SKULD CLUB - 2012 Financial Analysis

Skuld Mutual Protection & Indemnity Association (Bermuda) Ltd. and subsidiaries.

Basis of accounting:- Compliant with Norwegian Banking, Security and Insurance Commission regulations.

Dashboard of Key Performance Indicators

2012 Financial Results

The Skuld Club diversification programme continued with more new businesses backed by the success of the resurgent P&I Club. The results were not as good as 2011, but the Club still produced an Underwriting Surplus of $10m and an overall Surplus of $24m.

Underwriting

This was the inaugural year of the new Lloyd's syndicate 1897, which provided Marine and Energy insurance cover for the market and existing Skuld members. The loss in the first year was $7m. The Club also purchased a 33 percent share of Astra, formerly Whittington, a Lloyd's Syndicate management company.

The overall Underwriting Surplus for the group was down from $29m in 2011, to $10m in 2012. This reduced surplus being a result of an 18 percent rise in Incurred Claims, compared to a nine percent improvement in net premium income.

In addition to the activities at Lloyd's, the Club had other interests in the energy and offshore sector and a partnership with Transmarine which provides loss of hire cover, both of which are able to provide new business for the syndicate.

All the new ventures are funded by the increasing profitability of the P&I business, which has been successfully expanded. In the past four years their International Group Tonnage has increased by 42 percent, compared to a 41 percent increase in Net Premiums and a 47 percent increase in the Outstanding Claims Reserves.

There were improvements of $13m on the 2010 policy year, a $4m improvement on the 2009 policy year and only a minor deterioration on the closed years. There were surpluses on all the open policy years, except for a $6m Deficit on the 2011 policy year for other classes, (likely to be the Lloyd's syndicate).

Distribution by:-

Premium- Ship Type:- Bulker 23%, Cargo 19%, Tanker 17%, Clean Tanker 13%, Other 12%, Passenger 6%, Container 6%, Offshore 4%.

Premium- Geographic Area:- Europe 23%, Asia 17%, Greece 11%, Germany 11%, Norway 11%, Nordic (exe. Norway,) 11%, Other 8%, Americas 8%.

Claims- By Rule: - Cargo 38%, Collision 20%, Personal Injury 16%, Other 9%, Pollution 9%, Wreck Removal 3%, FD&D 3%, Chartered Hull 2%.

Investments

There was little mention of the investments within the annual review, other than to give the return of 2.6 percent. In line with the other clubs the portfolio risk profile had been reduced to lower the volatility and improve the Risk-based Capital Ratios.

Asset Allocation: - Fixed Income 72%, Equities 15%, Cash 9%, Hedge Funds and Private Equity 3%, Commodities 1%.

Future

The Skuld Club has very ambitious plans to double the size of the business by 2020 and hold Free Reserves of $500m by 2015 (currently $291m). The outcome will very much depend on the continued success of the P&I business being able to fund the new enterprises, and they being profitable. The Free Reserves have doubled since 2009 and with nine consecutive Underwriting Surpluses, the necessary cash flow should be assured. The Club has invested in a wide range of new ventures which are all inter-related and should produce a degree of synergy. The P&I business continued to grow with a 10 percent increase in Tonnage at the 2012 renewal. The Skuld offshore business was reported to be growing at 59 percent per annum.

The issues were the investment performance, the cost of general expenses, the understatement of the Outstanding Claims reserve due to the absence of Future Claims handling costs and the implications of the note on the valuation of the claims liabilities. The financial statements did not come with an audit report.

The Skuld Club has a good Solvency Margin and Risk-based Capital Ratios and an S&P A rating. The underlying P&I business seems to be healthy and managing to grow successfully despite three Pool Claims during the year. The success of the diversification policy will not be known for some time, but the success of their past performance is apparent from the financial statements.