a n n u a l r e p o r t 2 0 1 0 - shipowners' club

A N N U A L R E P O R T

2 0 1 0

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� AnnualReport|�010 CorporateInformation �

Activities

TheprincipalactivitiesoftheAssociationduringtheyearweretheinsuranceandreinsuranceofprotectionandindemnityrisksonbehalfofMembers.

Directors

TheDirectorsoftheAssociationareshownonpage�.

MessrsA.H.Briggs,W.D.Everard,CBE,R.E.Frising,R.D.MLenthall,D.A.MacLeodandJ.M.WhitakerallretirebyrotationinaccordancewiththeConstitutionattheforthcomingAnnualGeneralMeetingand,beingeligible,offerthemselvesforre-election.

Auditors

MessrsMooreStephensS.A.R.L.haveexpressedtheirwillingnesstobereappointedasAuditorsoftheAssociation.AresolutiontoreappointthemastheAuditorsoftheAssociationwillbeproposedattheforthcominggeneralmeeting.

ByorderoftheBoard:D. A. MacLeodChairmanoftheBoardDate:1�thMay�010

Notice of Meeting

NoticeisherebygiventhattheAnnualGeneralMeetingoftheMembersofTheShipowners’MutualProtectionandIndemnityAssociation(Luxembourg)willbeheldatShangri-LaHotel,Vancouver,11�8WestGeorgiaStreet,Vancouver,BC,Canada,V6E0A8onThursday�9thJuly�010at1�.00hours,forthefollowingpurposes:

ToapprovetheReportoftheDirectorsandtheAccountsfortheyearended�0thFebruary�010,andtheReportoftheAuditorsthereon.ToelectDirectors.ToreviewthelevelofDirectors’fees.Tore-appointMooreStephensS.A.R.LasAuditorsoftheAssociationandfixtheirremuneration.TotransactanyotherordinarybusinessoftheAssociation.

ByorderoftheBoard:Pascal HerrmannGeneralManager16,RueNotre-DameL-��40Luxembourg

Date:1�thMay�010

Note:AMemberentitledtoattendandvoteisentitledtoappointaproxytoattendandonapolltovoteinsteadofhim.AproxyneednotbeaMemberoftheAssociation.

1.

�.�.4.

5.

Chairman

D. A. MacLeodNovaScotia

Vice Chairmen

D. C. M. JamiesonSingapore

A. D. W. AllanEdinburgh

A. H. BriggsCairnsQLD

J. P. DowsonLondon

W. D. Everard, CBELondon

R. E. FrisingLuxembourg

Dr. D. C. S. HoHongKong

P. D. OrmeDubai

L. W. JourdainVancouverBC

G. T. KailisPerthWA

A. R. H. KnightLondon

R. D. M. LenthallLondon

J. MuddeRotterdam

Ong Kok WahSingapore

Mme C. O. R. RossoMarseille

Dato’ Capt. A. SufianKualaLumpur

C. L. Van MeerbeeckAntwerp

J. M. Whitaker Hull

The Directors have pleasure in presenting their Report and the Accounts of the Association for the year ended 20th February 2010.

Registered Office

The Shipowners’ Mutual Protection and Indemnity Association (Luxembourg)16,RueNotre-DameL-��40Luxembourg

Tel:+�5��97101Fax:+�5��9710��Email:[email protected]

Managers

The Shipowners’ Protection LimitedStClareHouse�0-��MinoriesLondonEC�N1BP

Tel:+44(0)�074880911Fax:+44(0)�074805806Email:[email protected]:www.shipownersclub.com

Auditors

Moore Stephens S.A.R.L.Réviseurd’entreprises16AlléeMarconiL-�01�Luxembourg

Corporate Information

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4 AnnualReport|�010

ToparaphraseRudyardKipling,itisimportanttokeepyourheadwhenallaboutyouarelosingtheirsandblamingitonyou.ThatisexactlywhattheBoardandmanagementoftheShipowners’Clubdid,keeptheirheadsinthefaceofunprecedentedmarketdeclinebystayingthecourse.

Overthecourseofthelastyear,theunrealisedinvestmentlossofthepreviousyearhasbeenreplacedwithsubstantialgains.IampleasedtoreportthatthetotalinvestmentreturnfortheClubyearwasUS$41.6million,andtotalfundsundermanagementincreasedbyUS$56.8millionduringtheyear.TheClub’sfreereservepositiongrewfromUS$95.6millionin�009toUS$1�5millionin�010,surpassingthefreereservepositionofUS$1�4millionin�008,priortotheeconomicmeltdown.In�009,theBoardtookthepositionthatitwouldbeunwiseandimprudenttosellequitiesatthebottomofthemarket.Thispatientandlong-termoutlookhasproven,withthepassageoftime,tohavebeentherightapproach.

TheClubhasadoptedacapitaladequacymodelaswepreparetomeetthestandardsofSolvencyII.Asaresult,inlargemeasure,themodelwilldictatethecompositionoftheClub’sinvestmentportfolio.Overthepastyear,initialstepsweretakentoimplementthecapitaladequacymodel,whichledtothedecisiontosellalternateinvestments.AttheendoftheClubyear,theinvestmentportfolioconsistedof70.9%bondsandfixedincomeand�9.1%equities.

Onapureyearbasis,theClubhadanunderwritingsurplusofUS$1.7million,representingacombinedratioof98.�%fortheClubyear.Withbackyeardeterioration,wehadessentiallyabalancedunderwritingresultof101.5% .Theseresultsbolsterthetrendofunderwritingbalances;and,overaten-yearperiod,theaveragecombinedratiofortheClubis98.5% .

IampleasedtoreportthatourCanadianbranchhasreceivedregulatoryapprovalfromthefederalgovernmentandiscurrentlyseekingauthorisationfromprovincialgovernments.TheShipowners’ClubwillbetheonlyInternationalGroupP&IClubauthorisedtoconductP&IunderwritinginCanada.OurAsianoffice,basedinSingapore,nowhasafullClubyearunderitsbeltandismeetingandexceedingalloperationaltargets.

Aswemanageourbusinessinthefaceofthe“newnormal”,ourMembersandbusinesspartnerscanbeassuredthattheClubwillrespondnimblytoeverchangingeconomicconditionsandprovidestability,continuityandsecurityinthefutureasithasinthepast.

DonaldA.MacLeod

What a difference a year can make. Last year, I made reference to the perfect economic storm that had reaped carnage across the global marketplace. Things have not returned to normal in the sense of the way they were prior to the economic meltdown of 2008, but a “new normal” has emerged consisting of uncertainty, volatility and government deficits. However, the Club has adapted to this new environment and continues to provide its membership with stability, continuity and security in the face of this new economic reality.

Theseresultsbolsterthetrendofunderwritingbalances;and,overaten-yearperiod,theaveragecombinedratiofortheClubis98.5%

Chairman’s Statement

Chairman’sStatement 5

50

100

150

200

250

300

350

2010200920082007200620052004

US$

Mill

ions

Free ReservesNet Outstanding Claims

194,903 220,682 265,507 325,667 362,840 312,067 367,631

Total Funds US$ millions

30

60

90

120

10 YrAvg.

5 YrAvg.

2010200920082007200620052004200320022001

90.9%

98.5%104.9%

101.5%

77.7%

123.9%127.0%

94.2%98.6%

86.7%91.1%93.2%

Combined Ratio

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TheBoardmetonfouroccasionsduringtheyear,inAprilinCairns(16),inJulyinLuxembourg(15),inOctoberinStPetersburg(18)andinJanuary�010inRotterdam(18).ThenumbersinbracketsindicatethenumberofDirectors,outof19altogether,whoattendedeachmeeting.InCairnsandinRotterdamtheDirectorshostedreceptionstoenablethemtomeetthelocalcommunitiesofMembers,brokers,correspondentsandotherfriendsoftheClub,andtoappreciatetherisksassociatedwiththeparticularenvironmentsinwhichthelocalMembersoperate.Theseregularreceptions,whichwecontinuetoplantocoincidewithBoardmeetingsaroundtheworld,areintendedtoaddressoneoftheprinciplesoftheCorporateGovernanceCharter,inwhichtheBoardadoptsapolicyofactivecommunicationwithMembers.Tothisend,ourwebsitenowcontainsagovernancesectionanddetailsofthetwogeneralmeetingsofMemberswhichhavetakenplaceinthelastyear,theAGMon16thJuly,andtheEGM,on�8thJanuary�010,whichconsideredtheRulechangesproposedforthe�010year.ThesedetailsincludedthepossibledownloadingofproxyformsforMembersunabletoattendthemeetings,aswellastheminutesofthosemeetings.

AteveryBoardmeetingtheDirectorsreceivedreportsfromtheManagersonthedevelopmentoftheClub’soperatingresult,includingreportsonfinance,underwriting,reinsurance,largeclaimsandthemanagementcostsbudget.FiveclaimsreviewedduringthecourseoftheyearwerefromMemberswithwhomDirectorswereassociated.TheDirectorsconcerneddeclaredtheirinterestintheclaimtotherestoftheBoard.Intwoofthosefiveinstances,theclaimswerediscretionaryclaims–oneaclaimundertheOmnibusRule,andonearequestforsupportundertheFD&Dcover.InbothcasestheDirectorconcernedlefttheroomwhiletheclaimwasconsidered.

AteveryBoardmeetingtheDirectorsreceivedreportsfromtheManagersonthedevelopmentoftheClub’soperatingresult

BoardandGovernanceReport 7

Having adopted the Governance Charter last year, the Board report this year will include both reports on the Board’s activities and on its compliance with the Charter. The Board has complied with the Principles set out in the Charter in all relevant respects.

Board and Governance Report

Insurance 10%

IT 5%

Technical 8%

Nautical 10%

Pensions 8%

Fina

nce

18%

Legal 5%

Logistics 3%

Corporate 23%

Gov

ernm

ent 1

0%

Board Director Experience and Expertise

Board Director Appointments

Sp

ecialistA

pp

ointm

ent 11%

Retired

Consultants 32%

Com

pany

Bas

ed 5

7%


8 AnnualReport|�010 BoardandGovernanceReport 9

AninductionprogrammewasarrangedforthethreemostrecentlyappointedDirectorsinOctober.ThisbuiltonsomeofthecontentoftheDirectors’ManualwhichisprovidedtoallDirectorsasaguidetothegovernance,structureandoperationsoftheClubtoassistthemindischargingtheirdutiesasDirectors.

InRotterdam,theBoardreviewedfeedbackfromDirectorsindividuallyabouttheperformanceoftheBoardandofthevariouscommitteesoftheBoard.Thiswasavaluableexercisewhichwillberepeatedregularly.TheDirectorsreviewedtheperformanceoftheManagerswithouttheManagersbeingpresentattheendofeachBoardmeeting.

TheChairmankeepsthecompositionandbalanceoftheBoardunderregularreview,butitwasnotnecessarytoconsideranynewappointmentstotheBoardduringtheyear.AttendanceatBoardmeetingshasremainedconsistentlyhighovermanyyears.

TheFinanceCommitteemetonfouroccasionsduringtheyear,thedaybeforeeachBoardmeeting,andtheChairmanoftheFinanceCommitteereporteditsrecommendationsandconclusionsorallytotheBoardthefollowingday.FollowingtheBoard’sdiscussionoftheFinanceCommittee’sreportinOctoberaworkinggroupoftheFinanceCommitteewasaskedtoreviewtheClub’sinvestmentpolicyanditsrecommendationswereadoptedbytheBoardatthemeetinginRotterdam.AmoredetailedreportofthispolicyisincludedintheFinancialReview,onpage45.

TheRemunerationCommitteemetontwooccasions,inJulyandinJanuary,bothinLuxembourg.AtthefirstmeetingtheCommitteeagreedtoendorsetotheBoardaStatementofPrincipleswhichtheManagersproposedtoadoptinrelationtotheirstaffremunerationpolicy.

AttheJulymeeting,theCommitteealsorecommendedtotheBoardthatthoseBoardDirectorswhositonsubsidiarymanagementcompanyboards,namelyShipowners’AsiaPteLtdandWaterborneUnderwritingServicesLtd,shouldbepaidaDirector’sfeeconsistentwiththefeestructureapplyingtoothersubsidiarycompanieswithintheShipowners’group.

AtthesecondmeetingtheCommitteeagreedtorecommendtotheBoardtheManagers’adoptionofanewbonusschemewhichistobeprincipallylinkedtotheachievementoftargetbusinessresultseachyear,andalsobedependentonanassessmentofindividualstaffcontribution.

TheAuditCommitteemetontwooccasions,inMayandinNovember,coveringthestandingitemsinitsagendaofregularreviewoftheinternalandexternalauditprocess,aswellasprogressinpreparationforSolvencyII.

InCairns,theBoardreceivedtheManagers’annualreportoncomplianceissues.ThewholeareaofcompliancehasgrownandinSeptemberweappointedaComplianceManager.ApartfromtheresponsibilityofensuringthattheClubiscompliantwhereverwedobusiness,theComplianceManagerwillalsoberesponsiblefortheinternalauditfunction,whichhasbeenoutsourcedtoMazarsLLP,andforreportingoninternalriskmanagementtotheAuditCommitteeonaquarterlybasis.

InLuxembourg,theBoardreceivedtheManagers’annualanalysisoftheClub’sbusiness.WhiletheClubremainsfocussedonsmallerandspecialisedvessels,andhasawidespreadindifferentvesselsectors,theaveragetonnagepervesselhasgrowntojustover550GT.ThisisasymptomofagrowthinvesselsizewithintheClub’straditionalsectorsratherthanindicatingthattheClubismovingintonewsectorsandtheBoardhasconfirmedthattheClub’sfocusshouldremainonsmallervesselownersworldwide.Followingseveralhighvalueclaimsarisingintheoffshoresectorduringtheyear,theBoardhasaskedtheManagerstoreviewtheprofileofsomeoftheoffshorebusinessenteredintheClubtoensurethatitisconsistentwiththestandardsofoperationwhichweexpect.Thisreviewwillcontinueduringtheyear.

