No. 17 2013/2014 - Class 1 and Class 2 Policy Year Balances and Mid-Year Financial Update August 2013

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Dear Sirs,

CLASS 1 (P&I) AND CLASS 2 (FD&D) POLICY YEAR BALANCES AND MID-YEAR FINANCIAL UPDATE AT AUGUST 2013

At their meeting on 18 September 2013 the Board reviewed the Class 1 and Class 2 policy year balances and the Club’s overall mid-year financial position as at 20 August 2013.

MID-YEAR FINANCIAL POSITION

The consistently positive financial progress and further strengthening in the Club’s balance sheet since the end of 2010, as reported in Notice to Members No. 7 2013/14 in May, has continued during the first half of 2013.

Incurred claims costs for the Club’s own Members for 2011 and all prior policy years have reduced. At the same time incurred claims costs for 2012 and 2013 are developing in line with 2011 which shows a lower incurred value and lower claims frequency than any policy year since 1999.

These sustained improvements in overall operating performance have not been significantly affected by increases reported by other Group Clubs for claims involving the Pool particularly for 2006 and 2011.

As a result, at mid-year, the combined ratio has reduced to less than 102%, and is forecast to be at a similar level in February 2014.

A positive investment return for the first quarter of the policy year was reversed during the second quarter with the result that the investment return for the year to date in August was flat. The Board has re-affirmed its policy of maintaining a strategic reduction in more volatile risk assets to lessen the likelihood of a significant investment loss.

As a consequence of all these factors the Club’s overall free reserve at mid-year remains at a similar level to February 2013 at a little below $200 million. Since investment returns for the remaining half of the year are forecast to be low, no material change to this free reserve figure is anticipated at February 2014. It also remains the case that no reliance can be placed on future investment income to support underwriting results in any year.

CLASS 1 (P&I) POLICY YEAR BALANCES

CLOSED POLICY YEARS (2010 AND PRIOR)

The 2010 policy year was closed in May 2013. As indicated all closed policy years are developing positively which may reflect in further reductions in ultimate claims projections in future.

OPEN POLICY YEARS

2011/2012

The overall projection for the 2011 policy year was reduced at February 2013 reflecting the fact that despite the comparatively high cost of claims involving the Pool, incurred claims costs for the Club’s own Members are, as already noted, at the lowest level for any year since 1999. Members incurred claims costs have reduced with the result that, if the trend continues, the overall projection for the year may reduce again as the year matures.

No further call is forecast and the year is scheduled to be closed in May 2014. The release percentage was reduced from 30% to 5% in May 2013 and remains unchanged.

2012/2013

Total incurred claims for the Club’s Members for 2012 at year-end were at a similar low level as claims for 2011 at the same stage. Since then incurred claims have developed in line with 2011 with the result that the two years are very similar in terms of claims values and frequency. Pool claims from other Group Clubs are however at a higher level than for 2011, but the adverse impact on the overall figures is mitigated by a further improvement in the Club’s own Pool record.

The forecast additional call of 30% was charged in August 2013. No further call is forecast. The release percentage was reduced from 30% to 15% in May 2013 and remains unchanged.

2013/2014

Mid-year incurred claims figures for Members for the current policy year are at or below the levels observed for 2012 at mid-year and claims frequency continues at similar low levels. This encouraging start to the year is not so evident from claims involving the Pool, but a further reduction in the Club’s pool percentage contribution is expected to be of benefit overall to the ultimate cost of claims for the year.

The forecast additional call of 35% is scheduled for payment in August 2014. No change has been made to the forecast and the release percentage of 30% also remains unchanged.

CLASS 2 (FD&D) POLICY YEAR BALANCES

CLOSED POLICY YEARS (2008 AND PRIOR)

Projected claims costs for all closed policy years up to and including 2008 have remained stable since February 2013. The overall surplus has increased to $17.2 million.

OPEN POLICY YEARS (2009 – 2012)

Incurred claims costs for each of the open years from 2009 – 2012 have developed in line with forecasts since February 2013 and remain well within ultimate projections. No change has accordingly been made to any of the forecast additional or release call percentages as advised in Notice to Members No. 7 2013 / 2014 dated May 2013.

2013 / 2014

Adverse trading conditions for Shipowners which in some segments have worsened over the first half of the year have not so far resulted in any significant change to incurred claims figures for the year.

The Board has confirmed that the forecast additional call (35%) remains unchanged together with the release (30%).

RELEASES

In assessing and reconfirming the level of release call percentages set for all open policy years for both Class 1 and Class 2, the Board has taken account of the fact that the factors that might affect the risk that the level of the Club’s estimated total premiums might be exceeded had not materially altered since their last review of the Club’s figures in May 2013.

A statement of the Club’s release call percentages for Class 1 and 2 for the last 5 policy years is available on the Club’s website at www.westpandi.com.

RENEWALS 2014/2015

As usual the Board will advise in early November what level of general increase will be applied to advance call rates for Class 1 and Class 2 risks for 2014. As noted, investment income cannot be expected to support any underwriting results. Members should also bear in mind that, regardless of any improvement in worldwide economic activity, pressure on premium rates is continuing with claims costs and the cost of reinsurance for 2014 again forecast to increase.

Yours faithfully

For: West of England Insurance Services (Luxembourg) S.A.
(As Managers)

P E Spendlove
Managing Director