STEAMSHIP MUTUAL CLUB - 2012 Financial Analysis

The Steamship Mutual Underwriting Association Limited, The Steamship Mutual Underwriting Association (Bermuda) Limited and The Steamship Mutual Trust.

Basis of accounting:- "combined financial statements" unaudited. Audit report agrees the combination of the individual audited accounts. UK Accounting Standards.

Dashboard of Key Performance Indicators

2012 Financial Results

The Steamship Mutual Club has had a difficult year and the unbroken run of four successive underwriting surpluses has come to an end with an underwriting Deficit of $44m and an overall Deficit of $7m. Considering the Incurred Claims rose by 33 percent and the Outstanding Claims by 15 percent, the impact has been limited, with a relatively modest loss of Free Reserves, after an Investment Return of 4.6 percent.

Underwriting

The underwriting incurred deterioration in the Combined Ratio rising from 93 percent the previous year to 116 percent. This came about as a result of a large increase in claims compared to a modest 4 percent increase in net premium income. There has also been an increase in both attritional and large claims. The small attritional claims below $250,000 have risen in frequency and severity, with the number of claims up by 6 percent and the overall cost up by 16 percent. The cost of claims above $250,000 rose by 15 percent with Chartered and FFO claims rising fastest. There were nine large FFO claims in the year compared to only five the previous year. The number of claims above $1m rose from 13 to 20.

The costs of the 2011 policy year were 20 percent greater than those of the 2010 policy year at the year end, leaving the year with an underwriting Deficit of $21m. The 2010 policy year had Paid Claims of $90m compared to $72m for the 2009 policy year 12 months earlier. The outstanding claims were only $97m compared to $101m, for the previous year, which perhaps now looks a little optimistic. The surprise was the deterioration on the closed policy years of $61m or 20 percent of the Free Reserves.

Tonnage by Ship Type: - Bulker 39%, Tankers 21%, Containers 17%, Passenger 11%, Others 4%, Tugs and Barges 3%, Cargo 3% and Ferries 2%.

Tonnage by Management Area:- Far East 38%, Europe 31%, North America 14%, South America 9% and Middle East & India 8%.

Ship Age:- 0-4 years 32%, 5-9 years 18%, 10-14 years 15%, 15-19 years 18% and over 20 years 17%.

Investments

The Club held a relatively risk adverse investment portfolio which gave a return of 4.6 percent. The best performing asset classes were Equities at 5.6 percent, followed by 5 percent for Fixed Income and only 2.2 percent for Hedge Funds. The currency allocation was 88 percent US Dollars, 6 percent Euros and 6 percent Sterling.

The asset allocations were: - Government Bonds 51%, Cash 26%, Corporate Bonds 12%, Hedge Funds 8%, Equities 2%and Property 1%.

Future

The Club has suffered a setback after six continuous years of growth, during which time the Free Reserves have risen by 120 percent. The deterioration in the closed policy years, "deemed exceptional" by the club, is a concern.

If there are no further deteriorations in the back policy years, the Club should be able to absorb the rising level of claims.

The Solvency and Risk based Capital ratios have fallen but remain strong and the Club should have no difficulty in meeting the Solvency II capital requirements.