InStPetersburg,theBoardconsideredtheClub’spolicyoncallingofpremiums.ItconfirmedthepolicyadoptedinJuly�008ofnilreleasecallsonallopenyears,andalsoendorsedtheintroductionofanewpolicy,tobephasedinovertime,ofnilestimatedadditionalcallsonallyears.ThiswilleffectivelyeliminatethedistinctionthathasexistedbetweenMembersenteredonan‘advancecall’basisandthoseenteredonan‘estimatedtotalcost’(ETC)basis.TheClubhasnotcalledanestimatedadditionalcallformanyyearsandthissteprecognisesthatithasbecomesomewhatartificialtoestimateanadditionalcallwhichisnevercalled.WehopethatthenewpolicywilleffectivelyremovewhathasbeenseeninsomemarketsasafinancialuncertaintyassociatedwithmembershipofamutualClub.

TheManagerspresentedtheirBusinessPlanforthe�010yeartotheBoardinRotterdam.ThishadbeensubjecttoreviewbytheChairmanandotherseniorDirectorsinitsfinaldraftingbytheManagers.AkeyobjectivefortheyearistomakefurtherprogresstowardsSolvencyIIcompliance.Thisprocesshasalreadybeenunderwaysince�005butthepacewillquickenasweapproachtheintendedimplementationofSolvencyIIinOctober�01�.ThefullembraceofSolvencyIIprinciplesencompassesmanyofthegovernanceissuessetoutintheGovernanceCharterand,inaccordancewiththethreeso-called‘pillars’oftheSolvencyIIregime,willnecessitateacomprehensivereviewofthemanagementofthebusiness,ananalysisoftheClub’sfinancesandcomputationofcapitalresources,andagreaterdegreeofdisclosurebothtoMembersandtoregulatoryandotherbodies.ProgresstowardsfullSolvencyIIcompliancewillalsobeakeyfactorintheClubregaininganAratingasademonstrationofitsfinancialsecurity.

ConsciousofthedifficulttradingconditionsfacedbymanyMembers,theBoardendorsedtheBusinessPlan’semphasisoncostreductionboththroughlosspreventionandagreaterfocusonthecostsofclaimshandling.ThefullimplementationofthenewITsystemsduringthisyearwillalsohaveanimpactonoperatingcosts,allowingthegreaterautomationofprocessandforthegrowthofthebusinesswithoutunduegrowthinmanagementcosts.TheBoardapprovedamanagementcostbudgetfor�010/11which,subjecttofluctuationincurrencyexchangeconversioninthedifferentmanagementoffices,isessentiallyatthesamelevelasthe�009/10managementexpenditure.

TheClubhasemergedingoodshapefromthelastfourvolatileyearswhichcomprisedheavyunderwritinglossesin�006and�007years,aheavyunrealisedinvestmentlossin�008year,andasignificantunrealisedinvestmentgainin�009year.TheClub’shistoricallystrongreserveshavebeeneasilysufficienttoensurestability,continuityandcertaintyduringthisuncertainperiod,buttheyhavebeendepleted.TheBoardhasagreedatargetofgeneratingamodestoperatingsurplusin�010whichwillgotowardstoppingupthosereservesthisyear.Itislikelythatthisprocessofenhancingreserveswillcontinueintothefuture.

10

20

30

40

Club BusinessBoard Director Experience

AfricaMiddle East & India

Central & Sth America

Canada & USA

Australia, NZ & Sth. Pacific

EuropeSE Asia & Far East

23% 24%

48%

31%

9%

12%

9%

12%

4%

12%

9%7%

4%2%

Board Director Experience vs Club Business Regions

5

10

15

20

25

Club BusinessBoard Director Experience

YachtsDry Cargo TankersOffshore BargesPassengerHarbour Fishing

24%

27%

12%13.4%

21%

10.7%

3%

5.6%

21%

17.9%

9%

4.3%

9%

17.2%

0%

3.9%

Board Director Experience vs Club Business - Vessel Sectors



Overview WeplantodevelopthebusinessdonebythebranchinVancouvertoencompassthewholeofCanada,thoughthiswillbeagradualprocessasthereisaverysmallstaffatpresent.WewouldliketotakethisopportunityofmarkingtheretirementattheendofMaythisyearofFrancisFyfe,PresidentofWaterbornesinceitsincorporationin1995.AllthosewhohavemetFrancisremembernotonlyhisinfectiousgoodhumourbutalsohisdeepunderstandingofhismarket.OvertheyearstheofficehasproducedanoverallbalancedunderwritingresultforthePacificNorthWestareawhichWaterbornehasserved.WeareverygratefultoFrancis,firstforputtinghistrustintheClubwhenweacquiredhisbusinessthreeyearsago,andsecondlyforhisexpertoversightofthetransitionofWaterbornefromanunderwritingagencytoanauthorisedbranchoftheClub.WewishFrancisandRosiealongandhappyretirementwhich,asfarasFrancisisconcerned,willcertainlyinvolvehissupportforanewgenerationofJamaicansprinters,cricketersandcrossskiers.

WearedelightedthatRosemaryAdamstakesoverasmanageroftheCanadianbranchandduringthisyearweintendtointroduceaclaimshandlertheretoprovideafullunderwritingandclaimshandlingserviceforourCanadianMembersandtheirbrokersinfuture.

WehavebeenveryappreciativeofthewelcomethattheAsianofficehasreceivedandtheofficehasnowtakenonresponsibilityfortheClub’sbusinessinthePhilippines,Vietnam,BruneiandPapuaNewGuineaaswellastheinitialareasofSingaporeitself,Malaysia,Thailand,IndonesiaandNewZealand.WearegratefulforthesupportandassistanceoftheMPAandMASofficialsinSingaporeinensuringthattheofficehasfullyrespondedtotheirexpectations.Itisalsoappropriatetorecordhereourthankstothemanagementstart-upteamledbyDavidHeaseldenandSteveRandall.Theyhaverespondedsopositivelytotheinevitableoperationalwrinkleswhichhaveneededtobeironedoutinthefirstfewmonthsofbeddingdowntheoffice.WearedelightednowtohavesevenSingaporeanstaffontheteamjoiningthesixexpatsfromtheUK.Ultimately,weplanthattheAsianofficewilltakeonresponsibilityfortherestofFarEastAsiaandAustralasiaaswellbutanticipatethatthiswillnotbeforanotherthreeyears,pendingthedevelopmentofbusinessintheexistingareas.

In�009wecementedthepositionoftheClubinbecomingauthorisedinSingaporeandCanada,developingour‘888’strategyofservingtheClub’sglobalbusinesslocallywithineighthourtimezones.WithintheLondonoffice,ortheLondonbranchaswenowcalltheunderwritingandclaimshandlingbusinessoperationthere,wehavealsomadesomesmalladjustmentstothestructure,appointingIanEdwardsasHeadofUnderwriting–Londonbranch,andestablishingaLondonbranchoperationsteam.

Management Report

2009 was a notable year for the Club. Not only did the Club’s Asian office open for business in Singapore in April, as we reported last year, but we also obtained authorisation from the federal and provincial authorities in Canada to underwrite through the Vancouver office of Waterborne Underwriting Services Ltd, as a branch of the Club. The Club is currently the only Club in the International Group to be authorised federally to underwrite business in Canada.

ManagementReport 11

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1� AnnualReport|�010 ManagementReport 1�

TheupdatingofourITandinformationsystemshasbeenalongtimeinplanningandgestationbutisnowcomingtocompletion.OurnewwebsitelaunchedinFebruaryandwithe-commercewehaveamuchgreateronlinecapability.

Forthe�010renewaltheBoardsetageneralincreaseof5%forthoseMemberswhoseoperationsrequirethefullextentofcoverthroughtheInternationalGroupPool.That5%increasereflectedtoasignificantextenttheincreasesinreinsurancecostwhichtheClubhasfacedoverrecentyearswithoutpassingthemontotheMembersbefore.ItisappropriatethattheseenhancedcostsshouldbebornebythatsectorofthemembershipwhichhasencounteredthehighervalueclaimswhichhaveledtotheadverserecordbothwithinthePoolitselfandintheClub’sreinsuranceofclaimsaboveUS$500,000uptothePoolretention.Thereinsurancerecordofthoselowerriskvessels,forwhichtheClubprovidesacoverlimitedtoUS$500million,ismuchbetterandageneralincreasewasnotappropriate.

ThedevelopmentsinmanagementinfrastructurehavetakenplaceatthesametimeaswehavebeentryingtoensurethattheunderwritingratesMemberspayarenowmorecloselyalignedwiththeenhancedliabilitieswhichmanyofthemnowface.Webelievethatwearewellplacedin�010tomoveforwardintoanewdecadebycontinuingtoimprovethelevelsofservicewhichweoffertoMembers,andbyprovidingthatcontinuity,stabilityandsecurityofinsurancecoveratcostwhichonlyamutualP&IClubcandeliver.

Underwriting

AlthoughmanyoftheClubsusetonnageasameasureofgrowth,amorerealisticmeasurefortheShipowners’Clubisthegrowthinthenumberofenteredvessels,giventhattheaveragesizeofenteredvesselsisjustover550GT.Overthelasttenyears,wehaveseenasteadygrowthinthenumberofvesselsentered.However,thisgrowthhasrecentlysloweddownandattheendofthe�009policyyear,enteredvesselsstoodat�8,��7,representingasmallreductiononthepreviousyear.Enteredtonnagehadincreased4.5%to16.6millionGT.

The�009resultsshowthattheaveragesizeofvesselisincreasingandthisisduetoanumberoffactors,namelythegrowthinthenumberofenteredvesselsoperatingwithintheoffshoresectorandanincreaseinthenumberofenteredbarges.Inaddition,thevesselsaredevelopingsophisticatedcapabilitiesandoperatingindeeperwaters,impactingupontheoverallbuildofthevessels.

Ourfocushasalwaysbeen,andwillremain,onthesmallerandspecialisedvessels.Wehaveseenanincreaseinallourvesselsectors,withtheexceptionoffishing,wherewehavewitnessedasteadydecline.Atourpeakin�001,weenteredover7,�00fishingvessels.Overaneightyearperiodthisnumberhasreducedtojustover4,�00vessels.Theresultshighlightadeclineintheindustry,representingamovefromthetraditionalsmallerfishingvesseltoamuchlargeroperation.ItisthisfactorthathasimpacteduponthesmalldeclineinoverallvesselsenteredintheClub,comparedtotheconsistentyearonyeargrowthinallothersectors.

Nonetheless,theClubremainsfocussedonprofitablegrowthinallvesselsectorsforthemutualbenefitofthemembershipincludingthefishingindustry,throughworkingcloselywiththeMembersandtheirbrokers.

DuringtheyeartheUnderwritingDepartmentwasrestructuredtoaccommodatethedepartureoftheSouthEastAsianunderwriters.Threeteamswereestablished,eachwithregionalresponsibilitiesandledbyanUnderwritingManager.TheUnderwritingManagershavebeenactivelyinvolvedinmonitoringthedevelopmentoftheirteamsandtheirmarkets.

Itisfundamentalthatwemaintainconsistentunderwritingpracticesacrossallbranchoffices.WecontinuetodevelopspecialistskillsinordertoassistourunderstandingofthemarketsinwhichourMembersoperateinordertoimproveourserviceandprovideatailoredinsurancesolution.

TheClubhasseenaninterestingareaofgrowthwithintheEuropeaninlandcraftmarket.AlthoughhistoricallytheClubhashadaninvolvementinthismarket,itdiddecline.Recently,wehaverefocusedourattentiononthisclassofvesselandtheliabilitiesassociatedwiththetrade.Ownersandoperatorsofinlandbargespresentuniquecharacteristicsintermsoftheirliabilities.WecannegotiatewithanownertoextendtheirP&Icoverif,saytheyhavetheirfamilyonboard,droppingchildrenoffatschoolonaMondayandpickingthemuponaFridaywhilsttradingthroughouttheweek.

Overall,thissectorhadseenstronggrowthpriortotherecession,withnewbuildsbeingdeliveredfromChina.Whilstnewbuildactivityhasslowedrecently,wearestillseeinginlandcraftgettinglargerandthedevelopmentofthetouristindustryallowingforvesselstoreachrightintotheheartofEurope.

AnotherinterestingareaofgrowthhasbeenwithinthosecountriesthatbordertheCaspianSeasuchasKazakhstanandTurkmenistan.Wehaveseenextensiveactivityinoffshoreenergyprojects.Thishasalsothrownupadditionalunderwritingchallengesasownersareoftenrequired,undercontract,toinsurethroughlocalinsurancecompanies.Whilstweapplyverystrictrulesinrespectofthefrontingorreinsuranceofrisks,wedoseeaneedtoworkwithourMembersdirectlyandwiththelocalinsurancecompaniestoensurethatcorrectfrontingproceduresareputinplacetoensurethattheClubretainsfullunderwritingandclaimshandlingcontrol.

5

10

15

Yachts

Mill

ions

GT

Dry CargoTankersOffshoreBargesPassengerHarbourFishing

20092008200720062005200420032002

8,825,749 9,482,747 10,258,837 11,944,927 13,880,387 15,264,101 15,868,755 16,583,572

Total entered tonnage

5000

10000

15000

20000

25000

Yachts

Dry Cargo

Tankers

Offshore

Barges

Passenger

Harbour

Fishing

20092008200720062005200420032002

20,444 21,377 23,082 24,836 26,724 28,588 28,378 28,227

Total entered vessels

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14 AnnualReport|�010 ManagementReport 15

AnexcitingdevelopmentduringtheyearhasbeentheintroductionofournewCrewPersonalAccident(PA)product.Whilstweseeaneedforsuchaproducttobeofferedacrossallourenteredvessels,wehaveprimarilytargetedprofessionallycrewedyachts.WeknowhowharditisforourMemberstoemployandretaingoodqualitycrew.Asaconsequence,ownersoftenlooktooffercrewenhancedemploymentbenefitsbyenteringintocrewcontractsthatprovidelongertermbenefitsevenwhenthecrewmemberisathomeonleave.CrewPAisdesignedtoworkalongsidethetraditionalliabilityinsurancecoverofferedbytheClub.Thepolicyisbenefitbased,whichprovidespaymentofalumpsumtothecrewmemberortohis/herdependantsfollowinganaccidentalfatalityordisability.

