The North of England Club - 2012 Financial Analysis

North of England P&I Association Limited and North of England Mutual Insurance Association (Bermuda) Limited combined financial statements.

Basis of Accounting: On IFRS principals but the combined financial statements do not comply with IFRS or UK company law. There was no Cash flow statement or list of directors.

Dashboard of Key Performance Indicators

2012 Financial Results

The North of England Club continued their expansion programme by acquiring an additional 21 million gross tons during the year, bringing their total gross tonnage entry to 112 million. While their entry has expanded, their finances have paused, largely as a result of a rise in large claims and a fall in property prices. The Freight Demurrage & Defence class achieved a surplus of $9m, thus covering the P&I deficit and producing an overall surplus of $2m.

Underwriting

The Club has continued its diversification programme, acquiring Marine Shipping Mutual Insurance which is in 'run-off' and recording a profit of $2m for that acquisition. It also formed a strategic alliance with Sunderland Marine Mutual Insurance Company, to reinsure the P&I risks of their commercial fishing fleet. A venture into the Hull and Machinery market has been postponed until market conditions improve.

The Club has maintained its level of growth by charging low premiums, which was reflected in a $2.60 per ton net premium ratio. This was sustainable due to the low level of paid claims and their low outstanding claims per ton ratio.

The underwriting was affected by a 58 percent increase in Incurred Claims, which left the Combined Ratio at 103 percent. There were 40 claims in excess of $1m in the 2011 Policy Year after 12 months, compared to 17 claims in 2010 and 24 claims in 2009. In the 2011 Policy Year there were 22 claims over $2m, of which 14 were Admiralty type claims (Collision, FFO and Dock Damage).

The Club was also hit by the rising cost of Pool claims, which rose to $719m for the 2011 Policy Year compared to $382m for the 2009 Policy Year after 12 months.

The notified net claims for the 2011 Policy Year after 12 months were $258m compared to $153m for the 2010 Policy Year after 12 months. There was an improvement of around $11m on the open Policy Years, as the estimated cost of claims reduced. On the 2011 Policy Year, the paid claims were $45m after 12 months compared to $24m on the 2010 Policy Year. The outstanding claims were $204m compared to $150m a year earlier.

The Club has purchased Retention, Pool protection, and additional reinsurance covers for their Chartered and Offshore facilities.

Entered Tonnage - Geographic Region: Asia Pacific 26%, Southern Europe 22%, Northern Europe 21%, Middle East 11%, North America 8%, Scandinavia 6%, South America 5% and others 1%.

Entered Tonnage - Ship Type: Bulker 34%, Tanker 30%, Container 23%, Car Carrier 6%, General Cargo 2%, LNG 2% and other 3%.

Investments

The investments were mostly held in Government Bonds and Cash which resulted in a 2.8 percent return. There was also a book loss of $6m on the revaluation of the Club's head office in Newcastle.

Future

The North of England Club successfully managed a growth programme with an additional 14 million gross tons of new business as at the 2012 renewal. The Club is now the second largest by gross tonnage, but the fifth largest by Free Reserves. This has put significant pressure on the Club's Capital and Risk Based Capital Ratios. In recent years, the Club maintained a large proportion of funds in Cash and Cash Equivalents, which attract a zero risk rating for 'asset value regulation'. These funds have been used to purchase Bonds with a 3.5 percent Risk Ratio, which had a depressing effect on the Risk Based Capital Ratio. Accordingly, financially the Club now falls into the lower half of the International Group.

The Club needs a financially successful year to bolster its Free Reserves and improve its Free Reserves Per Ton and Risk Based Capital Ratios, to bring the Capital more in to line with the volume of business it underwrites and the overall risks pertaining to the Club.