BRITANNIA CLUB - 2012 Financial Analysis

The Britannia Steam Ship Insurance Association Limited incorporating the "surplus investment assets" of Boudicca Insurance Company Limited aBermudabased trust for the sole benefit of the association.

Basis of accounting: UK Accounting Standards. No financial statements were provided for the trust.

Dashboard of Key Performance Indicators

2012 Financial Results

The Britannia Club had a difficult year, but still managed to reduce Deferred Calls by $13m, reported a surplus of $16m and increased the Free Reserves, including Boudicca, to $461m.

The 2011 Policy Year has been the worst year on record after 12 months and with the added high costs of the Pool claims, the underwriting has faced some real challenges. However as a result of a conservative claims reserving policy in the past, assistance from Boudicca and a good investment return, the Club has maintained a strong financial position.

Underwriting

The 2011 Policy Year has seen an increase in the number of annual claims to 7,375 compared to 6,870 claims reported after 12 months last year. There has also been a higher incidence of large claims, (especially on the Pool) and a significant increase in smaller attritional claims. There were 7,143 claims less than $100k notified in the year at an estimated cost of $47m. This compared with 6,697 claims last year, with an aggregate cost of $40m. The most significant claims categories were Crew and Cargo. The incidence of large claims also rose significantly with 24 claims estimated at over $1m, double the number for the same period last year. This situation was mirrored by the Pool which reported 12 claims, costing $331m for the 2011 Policy Year.

The entered tonnage has continued to grow, but the premium income has been restricted by the "churn" effect and the policy of reducing the Deferred Calls. As a consequence the increase in claims has lead to escalating deficits in the open Policy Years. In the financial year the results were assisted by an improvement in the closed Policy Years and a net transfer of $9m from the Captive Trust.

Entered Tonnage - Management Area: Asia 53%, Europe 20% , Scandinavia 19%, America 6% and Middle East 2%.

Entered Tonnage - Ship Type: Bulker 32%, Containers 25%, Oil Tankers 24%, Other Tankers 14%, General Cargo 4% , Others 1%.

Entered Tonnage - Vessel Age: 0-5 years 44%, 5-10 years 25%, 10-15 years 16%, 15-20 years 9% and over 20 years 6%.

The Defence class has seen a marked reversal of fortunes after a dramatic increase in claims in 2008 with 44 claims exceeding $50k. In the 2011 year there were only nine claims exceeding $50k giving rise to a surplus of $5m, almost doubling the free reserves to $11m.

Investments

The Investment Managers have produced as credible return of 4.2 percent in a demanding period, when reasonable returns and profits were difficult to find. The asset allocation had become more conservative with lower risk exposure, which would normally have lead to lower returns, but the larger Bond portfolio performed well in the period (Government Bonds doing particularly well) and riskier Equities returning a small loss.

Asset allocation: Short Term Government Bonds 19%, Cash 19%, Corporate Bonds 17%, Equities 16%, Medium Term Government Bonds 15% and Inflation linked Bonds 14%.

Geographic distribution: North America 66%, UK 17%, Europe 12%, Japan 3%, Pacific Rim 2%.

Future

The Britannia Club has produced a very satisfactory result with a reduction in the 2009 Policy Year Deferred Call to members and an overall surplus. The Investment Managers have done well in difficult conditions. In the policy years however there was no sign of any underlying growth of income, but a rising level of claims resulting in increasing anticipated deficits. The Outstanding Claims were well reserved, but the Club may need to draw on Boudicca, in the short term, to maintain the growth in Free Reserves.

Britannia remains one of the top clubs with strong Risk Based Capital ratios, Solvency and an S&P A(pi) Rating.