DuringtheyearwewelcomedmanynewMemberstotheClub.Whetheranownerofonevesseloralargefleet,eachMemberisimportanttotheClub.ThroughtheMember’sbrokerwelooktoprovidethewidestpossiblecoverandtoprovideaservicethatallowstheMembertooperatewithconfidence.DuringtheyearweissuedmanynewWelcomePackswhichprovideournewMemberswithdetailsoftheClub,thecover,thepersonalitiesattheClubandmostimportantlyhowtocommunicatewiththeClubintheeventofacasualty.

WewouldliketoseetheClubgrowandtogrowprofitablyforthemutualbenefitofthemembership.Inordertoachieveourobjectives,wehaveestablishedamarketingteaminLondonwhoareconstantlyreviewingwaysinwhichwecanprovideabetterlevelofserviceandinsuranceproduct.WeknowthatourbrokershaveachoicewhenitcomestoP&Iinsuranceandweseektoensurethatwerespondtoourcustomers’requestspromptlyandaccurately.Throughourmarketingteam,wehaveresearchedthefeasibilityofexpandingintonewmarketsandasaconsequence,wewelcomednewMembersfromGreece,MaltaandScandinavia.

Overthecourseoftheyearwehaveexpandedourunderwritingdepartmentsinallbranchoffices.Wehavededicatedtimetoprofessionaltrainingandheldin-houseworkshopstoensurethatwehavewelltrainedindividualswhocanrespondconfidentlytotheneedsofourMembersandtheirbrokers.

WehaveseenademandforthereviewofcontractsonbehalfofourMembers.Astheoffshoreenergymarketsbegintofeeltheeffectsoftheworldwidefinancialdownturn,wehaveseenvesselownersbeingpressurised,throughtheircharterpartynegotiations,toacceptwiderliabilitiesthanthosetraditionallyassociatedwithanoffshorecharter.Forexample,thetraditionalknock-for-knockindemnitiesarebeingchallengedandownersareoftenfacedwithacceptingpotentiallylargeadditionalexposures,widerthantheirownliabilitiesinlaw.WehaveassistedourMembersandbrokersinreviewingcontractsandhaveofferedassistanceinrevisingindemnityclauses.Ifallelsefails,wehaveprovidedacomprehensiveinsurancesolutiontomeettheseadditionalexposures.

Weretainonlyasmallpartofthesecontractualrisksanditisthereforetoourreinsurers,whoassistinprovidingtheadditionalcover,thatweexpressourthanks.ThereinsurancearrangementsheldbytheClubareveryimportantinsmoothingourlargerlosses.WehavecontinuedtoenjoyveryproductiverelationshipswithourreinsurersinLloyd’sandwiththeMunichRe.Webelievethatitisfundamentallyimportanttomaintainopendialoguewithourreinsurersandtoworkwithreinsurerswhoseektounderstandourbusiness.

Duringtheyearwehavereviewedourbusinesscloselyandthisreviewwillbeongoingaswemoveforwardin�010.OurRenewalWorkingGroupcloselymonitorstheclaimsrecordandriskofeveryMemberenteredintheClub.Throughconstantanalysisofclaims,therisksassociatedwitheachvesselenteredandtheenvironmentwithinwhichtheMemberoperates,wecanunderstandandassesstherisks.WeareoftenpresentedwithnewfactorsimpactingupontherisksassociatedwithourMembers’operations,suchasenvironmentalawareness.WewillbecloselymonitoringtherecentEUenvironmentallegislationandtheimpactitmayhaveonourcover.

Strivingtoprovideagoodservicetoourbrokersandthemembershipisalwaysattheforefrontofwhatwedo.Weworkwithanetworkofover700brokersworldwideandwelooktomaintainourrelationshipsandshareideasondevelopingsolutionsthroughouttheyear.

Claims

Claimsinthe�009policyyearshowedanimprovementoverthepreviousyear,despiteanincreaseinnumberof6%.ThetotalvalueofclaimsdividedbythetonnageenteredintheClubshowedafallincostpertonof10%whencomparedtothepreviousyearatthesamestageofdevelopment.ThestrengthoftheUSdollarisinpartresponsiblefortheimprovement,howeveritisalsoclearthatwehavenotexperiencedthelargevolumeofhighvalueclaimsencounteredinthe�006and�007policyyears.

Therehavebeenincreasesanddecreasesinthevolumeofclaimsindifferentcategories.Wehaveseenreductionsintermsofdollarspertonofaround60%incollision,fixedandfloatingobject(FFO)andcargoclaims.Conversely,therehavebeenincreasesof59%and51%inthedollarpertonvaluesofwreckremovalandpollutionclaims.

ThisyearwehavedealtwithsevencollisionclaimsoverUS$100,000.WeonlyexceededUS$500,000asopposedtosevensuchclaimslastyear.ThehighestvalueclaimwasvaluedatjustoverUS$1millionandarosefromacollisioninFujairah.ThehighestvalueFFOclaimcamefromChinawhenoneofourMembers’vesselscontactedaberthinheavyweather.Asisoftenthecasewithsuchclaims,substantialdowntimeclaimedbytheportwasthemostsignificantelementofclaim.

WewouldliketoseetheClubgrowandtogrowprofitablyforthemutualbenefitofthemembership

1

2

3

4

5

6

7

20092008200720062005200420032002

4.58 3.86 4.48 3.73 7.14 6.84 4.71 4.17

OthersWreck RemovalPassengerCrewCollision/FFOPollutionCargo

Total Incurred Claims - US$ per Ton

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16 AnnualReport|�010 ManagementReport 17

Cargoclaimshavealsoseenadecreaseinfrequencyof�5% .Inthe�008policyyearwehadtoreportsixclaimsinexcessofUS$�00,000.WearepleasedtoreportthisyearthatthehighestvaluecargoclaimwasUS$�00,000.ThisclaimaroseduetocrosscontaminationoftwoparcelsofoilcargodischargedinThailand.Remediationofthecargosuccessfullymitigatedtheclaim,howevertheclaimvalueremainedhighasourMemberswereexposedtoadditionalimporttaxontheremediatedcargo.

Thisyearwehaveexperienceda1�%increaseinourownpollutionclaimsintermsofdollarspertonanda6%increaseinclaimsfrequency.OurlargestpollutionclaimoccurredintheUkraineasaresultofaspillofacargoofsunflowerseedoil.Ukraineappliesatariffsystemtofinesandaftersomediscussion,ourMemberswerefinedjustunderUS$500,000.

Althoughthenumberofwreckremovalclaimshasremainedrelativelystableat4�and46forthe�008and�009policyyearsrespectively,itisclearthatthevalueoftheseclaimsisstillincreasing.Theescalatingcostofwreckremovalsisfuelledbyheightenedenvironmentalconcernsandreflectedinmoreonerousenvironmentallegislationworldwide.Wecontinuetofocusonthetenderprocessandcontractnegotiationinordertoreduceourfinancialexposure.ThisyearwehavehadthreewreckremovalclaimscostinginexcessofUS$1million.ThefirstoccurredinMay�009withthelossofadredgeroutsideColomboportduringthesouthwestmonsoon.Afterliaisonwiththeauthoritiesitwasagreedthatthewreckremovalcouldbedeferreduntilthenextviableweatherwindow.RemovalworkcommencedinDecember�009andconcludedinMarch�010.TwomorehighprofilecasualtiesoccurredinQatarinJune�009.ThefirstwasasinkingintheDohachannelwiththetragiclossof�0lives.Afterashortyetintensivenegotiation,thewreckwassuccessfullyraisedwithinonemonthofthecasualtyoccurring.Duetothesensitivenatureofthiscasualtyandthehighlossoflife,liaisonwiththelocalauthoritieswasvitalinordertoensurethathumanremainswerequicklyandsensitivelyremoved.Lessthanoneweeklater,anothercasualtyoccurredwhenoneofourMembers’offshorevesselscontactedarigandsank.Onceagainthewreckwassuccessfullyremovedwithinonemonthofsinking.

TwoEuropeanwreckremovalshavedemonstratedthatitisstillpossibletoremovewrecksatlowcost.Oneremovalattractedsignificantlocalpresscoverageduetotheunpleasantnatureofthevesseltrade.Thevesselwasaproducttankerwhichhadbeenconvertedforthecarriageofsewageeffluent.ThevesselsankathermooringsinSouthampton.Thesecond,aharbourtug,sankwhilstpushingabargeladenwithrocksoutsidePeterheadHarbour.BothvesselswerequicklyremovedatacostofaroundUS$�50,000.

In�009weexperienceda�0%increaseinthevalueofcrewclaimswhencalculatedintermsofdollarspertonanda17%increaseinthefrequencyoftheseclaims.However,wearepleasedtoreportthattherehasbeenadecreaseintheproportionoffatalityclaimscomparedtoinjuryclaims.Thatsaid,wehavehadtwomultiplefatalityclaims.ThefirstoccurredinApril�009whilstourMember’svesselwasundergoingaroutinedry-docking.Afirebrokeoutinwhichthreecrewperished.ThesecondincidentoccurredinJunewhentheoffshorevessel,mentionedearlier,sankintheDohachannel.Thevesselhadninecrewmembers,�4charterers’personnelandtwocharterers’contractorsonboardatthetime.TheMasterandfourcrewmemberswererescued,buttheremaining�0perished.

Ofthenon-fatalcrewclaims,14exceededUS$�00,000.ThemostsignificantclaimswereonboardfishingvesselsoperatingintheNorthwestPacificOcean,witheachclaimlikelytohaveoverallsettlementatjustbelowUS$1million.ThelargestinvolvedwasaseverecrushinjurywheretheclaimwasintimatedatUS$�million.

Thisyearwehaveseena��%reductioninpassengerclaimsintermsofdollarspertonandwearealsopleasedtoreportthattherewerenopassengerfatalities.Thereweretwoincidentstonote,thefirsthighestvalueclaimoccurredonapassengervesselcruisingontheAmazonRiver.Thevesselwasboardedbyarmedrobberswhostolethepersonalbelongingsofthe�4passengersonboard.Thesecond,ahighprofileclaim,occurredthreedayspriortotheendofthepolicyyear.ThisoccurredwhenasailtrainingvesselsankoffthecoastofBrazil.Thevesselwasafloatingclassroomforseniorhighschoolandfirstyearuniversitystudentsofvariousnationalities,whowereonatenmontheducationalvoyage.All64passengersandcrewonboardweresuccessfullyrescuedafterspendingapproximately40hoursinliferafts.

Lastyearwereporteda�0%improvementinthetotalcostofclaimsperton.The�009policyyearcontinuesthistrendwithafurther10%improvement.Anumberoffactorshavecontributedtowardsthistrend.ThemajorityofourclaimsaresettledinlocalcurrencyandthesustainedstrengthoftheUSdollarhasreducedthevalueoftheseclaims.Propertydamageclaimsbenefitfromthecontinuedimpactoftheeconomicdownturnwhichhaskeptfreightrates,steelandcommoditypriceslow.Shipyardsnowhavecapacityforrepairs,speedinguprepairtimeandreducinglossofuseclaims.

Althoughwehavetoreportaslightincreaseof6%inoverallclaimnumbersthisyearincontrasttoadecreaseof10%lastyear,thisincreaseisnotdisproportionatetothegrowthoftheClubduringthelastpolicyyear.

3

6

9

12

200920082007200620052004

78

13

15

11

4

Number of Claims over US$1 million

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The Loss Prevention Department’s aim is to assist Members, whenever possible, in reducing their exposure to potential losses. This is achieved by producing initiatives based on claims trends or advice to Members on best practice and the ship inspection programme, which ensures the good quality of the tonnage entered. With the opening of the branch in Singapore, the department’s strategy has been to divide the world geographically into two areas, based mainly on the underwriting areas undertaken by each branch. The purpose is to ensure that, in general, each segment of the Loss Prevention Department will be working with the areas covered by their branch, resulting in a more “hands on” approach for our Members.

Loss Prevention

LossPrevention 19

Ship Inspections

Thenumberofsurveysinstigatedthisyearwas5�5comparedto56�in�008,with�5%ofthesurveysbeingcarriedoutontankers.

Duringthisyear,ourinspectionshighlighted19vesselsthatwereinanunacceptablecondition.Thiswasmainlyduetodefectsshowingalackofship/shoremanagementinterface,maintenanceandstructuraldefects.Asaresult,theentryofthesevesselswasterminated.Defectsnotedduringinspectionsarereviewedbyvesseltype,geographicalarea,classificationsocietyandotherrelevantfactors.TheresultsofthesereviewsareanalysedandanyapparentshortcomingsaparticularMembermayhavearediscussedwiththeirunderwriterandbrokerandwhenappropriate,remedialactionsuggested.

During�009wecarriedouta“ConcentratedInspectionsCampaign”onvesselsover�0yearsofagetradinginUnitedKingdomwaters.Sixvesselswereinspectedandtheresultsweremixed.Onevesselwasfoundunacceptableduetostructuraldefects,twovesselsrequiredremedialactionformaintenanceissues.Theremainingthreewerefoundacceptable.Afurtherfivevesselsunderthisparticularinitiativearetobeinspectedduringtheforthcomingyearandwewillthenlooktoexpandthecampaignfurtherafield.

