STANDARD CLUB - 2012 Financial Analysis

The Standard Steamship Owners' Protection & Indemnity Association (Bermuda) Limited

Managers: Charles Taylor & Co (Bermuda)

Basis of Accounting: UK Accounting Standards

Dashboard of Key Performance Indicators

2012 Financial Results

The Standard Club reported a substantially reduced surplus of $3m down from $74m last year. The main reason for the decline was the 45 percent increase in incurred claims caused by an increase in the cost of large claims and general claims inflation. There was an underwriting deficit of $47m, but this was offset by another stellar performance from the investment managers who produced a return of 6.7 percent in a particularly difficult period marked by the crises in the Euro area, historic low returns and a global recession.

During the year the group had a structural reorganisation with Standard Europe becoming the main underwriting company, writing P&I, War Risks and Defence risks and Reinsuring the portfolio with the holding company Standard Bermuda. Standard Asia continued to underwrite P&I business.

Underwriting

The underwriting suffered a serious reversal in the year, in line with most of the other P&I clubs. The increase in claims was exacerbated by a small increase of $7m in the cost of prior policy years. The current year increase was partially due to the cost of the Costa Concordia, which was 50 percent insured by the Club and also to the increased cost of large claims. The top twenty claims costs accounted for 66 percent of the total gross claims and 13 claims exceeded $1m and there were two Pool claims, this compared with 14 claims in excess of $1m and three Pool claims last year, clearly indicating a rise in the cost of large claims.

The Pool recoveries were $81m compared to Pool claims paid of $17m, which will not help their Pool record. The cost of the 2010 policy year increased by $17m to $270m and the total cost of the 2011 policy year had been estimated at $295m, which should be sufficient to cover all future eventualities.

Ship Type - Tonnage: - Tankers 28%, Containers and Cargo 27%, Dry Bulk 24%, Offshore 13%, Passenger and Ferry 6%, Others 2%.

Country of Management:- Greece 11%, USA 9%, Germany 9%, Italy 9%, Japan 8%, Canada 7%, UK 5%, Korea 5%, Singapore 5%, Switzerland 3%, rest of Europe 15%, rest of Asia 4%, others 9%.

The Defence class continued to struggle with incurred claims up 62% and Free Reserves down 37% and no signs of improvement.

Investments

The Club continued to surprise the market with another exceptional investment performance which again saved the underwriting. Although 6.7 percent may sound modest, it will clearly be one of the best performances of the year as no club managed over 3 percent in their interim statement. The result was achieved despite reducing the equity, alternate and corporate bond exposures during the year and concentrating on Cash and Sovereign Bonds, predominantly US, UK and German.

The Managers were quick to sell their Spanish and Italian Bonds early in the year and the US Corporate Bonds returned 9.3% and the European Corporate Bonds 6.9%. Gold rose by 34%.

Asset Allocation at year end: - State Bonds 41%, Corporate Bonds 24%, Equities 17%, Cash 14%, Alternate Investments 3%, Gold 1%.

Currency Allocation: - US $ 72%, European & Nordic 16%, Sterling 4%, Asia 5%, Others 3%.

Future

The owned tonnage rose by 11m gross tons to 95m, with a small decline in chartered entries. The Offshore portfolio also continued to attract new members. The Membership and the Free Reserves continued to expand, but last year raised concerns over the underwriting and the biggest underwriting deficit for five years. A Combined Ratio of 121 percent is unsustainable and clearly needs to be addressed before the Club starts to consume the Free Reserves.

The current level of Free Reserves is more than adequate and with a good solvency margin and Risk Based Capital Ratios the Club is very healthy, but in a high claims and low investment return environment, there is less room for error.

The Club predicted a small deficit for the current year, but made a similar conservative prediction in their last interim statement. The Club was well funded with good Solvency and Capital Ratios and an S&P A Rating and remains one of the top P&I Clubs.