SHIPOWNERS CLUB - 2012 Financial Analysis

Shipowners' Mutual Protection and Indemnity Association ( Luxembourg)

Basis of accounting: prepared in accordance with Luxembourg Insurance Accounts Law 1994.

Dashboard of Key Performance Indicators

2012 Financial Results

In a year when good results may be hard to come by, the Shipowners Club has posted a surplus of $47m, slightly lower than last year, but with an improved underwriting result and a smaller investment return. The Combined Ratio improved from 87 percent to 86 percent with net premium income up 9 percent and incurred claims up 10 percent. The Club has bucked the deteriorating underwriting trend and managed to increase the Free Reserves by an impressive 25 percent to $235m.

Underwriting

The Club has only suffered one minor underwriting deficit in the last four years and managed to steer the business back on track after the difficult years in 2007 and 2008. The premiums rose in the year despite difficulties in the Ferry and Harbour businesses, with growth in the Offshore sector.

Cargo claims were lower in the year, but all other categories of claims were higher with 11 Navigational claims greater than $0.5m, compared to only six last year. There were also seven Oil Pollution claims greater than $0.5m and the number of Passenger claims were higher and Environmental claims rose by 35 percent.

All open Policy Years are in surplus without the inclusion of any Investment Income. The 2011 Policy Year surplus was lower than that of 2010 Policy Year, due to a large outstanding claims reserve, which looks conservatively estimated. There has been no major movement on any of the other Open Policy years and a $15m surplus on the closed Policy Years.

The Club covers Small Ships including: Barges, Fishing Vessels, Offshore , Passenger Craft, Yachts and Tankers.

Investments

The Club reported a return of 4.8 percent and now has a very conservative Asset Allocation of 22 percent Equities and 78 percent Fixed Income. This was in marked contrast to their previous policy with over 40 percent of the portfolio in Equities, which led to large fluctuations in fortunes from year to year and increased the Club's risk profile.

The Actively Managed Equity portfolio produced a return of 3 percent, which was in contrast to the 8 percent loss recorded by the small Passively Managed Emerging Markets Equity portfolio. The main Bond portfolio returned 6.6 percent.

Future

The Club has had a successful year, whilst many of the larger Clubs have suffered underwriting problems emanating from increased claims. The conservative investment policy has also helped to improve the overall consistency of the results and produce a steadier contribution.

The Club has adopted a central policy that "Those members paying Mutual Premiums will never have to pay an Additional Call or Release Call". This is an ambitious statement but, given that the Club has not made an unplanned Supplementary Call for nearly 20 years, it may not be wholly unreasonable.

The Club's Free Reserves have risen 145 percent in the last three years and there have been regular underwriting surpluses.

The Club has an S&P BBB(pi) rating and is well managed with a strong Solvency and Capital Ratios

and should remain prosperous for the foreseeable future.