Loss Prevention

In�009,theLossPreventionManagerrelocatedtotheSingaporebranchandduetothedemandforriskmanagementadvice,aLossPreventionExecutivewasemployedatthebranch.

ThejointventurewithSeafishandtheMCAtopromotesafetyonfishingvesselsbysponsoring“DamageControlKits”commencedin�009continues.Todate,�00kitshavebeendistributedtoUKfishermenwhoalsoattendeda“DamageControl”seminar.Thesekitscompriseusefulequipmentdesignedtocontainanuncontrolledingressofwaterinemergencysituations.Afurtherjointprojectintheformofa“BasicFishingBoatSafety”bookletisbeingresearchedwhichwillincludebestpracticeadviceontopicssuchasnavigation,onboardsafetyandmaintenance.ThispublicationwillbeforcirculationtoourfishingvesselMembersworldwide.

Thesuccessofourinitiativeswiththemembershipcontinueswithvariousmeetingscarriedoutregardingclaimsissues,operationsincludingtugandtows,generallosspreventionmattersandongoingmanagementaudits.

AswellasvisitstotheMembers’shoresideestablishments,itisenvisagedinthecomingyearthataprogrammewillbedevelopedthatwillenableustotakethelosspreventionmessagetothecrews,workingwithourMemberstoimprovetheknowledgeandabilityoftheircrews.WhenseekingacandidatetofilltheroleoftheLossPreventionExecutive,itwasarequirementthattheyshouldbeabletospeakBahasa(IndonesianandMalaysian)soastoeffectivelyundertakethisinitiativeinSouthEastAsia.

Wecontinuetoundertakemanagementaudits.In�009,resultingfromclaimshighlightingareasofconcernwithshoremanagement,threeauditswereundertaken.AlthoughwetrytoassistMembersbyworkingwiththemwheneverpossibletofindsolutionstoanyperceivedshortcomings,inonecase,theMember’sentrywascancelled.TheresultsoftheotherauditsledtospecificrequirementsandsuggestionsbeingputforwardtotheMembersconcernedandthesehavebeenacceptedpositively.

ThereisanevergreaterdemandinLondonandSingaporetoassisttheclaimshandlersandunderwritersontechnicalmatters.ThisisverybeneficialinensuringanintegratedapproachtolosspreventionforthebenefitoftheMembers.

Ship Inspections by Vessel Type

50

100

150

PassengerYachtsTankersOffshoreHarbourFishingDry CargoBarges

119

60

14

77

35

186

5

29


�0 AnnualReport|�010

With the establishment of a branch in Singapore with its separate business, it is now appropriate to think in terms of the London branch business too. In 2009 the London branch continued to handle the Club’s business in Canada and the USA. With the establishment of a Canadian branch as well at the end of the year, we will report on the development of that business under a Canadian branch report next year.

On�1stDecember�009,theClubbecamealicensedinsurerinCanada

LondonBranch Report

LondonBranchReport �1

103747-SPL 2010 R&A.indd 20-21 1/6/10 10:08:09 am

�� AnnualReport|�010

Canada

On�1stDecember�009,theClubbecamealicensedinsurerinCanadaasgrantedbytheOfficeoftheSuperintendentofFinancialInstitutions.WebecametheonlymemberoftheInternationalGroupofP&IClubstobelicensedbyOSFIinCanadaandareexcitedbythisopportunitytoofferlocalcapacityintheP&Imarket.

OursupportasanassociatememberoftheCanadianPassengerVesselAssociationcontinuesandweattendedtheannualconferenceinTorontoinNovember�009.WhilstwecouldnotattendtheCanadianFerryOperatorsAssociationannualconference,wecontinuetobeamemberoftheAssociationandsponsoredtheconferenceinEdmontoninSeptember�009.TourisminCanadaisstilllowcomparedtopreviousyears.ThisisinpartduetothestrengtheningoftheCanadiandollaragainsttheUSdollar,whichhasresultedinadropinUStourists,themaintourismmarketforCanada.ThishasaffectedourtourboatMembers.

Therehasbeenlittlemovementinthefishingvesselsector,butwecontinuetoseemergersbetweenfleetsandadropinthetotalnumberoffishingvesselsentered.

ThiswasabusyyearintheCanadianlegislativeenvironment.InJune�009BillC-7receivedroyalassentandestablishedthelegislativebasisforCanadatoratifytheInternationalConventiononCivilLiabilityforBunkerOilPollutionDamageandtheInternationalConventionontheEstablishmentofanInternationalFundforCompensationforOilSpillPollutionDamage.

Thisratificationprocesswascompletedon�ndOctober�009andcameintoeffecton�ndJanuary�010.TransportCanadaestablishedaCanadianBunkerBlueCardissuanceprocedureinearlyDecemberintimeforourMemberswhoownedtheapplicablevesselstobecompliantpriortotheendof�009.

InSeptember�009,CanadaannouncedthatitwouldnotsigntheRotterdamRules.TransportCanadareportsthattheHague/VisbyRulesremaininforceandtheywillcontinuetoreviewthefuturedevelopmentsandinternationalacceptanceoftheRotterdamRules.Anotherreviewwilltakeplacein�015aftercountrywideconsultationwithindustrystakeholders.

InWesternCanada,ourMembersfelttheimpactoftheglobalrecessionwithreducedtradeinallaspectsoflocalindustries.ManyfishingvesselsremainedinportduetotheclosureofthecommercialsockeyesalmonfisheryontheFraserRiver.Onthebrightside,theherringfisherywasverysuccessfulinrespectofhighcatchamountsandthequalityofthefishthemselves.Thefishfarmindustrycontinuestocausecontroversyduetoincreasedsealiceinfectionofwildsalmonstocksandaccidentalescapeoffarmedfishintothelocalwaters.

In�009ourMember,SouthCoastBritishColumbiaTransportationAuthority,launchedthenewSeabus“BurrardPacificBreeze”.TheoperationnowconsistsofthreepassengerferriesprovidingareliablemarinetransitoptiontoandfromdowntownVancouvertoNorthVancouver.

Canada and the USA

USA

OurUSmembershipcomprisesprimarilysmall,localfamilyoperatedvesselsinAlaska,WashingtonandOregon.OurMembersparticipateinDungenesscrab,salmon,halibut,cod,shrimpandtunafisheriesincludinglocalspecialisedspeciessuchasgeoduckandoysterfarmharvestingwithinlocalinlandwaters.

TherecessionintheUnitedStatescontinuedtoaffectourPacificNorthwestfishingvessels.Catchpricesdeclinedandquotashareshavebeenreducedduetotheoverfishingofsomespeciesinpreviousyears.Tosupporttheirfishingincome,severalMembersparticipatedinnetretrievalprojectsinWashingtonandOregon,whichwerefundedbyUSgovernmentstimulusprogrammes.Inspiteofthedownturn,ourmembershipremainedcommittedandthenumberofenteredvesselsremainedatapproximately800.

OurUSMembershaveexperiencedseverallargelossesthispastyear,inparticularcrewinjuryclaimsandremovalofwrecklosses.Wehavebeguntorequestcopiesofcrewcontractstoensurethatproperdocumentationisbeingsignedbyallcrewmembersinordertomitigateanyfutureclaims.Eachriskwillbereviewedatrenewalwithemphasisonage,areaofoperationandseaworthinessofthevessel.Inaddition,wewillofferourlosspreventionsupportiftheriskormanagementofthevesselrequiressuchattention.

LondonBranchReport ��

Total vessels entered: 3,371

300

600

900

1200

YachtsDry CargoTankersOffshoreBargesPassengerHarbourFishing

1,255

743 754

539

592 18 1

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TheClub’smembershipcontinuestoexpandacrossthewholearea,withorganicgrowthfromestablishedMembersandtheadditionofnewMembers.ThisgrowthisacrossallvesseltypesbutmainlyfromourMemberswhooperateontheinlandriversystemofLatinAmerica,smallpassengervessels,variedoffshorecraftandalltypesofharbourcraft.ItisalsoencouragingtoexperienceanincreaseintheClub’smembershipfromtheCaribbeanregion.Itappearstheinlandrivertradehasimprovedsince�008,asthewaterlevelshavereturnedtosomedegreeofnormalityduring�009.

BothBrazilandMexicocontinuetodeveloptheiroffshorefields,resultinginanincreaseinoffshorevesselsplacedwiththeClub.Wewerepleasedtowelcomeanotherwellrespectedandestablishedoffshoreoperator.

Duringtheyear,Chileansalmonfarmingstockssufferedproblemsfromavirusthathasaffectedthefishingindustryintheregion.Overall,enteredfishingvesselshavedecreasedoverthepasttwoyears,butwehavelookedtoenternewfleetsfromacrosstheregionaswearededicatedtoservingthismarket.

FollowingtheearthquakesufferedbyHaitiweextendedcoverforanumberofourMemberswhowereprovidinghelptoHaitibyassistingwiththeshipmentofcharityaidsupplies.

WecontinuetovisittheregionregularlyandlookforwardtoworkingwithourMembersandtheirbrokersoverthecomingyear.


200

400

600

800

1000


482

807

438

1,042

333

70 52 27


The 2009 policy year was very encouraging with the Club welcoming 72 new Members from the region.

Central and South America

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Australia

Theexportdemandformineralsremainedstrong,mainlybecauseofChinastockpilingmineralspreparingforaquickeconomicrecovery.Banksandthefinancialsystemremainedsafethroughoutthecrisis.

During�008,theAustralianGovernmentawardedtenoffshoreexplorationpermits,bringinginnewinvestmentvaluedatAUD$158millionandunderlyingtheimportanceofoffshorepetroleumexplorationinvestmenttotheeconomy.ThesepermitsareinCommonwealthwatersoffWesternAustraliaandtheNorthernTerritories.

Asaresultwehaveseensignificantgrowthinthenumberofoffshorevesselsservicingthesenewprojects,mostnotablytheGorgongasfieldprojectinWA,involvingthedevelopmentoftheGreaterGorgongasfields,subseagas-gatheringinfrastructureandaLNGplantonBarrowIsland.OurMembersareengagedinprojectsforthejointventurepartners,namelyChevron,ShellandMobil.

Inthepassengervesselsector,therewasareductioninpassengernumberswhichwasduetothedownturninthetourismindustry.Althoughtherewasnonotabledecreaseinthenumberofvessels,indeedourloyalmembershipfromtheCharterVesselAssociationinSydneysawasignificantrise.


Overallwearepleasedtoreportacontinuedincreaseofsome14%intonnageandpremiumincome.Onceagainthisisademonstrationofthesuperbsupportthatwereceivefromourloyalmembershipandtheirbrokersthroughouttheregion.

Whilstclaimstendtobelongtailinnature,earlysignsareveryencouragingandclaimslevelsatthemomentarerelativelylow.WhilstnotenteredwiththeClub,wedidhaveanexposurethroughourpoolingcontributiontothemuchpublicised“PacificAdventurer”oilspill.ThispollutedthebeachesoffSouthQueenslandwhenthevesselunfortunatelyranintothetailofcycloneHamishandlostcontainersoverboard,fracturingthebunkeroiltanksintheprocess.AustraliaratifiedtheBunkerConventioninJune�009.

WecontinuetomakeregularvisitstoourMembersandtheirbrokersandwereceiveinvaluableassistancefromourlocalcorrespondents.

South Pacific

ThisappearstohavebeenyetanotherdifficultyearforpassengerandcruisevesselsbasedinFrenchPolynesia,withlowerpassengernumbershavinganadverseeffectintheregion.


100

200

300

400

500

600

700


712

506

678

323

107

11

101

10

Trading conditions continued to be favourable as Australia was one of the few economies to avoid a recession. Only minor bruising was suffered from the global financial crisis.

Australia and South Pacific

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Total vessels entered: 1,309Hong Kong

Boostedbyexports,HongKongemergedfromtherecessionearlierthanexpectedinthespringof�009andthestockmarketrespondedhealthily.

Touristnumberswereadverselyaffectedinthefirsthalfof�009,notonlyduetotheeconomicslowdownbutalsotheregionaloutbreakofswinefluandthememoryoftheterribleeffectsofthebirdfluvirusin1997.However,therewasacompleteturnaroundinthesecondhalfoftheyear,boostedbyinboundtourismfrommainlandChinaandremarkablythenumberofvisitorsincreasedon�008.

Asaresult,ourpassengervesselmembershipoperatingtheferryroutesfromHongKongtoMacau,theoutlyingislandsandneighbouringcitiesinmainlandChina,wereabletomaintaintheirturnoverandthereforeourmembershipremainedstable.

Wearelookingforwardtodevelopmentsinthegambling/hotelierbusinessinMacauduring�010andtheresultanteffectitmayhaveonthenumberofferriesservicingtheroute.

OurbusinessinHongKongheldupinspiteofourpolicydecisiontonolongerwritethemid-streambargeoperatorsduetoadverseclaimsexperience.Whilehistoricallythereisalongtailnaturetocrewandpassengerliabilities,earlysignsoftheclaimsincurredaremostencouragingandmuchmorefavourablethaninprecedingyears.

OurcloserelationshipwiththeHongKong&KowloonMotorBoats&TugBoatsAssociationcontinuedtoflourishandweareproudthatfor17yearswehavebeenrepresentingtheinterestsofthesmalltugandlocallaunchoperatorsinHongKong.

WhileChinaratifiedtheBunkerConventioninMarch�009,HongKongdidnotfollowsuituntilJanuary�010withapplicationsbeingmadeviatheChinaMSA.

China, Korea and Taiwan

WeremainselectivewithourmembershipinChinaandwillconcentratefuturegrowthonthecorebusinessoftheClub.AsourSingaporebranchevolves,wecangatherawiderknowledgeoftheindividualoperatorsthoughincreasedtraveltotheregion.

