Investment Performanc Strengthens UK Club

In a context of flat claims in recent years, the UK P & I Club achiev
ed a strong investment performance in the year ended 20th Febru
ary 2000. It cut its supplementary call for the 1998 policy yea
r and introduced measures to keep insurance costs in check and to make
them more predictable.
The Club's investment yield exceeded USD79 million. This represented
a 7.8 per cent return, one of the stronger performances among Interna
tional Group members.
It reflected an excellent performance in equities which, as a pro
portion of Club funds, grew from 26 to 33 per cent.

The Club's funds and estimated supplementary calls totalled USD1,1
82 million, spread across various reserves and open policy
years. Against that, non-discounted outstanding claims were just und
er USD799 million.
This produced a non-discounted free reserve of USD383 million, sligh
tly down on the previous year. However, the level remained well above
the benchmark set by the Club's Board. This takes into account
the need to protect members from unexpected increases in claims a
nd the solvency requirements of insurance regulatory authorities.

Call developments
This healthy situation enabled the Club ? known formally as the Uni
ted Kingdom Mutual Steam Ship Assurance Association (Bermuda)
Limited- to cut the supplementary call for 1998 from 40 to 30 pe
rcent. This is the sixth time in seven years it has been reduced
. The Board expects to close the 1998 year without further call.

For the 1999 policy year, the initial supplementary call estimat
e is 40 per cent. This is the last year in which calls will be debit
ed through advance and supplementary payments. While there are indica
tions that the claims trend might be slightly downward, the provis
ion for claims incurred but not received in respect of the 1999 p
olicy year remains conservative for the time being. The actual supple
mentary call will be decided by the Board in October 2000 when the cla
ims trend is clearer.

Mutual premium
The Club has changed the basis of calling from advance and suppleme
ntary calls to mutual premiums for the 2000 policy year. The latt
er are debited in four equal instalments, three during the policy y
ear itself and the fourth payable not later than December 2001.
With this new approach, the supplementary premium estimate is ni
l. In October 2001, the Board will review the policy year to deci
de whether any mutual premium discount (which would effectively red
uce the final instalment would be appropriate.

Reinsurance innovation
A new reinsurance by Swiss Re was agreed to cover all outstandin
g claims in excess of a retention designed to maintain the UK Club?
s free reserves within its target band. Recoveries under this reinsur
ance will reduce any need to make unplanned supplementary or overspi
ll calls. This provides members with greater certainty about the costs
of cover.
The Club continued to maintain its separate reinsurance to prote
ct members against their share of a USD1 billion overspill claim i
n excess of the Group reinsurance limit of USD2.03 billion.
Taking all the available reinsurances and the catastrophe reserve tog
ether, the Club could potentially meet its share of an overspill cla
im (of more than USD4 billion) without making an overspill call.

Clear strategy
The UK P&I Club's outgoing Chairman Nils-Gustaf Palmgren indicated
that these measures were consistent with a clear strategy of
ensuring that the best features of the mutual system are strengthene
d and preserved, thereby standing the UK Club and its members in good
stead.
As matters stand today, Mr Palmgren thought it unlikely that the new r
einsurance would be called upon, as the cost of claims in recent year
s had remained steady and might even be falling. "The Club's free res
erves remain strong in relation to the target band set by the direct
ors However, were claims to rise and investments returns to fall simu
ltaneously, there could be significant erosion of the free rese
rves. In such a case, the new reinsurance arrangements would maintai
n the free reserves within the target band without the Club resor
ting to unplanned additional calls.
"Other clubs are moving to put in place similar arrangements that ca
n only strengthen the mutual system and the International Group". Foll
owing the managers'switch from a private partnership to a private co
mpany structure, the Club had decided to take an investment in Thom
as Miller. While Miller's have managed the Club for more than 100 ye
ars, they have always been independent. This has enabled them t
o bring a broader experience to Club affairs, particularly through t
he development of new businesses such as the hull insurance facility D
ex. This investment should allow the UK Club to share in the results o
f Miller's other ventures.