims 31,354

Calls and premiums:

Debited in prior years 222,278 243,848 -

Debited/(credited) this year (84) (399) 247,921

222,194 243,449 247,921

Reinsurance premiums (26,757) (28,391) (31,163)

Claims paid:

Own claims (209,211) (70,751) (62,417)

Other clubs’ pool claims (8,789) (3,651) (463)

Reinsurance recoveries:

Pool - - -

Other reinsurers 112,928 4,136 21,339

Estimated outstanding claims:

Own claims (74,297) (57,450) (66,509) (126,706)

Other clubs’ pool claims (14,644) (8,820) (9,350) (12,537)

Estimated reinsurance recoveries:

Pool 19,988 59 - 17,296

Other reinsurers 17,008 21,069 701 754

Administrative expenses (16,702) (21,567) (23,529)

Acquisition costs (29,019) (31,588) (30,978)

Surplus/(deficit) at 20 February 2015 (20,591) (498) 16,479 (483) (5,093)

Unallocated investment income 305,388

Capital and reserves 300,295

CORPORATE INFORMATION

Registered officeThe Shipowners’ Mutual Protection and Indemnity Association (Luxembourg) 16, Rue Notre-Dame L–2240 Luxembourg

T +352 229 7101 F +352 229 710222 E [email protected] ManagersThe Shipowners’ Protection Limited St Clare House 30–33 Minories London EC3N 1BP

T +44 207 488 0911 F +44 207 480 5806 E [email protected]

AuditorsKPMG Luxembourg S.a.r.l. Réviseur d’entreprises agréé 39, Avenue John F. Kennedy L–1855 Luxembourg

www.shipownersclub.com @ShipownersClub The Shipowners’ Club

www.twitter.com/ShipownersClub

https://www.linkedin.com/company/the-shipowners%27-club

ar 2015 annual report 0415_v16_low-res_single page

Documents