Koreaonceagainsawamarkedincreaseintonnageandwhilstweareencouragedbythelowincidenceofclaims,wedidincuralargewreckremovalclaimforabargeengagedinaprojectfortheconstructionofacontainerterminalinColombo,SriLanka.

WedonotaccepttheentryofcoastaltankersandremainwaryoftheKoreancrewriskgiventhehighcompensationawards.

BusinessinTaiwanremainedstableandwelookforwardtothepotentialofanynewbusinessgeneratedbythethawingofrelationswithChina.


Overall, the record on our Far Eastern book continues to improve due to sound and selective underwriting.

100

200

300

400

500


135

505

268

222

5473

33 19

Far East

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Middle East

TheClubcontinuestoenjoysignificantgrowthintheregion.Enteredtonnagegrewinexcessof15%withnewbuildingsforexistingMembersdominatingthisgrowth.However,alackofsuitablyqualifiedcrewtooperatetheevermorecomplexoffshorevesselsremainsaproblemintheMiddleEast,aswellasworldwide.Themembershipintheregionlargelycomprisesoffshorevesselsandvesselsinvolvedintheconstructionindustry.Thedemandforoffshoresupportcraftremainedhighastheoilprice,havingbrokenthroughtheUS$70perbarrelmarkmid-year,remainedstablefortheremainderoftheyear.

Theconstructionindustryhoweverwasadverselyaffectedbytheglobaleconomiccrisisandgeneralliquiditycrunchwithdevelopersfindingitvirtuallyimpossibletofinancenewprojects.Claimsexperiencethisyearisdominatedbytwolargewreckremovalclaims.Oneparticularlosswasmostunfortunate,resultinginsubstantiallossoflife.Ingeneral,frequencyofcollisionandcontactclaimsremainedhigh,bothinoffshoreactivityandincidentsduringberthing.Theaveragevalueofclaimsgenerallyalsocontinuestorise.TheClubcontinuestoseeademandforadditionalcoverswhicharerequiredduetounfavourabletermsforMembersinoffshorecontracts.

India

WewerepleasedtorecordanotheryearofstronggrowthfromtheIndiansub-continent,withan8%increaseinenteredtonnage.ThiswasmadeupoforganicgrowthfromwithinourexistingmembershipaswellastheadditionofnewMembers.

Muchofthenewtonnageemanatesfromtheoffshoreindustry,withourMembers’newbuildprogrammeswelladvanced,yetmanyMembersexpressedtheviewthatthesectorwasbecomingover-suppliedandthoughtthatscrappingmustcome,particularlyofvesselsoflessthan60tonsbollardpullandwithoutdynamicpositioningfunctionality,asmanyoftheoilmajorsnowrefusetoacceptthem.WewereabletosharetheClub’sexperienceinhandlingclaimsfromtheoffshoreindustry,inparticularregardingthekeyissueofcrewcompetencewhenoperatingsophisticatedvesselsincloseproximitytohighvalueoffshorestructuresandproperty.

TheIndiangovernment’snewinitiativetoboostcoastalshippingbyrelaxingsomeoftherequirementsforinlandandcoastalvesselshasbeenwelcomedbyourMembers.Thereducedscantling,manningandequipmentlevelsnowinplacehaveimprovedtheoperatingmarginsforthisparticulartrade,althoughtheClubiswatchingcloselyforanydeteriorationintheP&Iriskasaresultofthereducedcrewingcomplement.ManyMembersreportedproblemsattractinggoodqualityofficersasthelimitedcoastalvoyagesmakeitdifficulttologtherequiredseatime.

Althoughcurrentlossexperiencehasnottriggeredamajorlosspreventioninitiativeintheregion,ourIndianmembershipaskedthatweschedulelosspreventioninitiativesinthenearfuture.

Middle East and India

Wehostedareceptionfor�5ofourMembersinCochin,givingustheopportunitytospeaktolocalrepresentativesfromthePortAuthority.MuchworkhasbeenundertakenbytheInternationalGrouptomeettherequirementsforverificationofP&IcoverforvesselsenteringIndianports.TheGroupemphasisedtheneedforuniformityamongsttheIndianports.WesoughttoreassuretheharbourauthoritiesthattheycanplacerelianceuponthevesselsearchfacilitiesthatfeatureontheInternationalGroupClubs’websites.

WefoundageneralconsensusthatIndiashouldmoveassoonaspossibletowardsratificationoftheBunkersandWreckRemovalConventionsaswellasamendmentstotheIndianPortsActthatwillclarifytheliabilityoftheownertoremoveawreckwithinportlimits.

InKerala,wediscussedthebenefitsexpectedfromthevariousnewportinitiatives,includingIndia’sfirstInternationalContainerTransshipmentTerminal(ICTT)withafinalcapacityofaroundthreemillionTEU,anewInternationalBunkeringTerminal,amulti-userliquidterminalandacruiseterminal.



200

400

600

800


1

429

81

387

848

19

136

15


�� AnnualReport|�010

Fishing vessels continue to make up the majority of our South African membership, with the total tonnage remaining relatively unchanged from last year.

DespiteSouthAfricaeasingoutofitsfirstrecessioninover17yearsinthethirdquarteroflastyear,thecommercialfishingindustryhasstillbeenaffectedbytheglobaleconomiccrisis.Reducedallowablecatchesandincreasesinthepriceoffuelintheindustryhaveforcedconsolidatedactivities,theretrenchingofstaffandvesselstobelaidup.

SouthAfrica’ssmallpelagicfisheryremainsaverycomplexsectortomanagewiththetotalallowablecatchatalow90,000tonnesagainthisyear.ThissectorhasseenadropinfirstworldmarketslikeEuropeandtheUSA,butnotinChinaorAfrica.

Onamorepositivenote,despitetightmarketsconstrainingthelobsterindustry,SouthAfrica’slobsterspeciesremainindemandintheEUandAsia,mainlybecausethecountryhasbeenabletoprovideconsistencyandcontinuityofsupply.

Thesustainabilityoftheenvironmentisbecomingavitalissueinthefishingindustry,whichhasseentheimplementationofindustrydrivenresponsiblefishingpracticesandthelaunchoftheSustainableSeafoodInitiative.InSeptember,theglobalconservationorganisationWWFandfourSouthAfricanfishingcompanies,whichincludethreeoftheClub’sMembers,launchedtheResponsibleFisheriesAllianceinabidtosupporttheimplementationofaneco-systemapproachtofisheriesmanagement.

AcontroversialissueaffectingtheindustrythisyearhasbeentheperformancemeasuringreviewprocesswhichiswrittenintosectorpolicydocumentswiththeaimofallowingMarine&CoastalManagementtokeepreliablerecordsofinvestment,shareholdingandotheraspectsofperformancebyrightholders.

ThesalvageindustrycontinuestoperformwellinSouthAfrica,withonenotableincidentinvolvingoneoftheClub’ssalvorMembersinthepreventionofthebulkcarrier“PineTrader”runningagroundinMaywhensufferingenginefailureandwateringressinthevicinityofCapeInfanta.Shewassuccessfullyredeliveredtoherowners.

ThesameMemberwasalsoinvolvedinthesuccessfullandingoftheMaster,officersandcrewofthevessel“Ioannis”whenshestartedlistingsome100milesoffSaldanhaBayinJulylastyearandwasalsoappointedfollowingthegroundingofthebulkcarrier“LongCharity”.

Total vessels entered: 718

Africa

50

100

150

200

250

300


316

183

4762

91

10 8 1

LondonBranchReport ��



Belgium, Holland and Germany

Significantcompetitioncontinueswithintheinlandcraftmarket,butwehavebeenencouragedbytheloyaltyofourinlandMembersthroughoutadifficult�009.Wehaveseenandcontinuetoseetheentryofsomeofthenewlybuilttankersorderedinpreviousyears,althoughreportssuggestthatduetoeconomicdownturn,thereisanincreaseinnewbuildsbecomingthepropertyoffinancialinstitutions.Theeconomicsituationstillcontinuestoimpactbargeownerswithmanytakingthedecisiontolay-upmultiplevessels.Despitethis,weremainconfidentandcommittedingrowingourinlandportfolio.

GrowthcontinuestoberestrictedwithinthefishingindustryduetothehighconcentrationoflocalP&Iprovidersinthismarket.Ourmarketshareremainsstrong,butwehaveexperiencedaplateauinthelastyearasacquisitionsandnewbuildsslowduetothethinprofitmarginsresultingfromtherestrictiveEUquotasandlowercashflow.

Theoffshoreandtugmarketscontinuetoshowgrowth,especiallyasoperatorsdemandthelimitsrequiredforventuresoutsideofthearea,includingtheCaspianSea.

Theyachtsectorremainedcompetitivebutweexperiencedgrowththroughourdovetailed‘packages’withyachtinsuranceproviders,mainlyduetothenumberofnewbuildsthatenteredthemarketfromallovertheworld.

Ingeneral,theDutchandBelgianbusinesscontinuestodominateourEuropeanportfolioandinthecurrenteconomicclimateitiscomfortingtoseegrowthonthewhole.Ourfocusonserviceandprovidingadvicecontinuestobuildourbrokerrelationships.

DespitecompetitionfromboththeInternationalGroupClubsandthefixedP&Imarket,wearepleasedtohavebeenabletomaintainourcurrentmarketshareinGermany.Wearekeentoexpandourmembershipfromsuchasophisticatedandhistoricalmaritimenationandwillbeseekingtoexpandonourcurrentoffshoreandtugportfoliogoingforward,aswellastheyachtsector.


Europe

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�6 AnnualReport|�010 LondonBranchReport �7

Eastern Europe

WecontinuetoenjoygreatsupportfromourPolishmembershipandinthelastyearwereabletosecuretheentryofoneoftheprominentbunkeroperatorsintheregion.

WearepleasedtohaverenewedouroneMemberfromtheSlovakRepublic,whoisinvolvedinrunningapassengerserviceontheRiverDanubebetweenBratislavaandBudapest,aswellasBratislavaandVienna.

TheBoardofDirectorshelditsOctobermeetinginthebeautifulcityofStPetersburg,thehomeofoneofourlargerMembers,whohavebeenenteredwithusforalmosttenyearsandwearecontinuingtoenjoyorganicgrowthfromthisMember.Wecontinuetoremainselectiveinourunderwritingandconservativeinournewbusinessacquisitionintheregion.

TheClubhasalwaysbeeninterestedinsecuringmembershipintheUkraine,acountrywithsuchalong-standingmaritimehistory.Wewelcomedtwoentriesthisyear,thefirstbeingasizeabletugandbargeoperationandthesecond,amajorandwell-knowndrycargooperation.

Spain, Portugal and Gibraltar

TheClub’smembershipinSpainhasseencontinuedsteadygrowthinthepastyearandwehavebeenverywellsupportedbythelocalbrokers.Themaingrowthhascomefromthesmallercoastaltradingpassengervessels,resultinginanincreaseinenteredtonnageof��% .

Portugalisanotherareathathasgrownthisyearwithanincreaseof11%inenteredtonnage.ThisismainlyduetotheincreasedvolumeofvesselsenteredthroughaPortuguesefishingvesselmutual.WeareactivelylookingtoexpandourPortuguesemembershipthisyear,especiallyinthelocallytradingpassengervessels,anareainwhichwehaveseensuchpositivegrowthinSpain.

TheClubhasasmallamountofbusinessinGibraltar,withtheMembersbeingmainlyyachtowners.Mostothervesselownersareplacingtheirbusinessinthefixedmarket,especiallythosesmallervesselownersinvolvedinshiptoshipsupplyruns.LastyearsawtheClub’sfirstvisittotheareaandwewillbelookingtobuilduponthisduring�010toofferaviablealternativetofixedmarketinsurers.

France

Ouryachtportfoliohascontinuedtogrow,despitedifficulteconomicconditions,withnewbuildingsbeingdeliveredin�009.However,withreportsthatmanyshipyardsnolongerhavefullorderbooksandwithsomeclosingduetotherecessionandlackoforders,wemustanticipateaslowingdowninthegrowthofouryachtportfolioduring�010.

Therearealsoreportsthattheyachtcharteringbusinessissignificantlylessactivethisyear.Oneoptiontakenupbysomeyachtownersisto‘mothball’theiryachtsbyplacingtheminlongtermlay-upinashipyardormarina.Forlargeryachts,thiscansaveupto80%oftheaverageannualrunningcosts.

TheSeptember�009MonacoYachtShow,thepremiereventofitstype,wasasbusyanddynamicasever,butreportsarethatsomeoftheothersmalleryachtshowshavebeenlesswellattendedthroughouttheyear.

Onamorepositivenote,thisisclearlynowawellestablishedmarket,withalargefleetofyachtsandassetswillneedtokeeptradingtokeepthemarketactive.Wecananticipatecontinueddevelopmentintheyachtbusinessforthefuture,butthereallydramaticgrowthwehaveseeninpreviousyearsmaytakealongtimetoreturn.

ForotherbusinessinFrance,whichisprimarilymadeupofpassengercraft,tugsandbarges,operatingonthecoastandinland,ourportfolioofbusinesscontinuestodevelopsteadily,withgreatsupportfrombrokerswithwhomwehavehadrelationshipsformanyyears.OurfishingvesselportfolioinFranceremainsstable,althoughwehaveseenthebreakupofoneofthevesselowners’mutuals.AnumberofthesevesselstradeintheIndianOceanandhaveagreementsinplacewiththeFrenchMinistryofDefencetohavearmedtroopsonboardforprotectionfrompiracy.SuchagreementsareapprovedbytheFrenchflagstate.Wehavealsoseensomefishingvesselslaidupbecauseofquotalimitationsontheiractivity.IntheFrenchoverseasterritories,themostsignificantpoliticaldevelopmentisthatMayotte,betweentheAfricanmainlandandMadagascar,isbecomingafullFrenchdepartment,whichmeansthatMayottewillbecomeanintegralpartofFranceandthustheEuropeanUnion,whichwillresultinsignificantdevelopmentinvestmentsgoingtoMayottefromFranceandtheEU.Significantinfrastructuredevelopmentsareplanned,particularlyforthetourismsector.WehaveanestablishedmembershipinMayottebutcananticipatefurthergrowthinthisregion.

