CHAIRMAN’S STATEMENT “
I am again pleased to report another operating surplus for the year just ended and a further significant increase in the Club’s free reserves and capital which now stand at $478 million, the highest they have ever been. Holding capital at this level puts us in a strong position to meet the challenging requirements of the new European solvency regime which will take effect from 2013. Just as importantly, our Members can be confident that the process of rebuilding the Club’s reserves has been successful and that the Club is now back in a position of considerable financial strength from which to meet the challenges of the future.
It is an extremely encouraging sign of that confidence that during the last year the Club saw some 15 million gt of newly acquired tonnage join the Club, mainly from our existing Members, even though this was offset to a much greater extent than normal by the effect of sales and scrapping.
Investment income has again made a welcome contribution, this year of nearly $70 million, to the surplus. This represents a return of 6.2 per cent, significantly higher than the 5 per cent long term average return we have been targeting. Our investment policy is kept under regular review and the board of our subsidiary reinsurance company, IPIR, monitors closely the performance of the investment managers within the policy set by the board to reflect the risk appetite we have agreed for the Club.
In addition to the investment income, the Club recorded a small operating surplus which brings our combined ratio below 100 per cent. This means that in this financial year we have achieved our goal of balanced underwriting so that all the investment income of the year is effectively transferred to the reserves rather
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than being required to support an underwriting deficit. It is important that we continue to aim for a combined ratio of 100 per cent or lower, since we have seen in the past how quickly reserves can be reduced by successive underwriting deficits, even when starting at an apparently healthy level.
At our meeting in October last year when the Directors reviewed the half year position, the Board decided to impose a general increase of 5 per cent for 2011, which we considered to be prudent in the context of the expected inflationary impact on claims. In itself the increase will not ensure an underwriting surplus since next year’s result will inevitably depend on how claims develop, but it was designed to help premium levels at least keep pace with the anticipated effect of claims inflation.
The level of claims is always difficult to assess accurately even once a policy year has ended, but as we had expected, the 2009 policy year claims picture has developed favourably and continues to improve. More encouragingly, the 2010 year at this early stage is not showing signs of a significant increase in claims although in line with our usual policy on reserving, we have set a conservative claims reserve for the year to reflect the relative uncertainty of the outcome.
Looking forward, it is of course not possible to predict the level of claims we will experience in 2011. As mentioned however, the effect of the general increase should give some protection against inflationary factors and we have again put in place the reinsurance protection for our own claims to which I referred last year. This reinsurance programme safeguards the Club against a significant uplift in claims within the Club’s own $8 million retention under the Group pooling arrangements, as well as giving
free reserves and capital, which now stand at $478 million, are the highest they have ever been
we have achieved our goal of balanced underwriting
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