London Club Strengthens Financial Position

Tuesday, June 02, 2009

The London P&I Club reported that, while investment performance was adversely affected in the year to February 20, 2009, its financial position has been considerably strengthened as a result of action taken by its committee in setting additional calls in October 2008.

The club’s annual report will be published in July. But a summary of results for the 2008/9 financial year reports a 13.4 per cent fall in the value of the club’s investments, equating to $39m, despite the decision taken in first-half 2008 to move a significant part of its equity exposure into fixed income in light of the prevailing uncertainty in the worldwide economic environment.

Ian Gooch, Chief Executive of The London P&I Club management team, said, “Notwithstanding the change in asset allocation, the mark-to-market value of the club’s investment portfolio was negatively impacted, especially during the latter part of the year, by the effect of the unparalleled financial turmoil, principally on its remaining equity holdings.”

The additional calls made in October supplemented other measures taken by the club to strengthen its financial resilience, including the general increases in premium set for the 2008/9 policy year and at the last renewal. Admitting that it had been a difficult decision for the club’s committee to set the additional calls, especially given the prevailing economic climate, Ian Gooch said, “The committee was determined to act decisively to bolster the club’s position, and the steps taken appear to have been largely understood by our members, whose continuing support is greatly valued and appreciated.”

As a result of this action, The London P&I Club achieved a financial year a surplus of $34.6m and an increase in free reserves of 43 per cent, to $115.5m.

Meanwhile, for the second successive financial year, The London P&I Club saw a fall in claims incurred net of reinsurance, with a 2008/9 reduction of $4m, to a figure of $98.8m. Also, following two consecutive years in which claims on the International Group’s pooling system had run at record levels, 2008/9 saw a welcome return to lower pool claims activity, at least in terms of cases reported to date.

Gooch said, “Claims costs involving The London Club’s own membership were in line with expectations. Although an increase in the cost of attritional claims, primarily involving crew illness and injury, is apparent, it is the frequency and severity of those very few cases which exceed $1m which is the primary driver of claims volatility from year to year. And at the expiry of the 2008/9 policy year, while the frequency of such claims was not unusual, individual claims severity was favourable, with only one claim forecast to exceed $2m.”

Gooch concludes, “The London P&I Club continues to attract new entries. These are mainly from existing members, but a number of new members, from Europe and the Far East, have also entered ships during the past policy year. Overall, tonnage now stands at nearly 42m gt, an increase of about 2m gt on the entry following the 2008 renewal.”