Scandinavia and Baltic States

Theportfolioofbusinesswithinthisregionmainlyconsistsoffishingvessels,smallpassengervesselsaswellasharbourcraftandthebalanceoftheClub’sportfolioremainsunchangedalthoughwehaveseenanincreaseinMembersinDenmarkandSweden.Thebiggerfleetsinthisregionspecialiseinoceanandharbourtowage,aswellassalvage.

BeingassociatemembersoftheEuropeanTugOwnersAssociationandtheInternationalSalvageUnionenablesustocontinuetoserviceourMembersinthisregioneffectively.Wecontinuetoreviewawiderangeofcontractswithinthisvesselsector,notingthatoftenourmembershipfaceswiderliabilitiesthanhavebeentraditionallyassumed,sowecontinuetoworkonprovidingpracticalinsurancesolutionsforourmembership.Thesupportfromourestablishedrelationshipsinthisregioncontinuesalthoughwenotethatduringthe�009year,organicgrowthdidslowdowncomparedtopreviousyears,nodoubtasaresultoftheeconomicdownturn.

WehaveseenanincreaseinenquiriesonIcelandicfishingvesselswhichisencouragingandourportfoliooffishingvesselsandsmallpassengerdaytripvesselsintheFaroeIslandsremainsstrongwitha9%increaseinnewentriestotheClubduringthecourseoftheyear.

WehaveastablebookofbusinessemanatingfromEstoniaconsistingofsmalltankers,tugsandferries.Oneofourtugfleetshasexpanded,althoughthepassengertradeseemstobesufferingfollowingtherecenteconomictroubles.

Ouryachtportfoliohascontinuedtogrow,despitedifficulteconomicconditions,withnewbuildingsbeingdeliveredin�009

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�8 AnnualReport|�010 LondonBranchReport �9

Mediterranean

OurmembershipinItalyhasremainedstable,assistedbylongestablishedbrokerrelationships.WehavenotedanincreaseinthenumberofMemberslayinguptheirvesselsformuchlongerperiodsthanbefore.Theportfolioismadeupofownersoperatingtugs,harbourcraft,highspeedpassengervesselsandmoreconventionalsmallferries,aswellasasignificantnumberofmotoryachts.Thecablelayersinthisregionhavecontinuedtoworkonsomebigprojectsandwealsosawtheadditionofsomeotherspecialistcraft.Themostprominentriskexposurefacinguswithinthisareacontinuestobepassengerandcrewliability,aswellascollision/FFOrisks.However,wearepleasedtoreportamuchlowerfrequencyinthesetypesofclaimsin�009.

HistoricallytheClubhasnotventuredintotheGreekmarketuntilthisyearwhenaveryconservativestrategyhasbeenimplemented,culminatinginsecuringtwoMembersfromGreece.ThefirstwasatraditionaltugoperatorandthesecondbeingafleetofvesselsthatservicethemonasteriesonMountAthos,thecentreofGreekOrthodoxy,aswellasferryingpilgrimstoMountAthos.WhilstwearekeentoexpandourGreekmembership,thiswillcontinuetobeinlinewithourconservativeapproachtothetonnagetargeted.

WesecuredadditionaltonnagefromMaltatoaddtoourlong-standingMaltesemembership.

TheClub’smembershipinTurkeycontinuestoconsistpredominantlyoftankers,ferriesandpassengervessels,althoughtheeconomicdownturnhashadadetrimentalimpactonthecargocarryingtonnage,aswellasthemoremaritimeserviceorientatedtonnage,culminatinginaslightreductioninthetonnageentered.TheClubcontinuestoinsurethebiggestpassengerferryoperatorintheregion.

UK

Overall,the�009yearsawaslightfallinenteredtonnagealthoughcallincomewasup.

TheClubwasinvolvedinaseriesofwreckremovalcasesfromUKMembersinUKwaters,withthreeinthespaceofsixmonths.ThestaggeringcostsassociatedwithrespondingtoapparentlystraightforwardremovaloperationsisofconcerntotheClubandoneofthechallengeswefaceistoensurethatcallincomeprovidesadequatelevelsofreservesforsuchcontingencies.Therateoflosswassufficienttotriggeraspecificlosspreventioninitiative,examiningthecausesofthesinkings,followedbytheimplementationofrevisedinsurancecoverageterms,whereappropriate.ThisinitiativeisinadditiontotheUKlosspreventionsurveyprogrammewhichwecurrentlyhaveinplace.

ThevolumeoflongtermwatersidedevelopmentprojectsensuredthatmanyofourtugandbargeMemberswerefullyoccupiedthisyear,despiteadownturnintheindustry.TheClubheldworkshopsforsupportingbrokerstoexplainthefitbetweenP&Ispecialistoperationscoverandcontractorsallrisksinsurance.Asaresultwefindthatbrokerscometouspreparedwithathoroughdescriptionoftheworkinvolvedandthelimitsrequired,enablingustoquicklyassesstheriskpresentedandpriceitaccordingly.

WearepleasedthataninitiativelaunchedbyonesupportingbrokerlastyearhasbeensuccessfulandwehavewelcomedaspreadofsquareriggerstotheClub,viaaco-operationagreementwiththemembershipgroup.Althoughformerlyinsuredinthecommercialmarket,thebrokerhassuccessfullysoldthevirtuesofClubmembershipandmorevesselsareanticipated.

WiththeabruptclosureoftheferryserviceofferedbyoneofourMembers,wewereremindedonceagainofthehighcostsandhighlycompetitivenatureofthepassengerserviceindustryintheUK.WewereabletoassistanewWestCountryMemberwhoisestablishingavaluablelinkacrosstheBristolChannel.

ItremainsachallengetogarnerawellspreadportfolioofpassengerandferryvesselrisksasmanyprospectiveMembersopttobuyonlylimitedcoverfromthecommercialmarket,oftenunderacombinedhullandliabilitypolicy.

Wecontinuetoofferattractiveratesandtermstopleasurecraftownersandhavehadsomesuccessinattractingtonnagealthoughthisnotoriouslycompetitivemarketfindsmanyownersoptingtotakecombinedhullandliabilitycoveragefromcommercialmarketinsurers.

CompetitiononsmallerUKfishingvesselsremainsasfierceaseverafterthedecommissioningthathasoccurredoverthelastfewyears.However,wecontinuetobeinvolvedinseveralsectors,particularlythesmallerinshoreandfishingsupportvessels.

500

1000

1500

2000


1,237

2,225

1,260

1,016

448333

832

640




The South East Asia region has for many years been an important area for the Club with sustained growth over many years. In 2007 the decision was made to establish a presence and the Singapore branch office officially opened on 27th April 2009.

Singapore Branch Report ThebranchhasbeensetuptoprovideafullP&IClubservicetoourmembershipintheformofunderwriting,claimshandlingandlosspreventionfunctionswithastaffof1�comprisingsixexpatriatesfromtheLondonofficeandsevenlocallyemployedmembersofstaff.TheinitialremitwasforthebranchtoundertakeresponsibilityforSingapore,Malaysia,Thailand,IndonesiaandNewZealandwithaviewtoincreasingthebranchbusinessoverthreeyearstoencompassthewholeSouthEastAsiaandPacificRimregion.

Thebranchhasbeeninoperationforjustoverayearandthepotentialbenefitstakenintoaccountinestablishingtheofficehavebeenrealised.ThisincludesestablishingcloserrelationshipswithourMembers,whichenablesagreaterunderstandingoftheirbusinessandtheassociatedproblemstheyface.WearenowabletoregularlymeetwithourMembersanddiscussclaimsand

underwritingissues.Thisisparticularlyrelevantwhendealingwithcomplicatedorsensitiveclaimsissues.TheClubisnowbetterplacedintheregiontoacquirenewbusinessasrelationshipsareestablishedwithpotentialMembersandmarinebrokerswithwhomwehavenothadapreviousbusinessrelationship.

TheClubhasthreemainBoardDirectorsintheregionandregularmeetingsareheldbetweenthebranchmanagementandtheseDirectorstodiscussnewbusinessopportunitiesandtheoveralldevelopmentofthebranch.

Despitebeingintherelativelyearlystagesofestablishingourpresenceintheregion,weareseeingthelocalpresenceoftheClubstartingtobearfruit.Wehavetakenonanappreciableamountofnewbusiness,bothinSingaporeandfromelsewhereintheSouthEastAsianregionsinceopening.

OurbusinessplanfortheSingaporebranchallowedforthefirstyeartobeallocatedtothebeddingdownofthebranchanddevelopingoursystemstoensurethelevelofservicetheClubisknownforwasmaintained.Wehadourinfrastructureinplaceveryearlyoninthefirstyearandhavebeenabletobringourplanningforward.

Welookforwardtobuildingonthesefoundationsandprovidingahighleveloflocalservicetoourmembershipintheregion.

SingaporeBranchReport 41

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4� AnnualReport|�010 SingaporeBranchReport 4�

TheClub’sarrivalinSingaporehascoincidedwithacontinuedexpansioninsomesectorsofthemarket,whichappearstoruncountertothegeneralslowdownintheshippingindustryduringthepresenteconomicclimate.ThishasresultedinsignificantorganicgrowthfortheClub,particularlyfromthetug,bargeandoffshoresectorsandtheupgradingofmanyofthebunkeringfleetsinandaroundSingapore.

Ontheclaimsfront,theClubhasalsoseenanincreaseinthenumberofclaims,emanatingparticularlyfromthetugandbargeindustry.Whilstcausationoftheclaimsisvaried,therearecommonfactorsinmanyoftheincidents.Tocaterformajorconstructionprojects,increasedsandimportationintoSingaporehascoincidedwithevenmorecongestedwatersthannormalinandaroundtheOPL,morevesselslayingup,andanincreasednumberofvesselsvisitingSingaporeforbunkers.Whilstsomeofthesemajorconstructionprojectsarenearingconclusionandasfewervesselslay-upastherecoveryintheshippingindustrygainsstrength,itistooearlytojudgewhetherornottheseclaimspatternsaremorelongtermorjustablip.Eitherwaywewillbecontinuingtokeepaneyeonthesituation.

Indonesiahaspostponeditsmuchanticipatedcabotageimplementationbyayear,asitwasfeltthatthenation’snationalfreighterswerenotfullyreadytotakeovertheshipmentofdomesticseabornecargo.IndonesiarepresentsoneofthefastestgrowingmarketsinAsiafortheClub.Themembershipisverydiverse,madeupoftugandbargefleets,landingcraft,dredgers,offshorecraft,tankers,cargoships,touristandlive-aboarddiveboats.

Duringthelastfewyears,wehavewitnessedthenumberofvesselsenteredintheClubincreasetenfold.Nowhereisthismorevisiblethanintheoffshoresector,asMalaysiacontinuesitsdrivetoreducerelianceonforeignflagvesselsservingtheoilandgasindustry.Thissectornowrepresentsjustover�0%ofthetotalnumberofvesselsentered.Whilstthisgrowthiswelcome,theClubhasencounteredanumberofpotentiallyhighvalueclaims,mainlyinvolvingdamagetorigsandotheroffshorestructures.Themainreasonforthisisduetothefactthatthevesselsaregettinglarger,morepowerfulandsophisticated,againstaneverdwindlingpoolofgoodqualityandexperiencedseafarers.Againstthisbackground,anumberofourMembershaveimplementedtrainingprogrammesfortheircrews.Duringthecourseoftheyear,theClubwasalsoaskedtogiveatalktotheMalaysianMaritimeAcademy(ALAM),followingwhichweagreedtobecomethesponsorsofthe“BestAcademicCombinedMate/MasterCoC”studentaward.

ElsewhereinMalaysia,anumberofourMembersfromthetankerindustrytookdeliveryofbrandnewdoublehulltonnage,primarilytofulfillongtermscontractswiththeoilmajorssuchasPetronas.

TheClubhasanestablishedpresenceinThailand.Ourmembershipremainsloyalandcomprisesmainlytankerowners,ferryingrefinedproductsandLPGfromtherefineriessituatedintheGulfofThailandtovariousdistributioncentresalongtheChaoPhrayaRiver.

Thailandisstilltoratifycertainconventions.Asaresult,Membersarestillnotabletolimittheirliabilityintheeventofpropertydamageandpollutionclaims.Itthereforeremainsessentialforthemtohaveinplacecomprehensivecoveragewiththehighestpossiblelimitsofcoveravailable.Aswithothervesselownersintheregion,anumberofourThaiMembershaveembarkeduponaprogrammeoffleetrenewalduringthecourseoftheyear,comprisingbothnewandsecondhandtonnage.

InthePhilippines,weareextremelyfortunateinsofarasourmembershipremainsveryloyal.Comprisingmainlyownersfromthetankerandtowageindustry,wecontinuetoseeourpresenceintheregionincreasesteadily,withanumberofMembersacquiringadditionalvessels.

Overtwothirdsofallreportedincidentsarefromthetankersector,withthebalanceattributabletoharbourcraft.Interestingly,nearly80%ofallreportedclaimsareresultofcrewillnessorinjury.Notwithstandingthis,apartfromthewellpublicised“SolarI”claimbackin�006,ouroverallrecordinthePhilippinescontinuestorunwell.

WereportedpreviouslythatwiththechangeofgovernmentinNewZealand,itwasthoughtlikelythatthe1996ProtocoltotheConventiononLimitationofLiability1976wouldberatified.However,itnowappearsthatratificationwillbepostponeduntiltheworldeconomicsituationhassettleddown.

