The United Kingdom Mutual Steam Ship Assurance Association reported
a substantially reduced deficit of $31million for the year ended February 20th 2003, compared with $138 million in 2001-2002. The deficit was $4 million lower than the $35 million forecast figure reported by Standard & Poor
’s in January.
In a circular to Members, published this week, the Association, generally known as the UK P&I Club, reported that its free reserves were $179 million, compared with $210 million in the previous year.
Investment income was $46 million before tax – a healthy six per cent return despite difficult conditions in most financial markets.
The Club’s total funds have been maintained at 125 per cent of total outstanding claims for all policy years – the target ratio agreed by the Board – without the need for an additional or unbudgeted supplementary premium.
For the first time, a recovery was made under a reinsurance contract with the Swiss Re. This provided a recovery against all claims, including those incurred but not reported (IBNR), for all policy years up to and including 2002/3 in excess of a threshold calculated to preserve the 125 per cent ratio.
The total recovery amounted to $42 million. Set against the return of an accrued premium refund plus the 2002/3 year premium totaling $32 million, this effectively increased the free reserves by $10 million.
This contract provides a stop-loss protection against increased claims liabilities in those years, thereby underpinning the financial solvency of the Club. It is a fixed premium contract, so mutual premiums to Members will not be increased to finance either this recovery or future premiums due under the contract. It is cost-neutral to individual Members as it is funded through the Club’s contingency account (part of its overall reserves) and will not affect premium levels in future policy years.
Luke Readman, Deputy Chairman of Thomas Miller P&I Ltd, explained: “Our strategy of maintaining strong reserves, backed by our reinsurance contract with Swiss Re to support our free reserves within the Board’s strategic target band, has been vindicated. The contract has been designed to reduce the impact on Club reserves of unexpected rises in claims costs and has achieved its goal in 2002/3.”
The general premium increase agreed for the 2003/4 policy year produced a 24 per cent increase in gross premium on renewing entries, regarded by the Club as a highly satisfactory result.
The Directors have closed the 2000/1 policy year without any additional premium requirements. This was the first year in which the Club changed from the traditional advance and supplementary call system to the mutual premium system.