the AA range on S&P’s capital model.


In addition to building the Internal Model, the Club has undertaken detailed work with an independent firm of actuaries to develop its underwriting pricing, which complements the technical loss prevention activities.


Risk and capital management is not solely about statistical analysis and complex modelling. It also relies on a robust governance framework and high quality management information on which to base decisions and prepare detailed analysis. The Report of Directors in the full Report & Accounts highlights some of the higher level changes to the Club’s governance during the year including the extension of the remit of the Audit


INVESTMENTS REVIEW OF THE YEAR


During the financial year economies and financial markets continued to recover from the financial crisis of 2008 and 2009. The effects of that period on the developed economies remained evident, however. High levels of unemployment, large government budget deficits, and low levels of inflation and interest rates persisted. Central banks and governments typically pursued pro-growth anti-deflationary policies in an effort to replace private sector lending which continued to decline as banks attempted to repair their balance sheets. The developing economies of Asia and Latin America, on the other hand, recovered more quickly from the (mostly Western) financial crisis and their authorities began to tighten policies to rein in growth and dampen increasing inflationary pressures.


There were a number of economic events during the year which caused uncertainty and volatility in financial markets. These included civil unrest in North Africa, the rise in both hard and soft commodity


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prices and the prospect of sovereign default in Europe. To date the effect of each of these has not been lasting but could, if they got worse, have quite an impact on financial markets in the future.


PERFORMANCE


The investment portfolio returned 6.2 per cent during the year, adding $69.5 million to the Club’s assets. This performance outstripped the benchmark performance agreed with the Board. Within the portfolio the fixed interest and absolute return fund elements performed well against their respective benchmarks, with equities lagging slightly.


There were no significant changes to the portfolio weightings during the year. The main theme was to reduce the level of cash given its low returns but not to increase the risk of the portfolio significantly. This was done with the selective purchases of corporate bonds and an increased equity weighting, mostly by way of exchange traded funds.


Committee to cover risk matters in addition to its audit responsibilities. The Club has ensured that it has augmented the breadth and depth of experience of its Board members with experts in the fields of investment, reinsurance, finance, accounting and insurance matters. In addition, the Managers continue to strengthen their governance structure to be able not only to run the Club operations on a day to day basis, but also support the Board in their deliberations on risk and capital matters. The Club works closely with industry experts in the actuarial and investment fields and also participates in industry forums both inside and outside of the P&I sector to ensure that it is following best practice in what is still an emerging area.


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