Despitecontinualpressurefromthecommercialmarkets,themajorityoftheNewZealandfleetsremainwiththeClub.Duringtheyear,ninenewMembersjoinedtheClubandourexistingmembershiphasseenappreciableorganicgrowth.

Singapore

500

1000

1500


155

1,915

319

1,503

908

704

235

17

Indonesia Malaysia Thailand Philippines New Zealand



44 AnnualReport|�010 AnnualAccounts 45

Claimsincurred,netofreinsurance,haveincreasedby�8.4%toUS$117.8million.AsreferencedintheClaimsReporthowever,the�009policyyearisshowingabetterperformancethan�008atthesamestage,butthecurrentfinancialyearhasnotexperiencedthesignificantimprovementintheclaimsreservesforprioryearsaswitnessedinthepreviousfinancialyear.Inaddition,the�009policyyearhasseenamuchgreaterimpactfromotherClubs’PoolclaimsduetosomesignificantlossesoccurringduringtheyearaswellastheClub’sproportionofthoseclaimsbeinggreaterthanforthepreviousyear.

Operatingexpenses,comprisingbusinessacquisitioncosts(brokerage)andadministrativeexpenses,increasedby15.4%toUS$�4.4million,withacquisitioncostsincreasingby14.9%toUS$�0.4millionandadministrativeexpensesby18.7%toUS$14million.TheincreaseinadministrationcostsinthemainreflectsthecostsoftheintroductionofnewITsystemsandtheopeningofthebranchofficeinSingapore.

Overall,theresultingunderwritingdeficitofUS$�.�millionrepresentsacombinedratioforthefinancialyearof101.5%,althoughthecombinedratioforthe�009policyyearwas99%.

Theyearhasonceagainbeendominatedbythecapitalmarkets,andduringtheyearto�0thFebruary�010thosemarketshavedevelopedratherpositively.TheClubhashistoricallyhadastrategicassetallocationforitsinvestmentportfolioofa50%(principallygovernment)bondexposure,�0%inglobalequitiesand�0%inalternativeinvestments,managedbyBerenbergBank(Schweiz)AG,withthebondelementbeingmanagedonanactivebasis,theequitycontentonbothanactiveandpassivebasis,andalternativeinvestmentsintheformofholdingsindifferentmanagedfunds.

AswemoveclosertotheimplementationofSolvencyIIwithintheEU,therewillbeaninevitablechangingemphasistowardsriskassessment,riskmanagementandcapitaladequacyrequirements.Itwillbenecessaryforustoaddressourcapitalrequirementbydirectreferencetoourassessmentandmanagementofrisk,andtheinvestmentstrategywillbedeterminedinconjunctionwithacapitaladequacymodel.Duringthefourthquarteroftheyear,theClubhasrevieweditsassetallocationwiththeresultthatequitieshavebeenreducedtoaround�5%ofthetotalportfolio,andallalternativeinvestmentshavebeensoldwiththeproceedsinvestedinbonds.

Overall,intheyearto�0thFebruary�010theClub’sinvestedassetsmanagedbyBerenbergtogetherwithcashresourceshaveincreasedinvaluebyUS$57.�milliontoUS$�77.8million,representedbyapositivereturnoninvestmentsofUS$�9.5millionandanetincreaseinliquidfundsofUS$17.8million.Theabsolutereturnoftheconsolidatedportfoliodevelopedverypositivelywithareturnof1�.5%oncapital.

Lastyear,wecommentedthatthemajorityofthesignificantinvestmentlosswasunrealisedhavingarisenfromtherequirementtorevaluetheequitiesonamark-to-marketbasisatthebalancesheetdate,thattheequitiesintheportfoliowerestillbeingheld,andthattheBoardwasconfidentthatthelong-termstrategyofinvestinginequitieswouldresultinarecoveryinvaluesinduecourse.GlobalequitymarketsadvanceddramaticallyduringtheyearwiththeMSCIWorldTotalReturnIndexincreasingby50.1% .TheClub’sequityportfoliosparticipatedinthisdevelopmentandshowedverystrongreturnsofbetween44.9%and49.8%dependingonthefundconcerned.

Thebondmarketproducedapositiveperformanceduringtheyear.Themainperformancedriverwasbondsectorallocation,andtheincreasedexposuretofinancialandcorporatebonds,albeitwithhighcreditquality,resultedinanout-performanceinallbondsectors.Overall,themainbondportfoliosproducedreturnsofaround5.6%againstaUSdollargovernmentbondbenchmarkof4.�%.

Therearenolongeranyactivemanagedalternativeinvestmentsintheportfolio,withallremainingalternativeshavingbeingsoldduringthefourthquarteroftheyear.Thereremainsasmallresidualholdingof‘side-pockets’offormerfundofhedgefundactivitythatisintheprocessofbeingredeemed.

Theoverallinvestmentreturn,includingotherexchangegains,amountedtoUS$41.6millionfortheyear,andtheresultingsurplusonordinaryactivitiesamountedtoUS$�9.5million,increasingthecapitalandfreereservesoftheClubtoUS$1�5.�million–anincreaseof41.�%overtheyear.

The Consolidated Income and Expenditure Account for the Club has once again seen a growth in earned income during the year. Gross premiums earned have increased by 4.5% to US$174.2 million, and earned premiums net of reinsurance have risen by 1.4% to US$150 million.

Financial Review

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FollowingourappointmentbytheGeneralMeetingoftheMembersdated16thJuly�009,wehaveauditedtheaccompanyingannualaccountsofTheShipowners’MutualProtectionandIndemnityAssociation(Luxembourg),whichcomprisethebalancesheetasat�0thFebruary�010,andtheincomeandexpenditureaccountfortheyearthenended,andasummaryofsignificantaccountingpoliciesandotherexplanatorynotes.

TheBoardofDirectorsisresponsibleforthepreparationandfairpresentationoftheseannualaccountsinaccordancewithLuxembourglegalandregulatoryrequirementsrelatingtothepreparationoftheannualaccounts.Thisresponsibilityincludes:designing,implementingandmaintaininginternalcontrolrelevanttothepreparationandfairpresentationofannualaccountsthatarefreefrommaterialmisstatement,whetherduetofraudorerror;selectingandapplyingappropriateaccountingpolicies;andmakingaccountingestimatesthatarereasonableinthecircumstances.

Ourresponsibilityistoexpressanopinionontheseannualaccountsbasedonouraudit.WeconductedourauditinaccordancewithInternationalStandardsonAuditingasadoptedbytheInstitutdesréviseursd’entreprises.Thosestandardsrequirethatwecomplywithethicalrequirementsandplanandperformtheaudittoobtainreasonableassurancewhethertheannualaccountsarefreefrommaterialmisstatement.

Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresintheannualaccounts.Theproceduresselecteddependonthejudgementoftheréviseurd’entreprises,includingtheassessmentoftherisksofmaterialmisstatementoftheannualaccounts,whetherduetofraudorerror.Inmakingthoseriskassessments,theréviseurd’entreprisesconsidersinternalcontrolrelevanttotheentity’spreparationandfairpresentationoftheannualaccountsinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrol.AnauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebytheBoardofDirectors,aswellasevaluatingtheoverallpresentationoftheannualaccounts.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.

Inouropinion,theannualaccountsgiveatrueandfairviewofthefinancialpositionofTheShipowners’MutualProtectionandIndemnityAssociation(Luxembourg)asof�0thFebruary�010andoftheresultsofitsoperationsfortheyearthenended,inaccordancewiththeLuxembourglegalandregulatoryrequirementsrelatingtothepreparationoftheannualaccounts.Wedrawattentiontothedeparturefromlegalrequirementsdetailedinnote1.Ouropinionisnotqualifiedinthisrespect.

TheDirectors’report,whichistheresponsibilityoftheBoardofDirectors,isinaccordancewiththeannualaccounts.

MooreStephensS.A.R.L.Réviseurd’entreprises16,alléeMarconiL-�01�Luxembourg

Date:�1stMay�010

To the Board of Directors and Members of The Shipowners’ Mutual Protection and Indemnity Association (Luxembourg)

Report of the Auditors

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�010 �010 �009 �009

Fortheyearended�0thFebruary�010 Note US$’000 US$’000 US$’000 US$’000

Technical AccountEarned Premiums, net of reinsurance

Grosspremiumswritten � 181,719 169,54�

Outwardreinsurancepremiums (�4,186) (18,86�)

Changeinthegrossprovisionforunearnedpremiums (7,5�9) (�,804)

150,004 147,876

Allocatedinvestmentreturntransferredfromthenon-technicalaccount 41,591 (60,8��)

Claims incurred net of reinsurance

Claimspaid

Grossamount (1�7,69�) (117,856)

Reinsurers’share �5,994 10,119

Netclaimspaid 4 (101,698) (107,7�7)

Changeintheprovisionforclaimsoutstanding

Grossamount 1�,856 4,761

Reinsurers’share (�9,948) 17,84�

Changeinthenetprovisionforclaims 5 (16,09�) ��,60�

(117,790) (85,1�4)

Operatingexpenses 6 (�4,409) (�9,805)

Balance on the technical account �9,�96 (�7,885)

Non Technical AccountBalanceonthetechnicalaccount �9,�96 (�7,885)

Investmentincome 7 41,591 (60,8��)

Allocationinvestmentreturntransferredfromthenon-technicalaccount (41,591) 60,8��

Surplus/(Deficit) on ordinary activities before taxation �9,�96 (�7,885)

Taxation 77 (�86)

Surplus/(Deficit) on ordinary activities after taxation 10 �9,47� (�8,171)

Thenotesonpages5�to59formpartoftheseAccounts

Consolidated Income and Expenditure Account

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�010 �010 �009 �009

Asat�0thFebruary�010 Note US$’000 US$’000 US$’000 US$’000

AssetsInvestments

Quotedinvestments 8 ��1,615 �04,7��

Goodwill 9 760 95�

��,�75 �05,685

Reinsurers’ share of technical provisions

Claimsoutstanding 5 88,864 118,81�

Debtors

Debtorsarisingoutofdirectinsuranceoperations 15,��7 6,1�0

Debtorsarisingoutofreinsuranceoperations �,758 �,689

Otherdebtors 46� 6�7

19,458 9,446

Other assets

Tangibleassets 6,999 4,55�

Cashatbankandinhand 4�,870 1�,769

50,869 18,��1

Prepayments and accrued income

Accruedinterest �,�66 1,909

Deferredacquisitioncosts �,5�5 1,669

Otherprepaymentsandaccruedincome 651 1,806

5,45� 5,�84

TOTAL ASSETS 497,018 457,648

D.A.MacLeod–Chairman

R.E.Frising–Director

ApprovedbytheBoardon1�thMay�010


�010 �010 �009 �009

Asat�0thFebruary�010 Note US$’000 US$’000 US$’000 US$’000

LiabilitiesCapital and reserves 10

Legalreserve �00 �00

Contingencyreserve 1�5,040 95,567

1�5,�40 95,867

Technical provisions

Provisionforunearnedpremiums �0,�98 1�,769

Claimsoutstanding-grossamount 5 ��1,456 ��5,�1�

�41,754 �48,081

Provision for other risks and charges

Provisionfortaxation �7� 0

Creditors

Creditorsarisingoutofdirectinsuranceoperations 4,406 1,489

Creditorsarisingoutofreinsuranceoperations 11,6�5 8,851

Othercreditors 1,404 1,945

17,4�5 1�,�85

Accruals and deferred income �,�16 1,415

TOTAL LIABILITIES 497,018 457,648


Consolidated Balance Sheet

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5� AnnualReport|�010 AnnualAccounts 5�

1. General

TheShipowners’MutualProtectionandIndemnityAssociation(Luxembourg)isregisteredintheGrandDuchyofLuxembourg.Itisamutualinsuranceassociation,whoseprincipalactivityistheinsuranceandreinsuranceofmarineprotectionandindemnityrisksofbehalfofitsmembership.Asamutualinsuranceassociation,theAssociationdoesnothaveasharecapitalandtheliabilityofitsMembersislimitedtothecallsandsupplementarypremiumssetbytheDirectorsoftheAssociation.

Presentation of financial statementsTheseconsolidatedfinancialstatementshavebeenpreparedinaccordancewiththeLuxembourgInsuranceAccountsLawof1994,apartfromthevaluationofquotedinvestmentsandthepresentationoftheIncomeandExpenditureAccountandBalanceSheet.ThisvariationistoenabletheproductionoffinancialstatementsthatarepreparedinaccordancewiththeformatgenerallyadoptedbymembersoftheInternationalGroupofP&IClubs.Statutoryfinancialstatementsareavailableforinspectionattheregisteredoffice:TheShipowners’MutualProtectionandIndemnityAssociation,16RueNotre-Dame,L-��40Luxembourg.Alltransactionsrelatetocontinuingactivities.

Basis of ConsolidationTheconsolidatedfinancialstatementshavebeenpreparedinUSdollarsandcomprisetheaccountsoftheAssociationanditsaffiliatedundertakings.Theprofitsandlossesofaffiliatedundertakingsareconsolidatedasfromtheeffectivedateofacquisitionortotheeffectivedateofdisposal.

Management of the AssociationTheAssociationismanagedbyTheShipownersProtectionLimited(SPL).SPLprovidesadministrative,underwriting,accountingandclaimsprocessingservicestotheAssociation.

2. Accounting Policies

(i) Translation of items expressed in foreign currenciesAssetsandliabilitiesinforeigncurrenciesareconvertedintoUSdollarsattheratesofexchangerulingontheBalanceSheetdate.IncomeandExpenditureitemsareconvertedattherateprevailingatthetransactiondate.Differencesarisingoncurrencytranslationareincludedintheexchangegainsandlossesinthenon-technicalaccount.ExchangedifferencesareeitherallocatedtoopenPolicyYearsorretainedastheDirectorsconsiderappropriate.

