The UK Club’s accounts treat foreign exchange differently to most of the other clubs. The most common approach is to report the foreign exchange movement on outstanding claims within the claims cost heading, and the exchange movement relating to investments within the investment return. The UK Club’s approach is to include all foreign exchange movements (claims and investment related) under foreign exchange. This accounting difference makes the UK Club’s investment return appear higher, and the underwriting result worse, than if reported like their peers.
In 2016/17, if the UK Club had reported in a similar way to the majority of the market, then the club’s investment return would have been 3.4% rather than the reported 4.6%.
By contrast the combined ratio would have been 103.4% if the UK reported like most of the market, compared to the 107% combined ratio actually reported.
The combined ratio comparison is further complicated because the UK P&I Club rebated 3% of the mutual premium in 2016/17. The combined ratio based on originally estimated mutual premium would have been: 104% (vs 107%). If the same currency adjustment were made, this underlying combined ratio would improve further, to 100.4%.
| 2014/15 | 2015/16 | 2016/17 | |
|---|---|---|---|
| Income and Expenditure | |||
| Calls and Premiums | 408,059 | 385,360 | 376,170 |
| Reinsurance Premiums | -88,969 | -81,414 | -81,082 |
| Operating Expenses | -43,961 | -44,874 | -43,595 |
| Operating Income | 275,129 | 259,072 | 251,493 |
| Gross Paid Claims | 349,693 | 299,461 | 280,284 |
| Net Paid Claims | 313,480 | 241,989 | 253,028 |
| Net Change in Provision for Claims | -23,544 | -737 | 20,591 |
| Net Incurred Claims | 289,936 | 241,252 | 273,619 |
| Technical Surplus (Deficit) | -14,807 | 17,820 | -22,126 |
| Investment Income | 33,872 | -19,045 | 32,659 |
| Overall Surplus for Year (Deficit) | 19,065 | -1,225 | 10,533 |
| Balance sheet | |||
| Net Assets | 1,262,845 | 1,248,255 | 1,268,556 |
| Net Outstanding Claims | 715,079 | 701,342 | 710,739 |
| Free Reserves | 547,766 | 546,913 | 557,817 |
| Hybrid Capital | 2014/15 | 2015/16 | 2016/17 |
| The above figures include the contribution of the UK P&I Club"s perpetual subordinated capital (hybrid capital). The amounts included relating to this perpetual subordinated capital are as follows: | |||
| Interest on Hybrid Capital (in investment income) | 7,500 | 7,500 | 7,500 |
| Assets of Hybrid Capital | 98,697 | 99,069 | 99,440 |
| Entered tonnage (GT, millions) | 2015 | 2016 | 2017 |
|---|---|---|---|
| Owned / Mutual | 127 | 135 | 139 |
| Chartered / Fixed | 98 | 98 | 100 |
| Total | 225 | 233 | 239 |
| S&P Rating History | 2015 | 2016 | 2017 |
| A | A | A | |
| Average Expense Ratio (AER) | 2015 | 2016 | 2017 |
| Five years ending 20 February | 9.66 | 10.28 | 10.22 |
Combined ratios provide a direct comparison of club underwriting performance. The combined ratio is essentially the net loss ratio for the club and is defined as follows:
Combined ratio = |
(Net incurred claims + operating expenses) |
|---|
Average Expense Ratios (AERs) were introduced in 1999 following pressure from the European Commission in an attempt to enable direct comparisons of operating costs between clubs within the International Group. The formula that all clubs are required to adhere to when calculating their AER figure is as follows:
The AER formula is the |
(Operating expenses x 100) |
|---|
In principle the AER is a reasonable idea, but in reality it is only ever a very approximate guide to the relative operating costs of individual clubs. For example different membership profiles, disproportionately high levels of premium or investment, whether the club owns or rents their office space, how much the club spends on loss prevention, global office network, member portals etc all have an impact on the AER.