Standard & Poor’s upgrades UK Club outlook

NOVEMBER 20, 2012 — The UK P&I Club (the UK Club), one of the oldest shipping protection and indemnity insurance mutuals, has welcomed an announcement by the ratings agency Standard and Poor’s upgrading the UK Club’s outlook from “Stable” to “Positive.”

Dino Caroussis, Chairman of the UK P&I Club, said: “This is a welcome endorsement by S&P of the UK Club’s efforts to maintain balanced underwriting and a strong capital position in an environment of rising claims costs and volatile investments.

“We are dedicated to our goal of being the leading shipowner controlled provider of marine liability insurance and maintaining our level of capital within the AA range of Standard & Poor’s capital model.”

Hugo Wynn-Williams, chief executive of Club managers Thomas Miller P&I Ltd, said: “Our return to the top level of the P&I market has been rewarded by increased support from new and existing Members. However, we will continue to focus on breakeven underwriting and careful management of our risks; from monitoring the UK Club’s entry criteria, an extensive loss prevention programme, and strong claims management, through to the purchase of reinsurance to protect against potential spikes in claims.

“The UK Club has maintained its disciplined approach to underwriting and risk selection as evidenced by a further solid underwriting performance. The last four policy years have achieved an average combined ratio below 100 per cent.”

The UK Club’s funds have continued to strengthen in the first half of 2012 with free reserves and capital increasing a further $8 million to $494 million at 20th August 2012. The UK Club is one of the strongest clubs financially in the International Group of P&I Clubs with a free reserve ratio of 167 per cent.

Following is the text of Standard & Poors statement:

LONDON (Standard & Poor’s) Nov. 19, 2012–Standard & Poor’s Ratings Services said today that it revised its outlook to positive from stable on Bermuda-based protection and indemnity (P&I) insurer The United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Ltd. (the U.K. Club or the club). At the same time, we affirmed our ‘A-‘ insurer counterparty credit and financial strength ratings on the U.K. Club.

The outlook revision reflects our belief that management’s actions since 2008 have achieved some success and there is potential for further improvements in the quality of its underwriting. The U.K. Club’s combined ratio was steady at 101%-102% in the full-years ended 2011 and 2012, and a similar result was produced in the first half of 2013. (Lower combined ratios indicate better profitability. A combined ratio of greater than 100% signifies an underwriting loss. The combined ratios quoted here are our own calculation and include payments into the International Group of P&I Clubs [IG] pool as ceded reinsurance premiums as opposed to gross claims incurred. As such, they give higher combined ratios than the club’s published results.) Significantly, backtesting of the changes made by management–changes to reinsurance, reduction in exposures, membership weeding, and expense savings–suggests that the current book and corporate set-up would have significantly reduced underwriting losses in the heavy loss years of 2004-2007. We expect that the club’s future results should benefit from its good record under the pooling arrangement operated by the IG. We also expect the recent trend of reserve surpluses and releases being built in from prior years to continue.

Consequently, we anticipate that the U.K. Club will maintain its 2011-2012 performance going forward in 2013-2015. We have revised upward our assessment of the club’s operating performance and business position. Nevertheless, the club’s operating performance, although improving, remains a relative rating weakness, as does the club’s relatively high-risk investment mix. These are counterbalanced by the club’s very strong capital adequacy.

The U.K. Club insures approximately one-sixth of the world’s ocean-going tonnage, making it one of the largest mutual P&I clubs in the world. As a member of the IG, a group of 13 clubs providing P&I cover to more than 90% of world shipping, the U.K. Club operates within the framework of the IG Agreement (IGA). Members benefit from a substantial excess-of-loss reinsurance program and the pooling of risks.

We could raise the rating if the club’s good results remain stable over the next 12-24 months, with a combined ratio in the 97%-105% range. We could revise the outlook to stable if we see a reversion to the previously unstable results.