(ii) Intangible assets - GoodwillGoodwillrepresentstheexcessofthecostofacquisitionoverthefairvalueofthenetassetsacquiredinthesubsidiary.Goodwillisamortisedoveritsestimatedusefullife,normallyassumedtobefiveyears.Goodwilldeemedtobeimpairedwillbewrittendowntoitsimpairedvalue.

Intangible assets - Software developmentThecostofdevelopmentofnewsoftwareusedwithinthebusinessisstatedatcostlessamortisationbasedontheanticipatedusefullifeoftheasset,assumedtobefiveyears.

(iii) Tangible fixed assetsTangibleassetsarestatedathistoricalcostlessaccumulateddepreciation.Depreciationisprovidedonastraightlinebasisovertheanticipatedusefullifeoftheassetsconcernedatthefollowingrates:Computerequipment-50%perannumFurniture&Fixtures-��.�%perannumLeaseholdimprovements-overtheremaininglifeoftheleaseCommunicationshardware-�0%perannumComputerdevelopmentcosts-�0%perannum

(iv) Affiliated undertakingsTheAssociation’saffiliatedundertakings,listedbelow,areallentitiesoverwhichtheAssociationhasthepowertogovernthefinancialandoperatingpoliciessoastoobtaineconomicbenefits.TheinvestmentintheHydraCellofHydraInsuranceCompanyLimited,aBermudaSegregatedAccountCompany,isalsoreportedasaninvestmentinanaffiliatedundertaking.Thecostofanacquisitionofanaffiliatedundertakingismeasuredasthefairvalueoftheassetsacquired.Theexcessofthecostofacquisitionoverthefairvalueofthenetassetsacquiredisrecordedasgoodwill.

TheShipowners’ProtectionLimited-UKShipowners’AsiaPte.Limited-SingaporeSpandiluxS.A.-Luxembourg S.O.P.(Bermuda)Limited-Bermuda WaterborneUnderwritingServicesLimited-Canada HydraInsuranceCompanyLimited,ShipownersCell-Bermuda (v) Other financial investmentsQuotedinvestmentsarecarriedattheirmid-marketvalueattheBalanceSheetdate.Unquotedinvestmentsareheldatcostlessanyprovisionforimpairmentinvalue.

(vi) DebtorsProvisionhasbeenmadefordebtswhicharethoughtnottobewhollyrecoverable.

(vii) Deferred Acquisition CostsAcquisitioncostsrepresentthebrokerageandcommissionsattributabletotheprocessingofproposalsandtheissuingofpolicies.Acquisitioncostsaredeferredandamortisedovertheperiodsinwhichthepremiumsareearned.

(viii) Technical Provisions - Unearned PremiumsProvisionforunearnedpremiumsrepresentsthatpartofgrosspremiumswrittenthatisestimatedtobeearnedafterthebalancesheetdate.Theunearnedpremiumreserveiscalculatedonadailypro-ratabasis.

(ix) Technical Provisions - Claims OutstandingClaimsaresubjecttoprolongeddelay,bothastonotificationandsettlement.Accordingly,thelikelyfinalcostofclaimsoutstanding,whichincludeaprojectionforclaimsincurredbutnotreported(IBNR)aswellasfuturedevelopmentofreportedlosses,isbaseduponcurrentinformationandtheexperienceandjudgementoftheDirectors.Largeclaimsareassessedseparately,beingmeasuredonacasebycasebasisinordertoallowforthepossibledistortiveeffectofthedevelopmentandincidenceoftheselargeclaims.TheultimatecoststhereofcannotbeascertainedwithcertaintyatthedateoftheBalanceSheet.ProvisionforthecostofclaimshandlingisincludedwithintheIBNRs.Reinsurers’shareisaccountedforonanaccrualsbasisandallocatedtothesamePolicyYearastheclaimstowhichtheyrefer.

(x) CreditorsCreditorsareincludedinliabilitiesatsettlementvalue.

(xi) Accruals and deferred incomeThisitemconsistsofbothchargesthatrelatetothecurrentfinancialyearbutarepayableafterthebalancesheetdateandincomereceivedbeforethebalancesheetdatebutrelatingtoasubsequentfinancialyear.

(xii) Allocated investment return from non-technical accountNetinvestmentreturnonassetsheldtocoverthetechnicalprovisionsistransferredfromthenon-technicalaccounttothetechnicalaccounttobetterreflectthebalanceofthetechnicalaccount.

(xiii) Administrative ExpensesAdministrativeexpensesincludemanagementcostsandgeneralexpensesbutexcludeinternalclaimshandlingcosts.Theyaredealtwithonanaccrualsbasisandchargedtotheincomeandexpenditureaccount.

(xiv) PremiumsCallsandpremiumsinceptingpriortothebalancesheetdateareshowngrossofacquisitioncostsandnetofrefundsandareaccountedforasandwhenchargedtoMembers.

Notes to the Accounts

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(xv) Reinsurance PremiumsReinsurancepremiumsarechargedtotheincomeandexpenditureaccountonanaccrualsbasisandallocatedtothePolicyYeartowhichtheyrelate.

(xvi) Claims PaidClaims,whichincludeinternalandexternalclaimshandlingcostsandtheAssociation’sshareofclaimsunderpoolingagreements,arechargedtotheincomeandexpenditureaccountwhentheyhavebeenpaidanddonotincludeanyestimatedoutstandingclaims.ClaimsareallocatedtothePolicyYearsinwhichtheincidentsoccurred.

(xvii) Reinsurance RecoveriesTheliabilitiesoftheAssociationarereinsuredwithsimilarassociationsundertheInternationalGroup’spoolingagreementandwithmarketunderwriters.Reinsurers’sharerepresentsactualrecoveriesreceivedanddueinrespectofclaimspaidbytheAssociation.TheyareallocatedtothesamePolicyYearastheclaimstowhichtheyrefer.

(xviii) Investment ReturnInvestmentreturncomprisesallinvestmentincome,realisedandunrealisedinvestmentgainsandlosses,netofinvestmentexpenses,chargesandinterest.Dividendsarerecordedonthedateonwhichthesharesarequotedex-dividendandincludetheimputedtaxcredits.Interestandexpensesareaccountedforonanaccrualsbasis.Realisedgainsandlossesoninvestmentsarecalculatedasthedifferencebetweennetsalesproceedsandpurchaseprice.Movementsinunrealisedgainsandlossesoninvestmentsrepresentthedifferencebetweenthevaluationatthebalancesheetdateandtheirpurchaseprice.

(xix) Policy yearsCallsandreinsurancepremiumsarecreditedorchargedtothepolicyyeartowhichcoverrelates.Claimsareincludedinpolicyyearsbyreferencetothedateoftheincidentandreinsurancerecoveriesarematchedaccordingly.Managementexpenditureisallocatedtothecurrentpolicyyear.

(xx) TaxationThechargeforUKtaxationisshowninthenon-technicalaccount.Thechargeisbasedonapercentageoftheinvestmentincome.Itisnotbasedontheunderwritingincome.

(xxi) Related party disclosuresTheAssociationhasnosharecapitalandiscontrolledbytheMemberswhoarealsotheinsureds.Thesubsequentinsurancetransactionsareconsequentlydeemedtobebetweenrelatedparties,thesearetheonlytransactionsbetweentheAssociationandtheMembers.Nosingletransactionwithrelatedpartiesisofsuchmaterialityandnatureastorequiredisclosure.

�010 �009

US$’000 US$’000

3. Gross PremiumsThetotalgrossdirectinsurancepremiumsresultfromcontractsconcludedinthe:

Memberstateoftheheadoffice 5�6 56�

OtherEECmemberstates �4,588 ��,746

Non-memberstates 156,605 145,��4

181,719 169,54�

4. Net claims paidGross claims paid

GrossAmount

Members’claims (1�0,�0�) (111,6�9)

InternationalGroupofP&IClubs (7,�89) (6,�17)

(1�7,69�) (117,856)

Reinsurers’ share of claims paid

RecoveriesfromothermembersoftheInternationalGroupofP&IClubs 17,��1 5,�58

GroupExcessLoss 0 0

Otherreinsurers 8,76� 4,761

�5,994 10,119

Net claims paid (101,698) (107,7�7)

AnnualAccounts 55

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�010 �009

US$’000 US$’000

5. Change in the Provision for Claims OutstandingClaims outstanding

GrossAmount

Ownclaims (�0�,767) (�08,840)

OtherClubs’poolclaims (17,689) (�6,47�)

(��1,456) (��5,�1�)

Reinsurers’ Share

Pool 19,859 40,818

GroupExcessLoss 0 0

Otherreinsurers 69,005 77,994

88,864 118,81�

Netclaimsoutstandingcarriedforward (��,59�) (�16,500)

Netclaimsoutstandingbroughtforward �16,500 ��9,10�

Changeinthenetprovisionforclaimsoutstanding (16,09�) ��,60�

6. Operating expensesAcquisitioncosts (�1,�71) (19,116)

Changeindeferredacquisitioncosts 865 655

Administrativeexpenses (14,00�) (11,�44)

(�4,409) (�9,805)

�010 �010 �009 �009

US$’000 US$’000 US$’000 US$’000

7. Investment ReturnInvestmentincome 8,4�9 9,6�1

Investmentgains:

Realisedgains 8,11� 6,619

Realisedlosses (1�,565) (14,100)

Unrealisedgains/(losses) ��,464 (44,095)

�8,011 (51,576)

�6,440 (41,955)

Exchangegains/(losses) 5,680 (18,�40)

Investmentmanagementcharges (5�9) (5�7)

41,591 (60,8��)

8. Quoted Investments Bookvalue Marketvalue Bookvalue Marketvalue

Equityinvestments 85,504 96,��5 84,�1� 84,�70

Fixedinterestinvestments ��9,9�6 ��4,4�4 175,�44 176,8��

Depositswithcreditinstitutions 856 856 4�,6�0 4�,6�0

�16,�96 ��1,615 �0�,187 �04,7��

9. Goodwill Balancebroughtforward 95� 1,577

Acquiredduringtheyear 0 0

Amortisedduringtheyear (19�) (6�4)

Balancecarriedforward 760 95�

GoodwillacquiredduringthepreviousyearrepresentedthatarisingontheacquisitionofWaterborneUnderwritingServicesLimited.

AnnualAccounts 57

Notes to the Accounts(continued)

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�010 �009

Incomeand Incomeand

Legal Contingency Expenditure Legal Contingency Expenditure

Reserve Reserve Account Reserve Reserve Account

US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

10. Capital and reservesBalanceat�1stFebruary�009 �00 95,567 0 �00 1��,7�8 0

Excessofexpenditureoverincome 0 0 �9,47� 0 0 (�8,171)

Transferredfromcontingencyreserve 0 �9,47� (�9,47�) 0 (�8,171) �8,171

Balanceat�0thFebruary�010 �00 1�5,040 0 �00 95,567 0

11. Contingency Reserve

InaccordancewiththeAssociation’sRules,allavailablefundsaftermakingfullprovisionforclaimsoutstandinghavebeen,andwillcontinuetobe,transferredtotheContingencyReserve.

12. Related Party Transactions

LuxembourgLawrequiresdisclosureofmaterialtransactionswithrelatedparties.AsallmutualmembersoftheAssociationactasinsurer,whilstalsobeinginsured,theyare,ineffect,relatedparties.Nosingletransactionisofsuchmaterialitytorequireseparatedisclosure.

13. Average Expense Ratio

InaccordancewithSchedule�oftheInternationalGroupAgreement1999wearerequiredtodisclosetheAverageExpenseRatiofortheAssociation’sP&Ibusinessforthefiveyearsended�0thFebruary,�010.Theratioof19%hasbeencalculatedinaccordancewiththeScheduleandtheguidelinesissuedbytheInternationalGroupandisconsistentwiththerelevantFinancialStatements.

14. Designated Reserves

AllmembersoftheInternationalGroupofP&IClubshaveenteredintoarrangementsunderanagreementdated�0thFebruary1996wherebyeachClubhasprovidedsecurityinfavourofTheBermudaTrustCompanythatcanbedrawnuponintheeventofaClubfailingtomeetacalluponitinrelationtoitsobligationsunderthePoolingAgreement.TheAssociationhasfurnishedaletterofcreditinthesumofUS$5,�09,4�0securedontheassetsoftheAssociation,inrelationtoitsparticipationinthearrangement.

ClosedYears �007 �008 �009 Total

US$’000 US$’000 US$’000 US$’000 US$’000

15. Consolidated Policy Year Statement - 20th February 2010Balanceavailableforoutstandingclaims (�0,765)

Callsandpremiums

Debitedinprioryears 145,599 167,0�8 -

Debited/(credited)thisyear (158) (��1) 174,655

145,441 166,707 174,655

Reinsurancepremiums (�0,760) (18,901) (�0,918)

Claimspaid

Ownclaims (101,98�) (46,�59) (�7,��1)

OtherClubs’Poolclaims (7,994) (�,0��) (1,4�8)

Reinsurancerecoveries

Pool

Otherreinsurers ��,947 �,458 40�

Estimatedoutstandingclaims

Ownclaims (107,875) (48,666) (60,904) (68,56�)

OtherClubs’Poolclaims (8,054) (4,78�) (1,997) (�0,615)

Estimatedreinsurancerecoveries

Pool 19,�78 1,�5�

Otherreinsurers 41,970 ��,�78 �,59� �94

Administrativeexpenses (1�,69�) (11,�61) (1�,705)

Acquisitioncosts (16,057) (19,084) (�1,1�6)

Surplus/(deficit)at�0thFebruary�010 (75,445) (�0,818) 11,��0 1,746 (8�,�98)

Unallocatedinvestmentincome �18,��8

Contingencyreserve 1�5,040

AnnualAccounts 59

Notes to the Accounts(continued)

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Redefining Mutuality

TheShipowners’Club

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a n n u a l r e p o r t 2 0 1 0 - shipowners' club

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