Note 18 – Designated reserves In recent years the increase in the Group Pool retention has led the member Associations of the International Group of P&I Clubs to enter into a joint agreement to provide each other with additional security. Under the Agreement this Association maintains a letter of credit for $32.2 million to cover its share of the increased Group exposure.
Note 19 – Average expense ratio In accordance with Schedule 3 of the International Group Agreement, the Association is required to disclose its Average Expense Ratio, being the ratio of operating expenses to income, including premium and investment return.
The operating expenses include all expenditure incurred in operating the Association, excluding expenditure incurred in dealing with claims. The premium income includes all premiums and calls. The investment return includes all income and gains whether realised or unrealised, exchange gains and losses less tax, custodial fees and internal and external investment management costs.
The Association does not charge internal investment management costs to investment income but includes these costs within the management fee within operating expenses. To calculate the ratio, the figures are those disclosed within the statement of operations except that the internal investment management costs are taken as being the subsidiary company's management fee.
For the five years ended 20th February 2011, the ratio of 9.16 (2010: 9.37) has been calculated in accordance with the Schedule and the guideline issued by the International Group and is consistent with the relevant financial statements.
Note 20 – Related party transactions The Association has no share capital and is controlled by the Members who are also the insured. The subsequent insurance transactions are consequently deemed to be between related parties but these are the only transactions between the Association and the Members.
All of the Directors (except two who are Bermuda residents) are representatives or agents of Member companies and other than the insurance and membership interests of the Directors' companies, the Directors have no financial interests in the Association.
Thomas Miller (Bermuda) Limited provides management services to the Association. This company is a subsidiary of Thomas Miller Holdings Limited in which the Association holds an investment.
All related party transactions are undertaken on an arms length basis.
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