additional protection against claims at the Pool level and furthermore protects us against a single very large loss, from one of our own Members.
Clearly these financial developments and the current strength of our capital position will be important as we move to comply with the developing requirements of the European Solvency 2 regime; but as I mentioned last year, the new regulatory regime also places great importance on a company’s corporate governance arrangements and its ability to assess and manage risk.
As Solvency 2 approaches, we have initiated a high level review of our structure with a view to optimising the amount of capital required. At the same time, the opportunity will be taken to simplify and streamline, where appropriate, the corporate governance arrangements for the Club, whilst still maintaining the benefits of a widely representative board drawn from the membership and the technical expertise of our independent professional managers.
This active membership participation in the governance of the Club reflects the mutual nature of the Club which is shared with the other clubs in the International Group and lies at the heart of the pooling and reinsurance arrangements of the Group. Ultimately these are designed to provide all members with the highest sustainable level of cover at an economic cost.
In August last year the European Commission initiated a formal investigation into the competition aspects of these arrangements following on from the expiry of the second 10 year exemption for the International Group Agreement. We and all other clubs in the International Group are fully co-operating with this investigation and have been providing
full and timely answers to the Commission’s requests for information. We hope that as on the previous occasions when the Commission has considered these arrangements in detail, the conclusion will again be that such restrictions as are embodied in the IGA are indeed necessary to be sure that the members of all the Clubs (who are the consumers in this context) can continue to benefit from the Group’s pooling and reinsurance arrangements.
During the year, the Board also had to consider the serious implications for the Club of recent sanctions legislation in Europe and the United States, particularly in relation to Iran. The apparently growing trend towards including insurance in international trade sanctions has raised new issues for the Club. There is a difficult balance to be struck between trying to ensure that individual members have the best possible cover for their own legitimate trading operations and protecting the Club and all its members from the serious consequences of being in breach of relevant sanctions legislation. As a result of the Board’s consideration of this issue, Rule changes have been introduced for the 2011 policy year which we hope reflect a fair solution and will give the Club the essential protection we felt was necessary. Unfortunately one casualty was the enforced departure from the Club of a long-standing member for whose fleet the Club was no longer able safely to provide cover as a result of such legislation.
Whatever the outcome of the review I referred to earlier, it is certain that the workload of Directors, and particularly the members of two of the Board’s key committees—the Strategy and the Audit & Risk committees—will not be reduced. We are very conscious of our responsibilities not only as a result of the regulatory requirements
5
the process of rebuilding the Club’s reserves has been successful
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