LONDON CLUB - 2012 Financial Analysis

The London Steam-Ship Owners' Mutual Insurance Association Limited (LSSO) and The London Steam-Ship Owners' Mutual Insurance Association (Bermuda) Limited (LSSB).

Basis of accounting:- Non-statutory combined financial statements of LSSO and LSSB compiled from the statutory accounts in accordance with UK GAAP. Audit report, but no accounting policies note.

Dashboard of Key Performance Indicators

2012 Financial Results

The London Club reported a small Deficit after a reduction in net premium income of three percent, accompanied by a reduction in Incurred Claims of eight percent. The good Investment Return of 4.9 percent was insufficient to cover the Underwriting Deficit.

Underwriting

The Underwriting Deficit of $19m was the eleventh such Deficit in the past 13 years. The Combined Ratio was 122 percent in a year when the Incurred Claims were the lowest for six years. The cost of large claims was considerably lower than last year with only seven claims exceeding $1m, compared to 16 in 2011. However claims in the $100k-$1m bracket rose by nearly 70 percent in both number and cost. Overall, the cost of claims below $1m rose from $32m to $43m. This year the major claims predominantly came from cargo, compared to collision last year.

There were improvements of $12m on the open policy years which clearly helped to subsidise the financial year outcome. The claims paid on the 2008 policy year last year were $56m, with outstanding claims of $27m. This compared with $68m paid on the 2009 policy year, and outstanding claims of $22m which made the 2009 outstanding claims reserve look less conservative.

Entry - Ship Type: Bulker 56%, Tanker 23%, Container 15%, Gas Carrier 4% and Cargo 2%.

Regional Spread - Tonnage: Southern Europe 41%, Asia 31%, Northern Europe 24% and Americas 4%.

Tonnage - Age: 60% of the ships were less than 10 years old with an average size of 42,500 GT (there were no passenger ships entered).

Investments

The asset allocation was driven by the regulatory Risk Based Capital requirements (to enhance the regulatory rating), which meant that Equities were reduced in favour of lower risk bonds. This worked well to produce a good overall Return of 4.9 percent.

Asset Allocation: Fixed Income 69%, Equities 21%, Cash 8% and Hedge Funds 2%.

Future

It was disappointing that in a year of low claims, the Club was still unable to report a surplus, despite improvements in the old policy years.

The Underwriting Deficits result remains a concern in an increasingly challenging investment environment. The Club has a stated aim of annually breaking-even, but in the demanding new environment proposed by Solvency II, the Club will need to hold sufficient capital to cover any short term Deficits, and hold additional reserves to avoid any unplanned calls. The London Club has a BBBpi S&P Rating and satisfactory Solvency and Risk-based Capital Ratios.