Protection & Indemnity

London P&I Club | www.londonpandi.com

2017/18 financial year results

  • Owned tonnage increased by 5.7%
  • Premiums reduced by -1.1%
  • Gross and net paid claims reduced by -42.9% and -18.9% respectively
  • Estimates for outstanding claims increased by USD 12.8 million
  • 20.8% increase in net incurred claims
  • Underwriting loss of USD 15.2 million
  • Investment return of 5.5%, close to market average
  • Despite the substantial underwriting loss, investment income was positive enough to produce on overall surplus for the year of USD 6.6 million.
  • Assets increased by 4.9%, Free Reserves increased by 3.5%

Combined Ratio

The London Club’s net combined ratio deteriorated from 98% to 119% between 2016/17 and 2017/18.

Consolidated Financial Year Summary (USD 000s)

2015/16 2016/17 2017/18
Income and Expenditure
Calls and Premiums 110,072 102,891 101,728
Reinsurance Premiums -22,670 -20,181 -20,393
Operating Expenses -11,954 -11,542 -12,655
Operating Income 75,448 71,168 68,680
Gross Paid Claims 80,397 139,268 79,532
Net Paid Claims 76,266 87,754 71,127
Net Change in Provision for Claims -16,137 -18,282 12,775
Net Incurred Claims 60,129 69,472 83,902
Technical Surplus (Deficit) 15,319 1,696 -15,222
Investment Income -12,026 25,609 21,852
Overall Surplus for Year (Deficit) 3,293 27,305 6,630
       
Balance Sheet
Net Assets (market) 385,273 394,296 413,701
Net Outstanding Claims 224,566 206,284 219,059
Free Reserves 160,707 188,012 194,642
Entered tonnage (GT, millions) 2016 2017 2018
Owned / Mutual 44.4 44.0 46.5
Chartered / Fixed 7.5 10.0 11.5
Total 51.9 54.0 58.0
       
S&P Rating History 2016 2017 2017
   BBB   BBB   BBB 
       
Average Expense Ratio (AER) 2016 2017 2017
Five years ending 20 February 9.52 9.51 9.68

Combined Ratio

Combined ratios provide a direct comparison of club underwriting performance. The combined ratio is essentially the net loss ratio for the club and is defined as follows:

Net combined ratio =

(Net incurred claims + operating expenses)
(Premium – reinsurance costs)
  • A combined ratio of 100% represents an underwriting break-even position
  • Anything in excess of 100% would be an underwriting loss
  • A combined ratio less than 100% would represent an underwriting surplus.

Average Expense Ratio (AER)

Average Expense Ratios (AERs) were introduced in 1999 following pressure from the European Commission in an attempt to enable direct comparisons of operating costs between clubs within the International Group. The formula that all clubs are required to adhere to when calculating their AER figure is as follows:

The AER formula is the
five-year average of:

(Operating expenses x 100)
(Premium income + Investment income)

In principle the AER is a reasonable idea, but in reality it is only ever a very approximate guide to the relative operating costs of individual clubs. For example different membership profiles, disproportionately high levels of premium or investment, whether the club owns or rents their office space, how much the club spends on loss prevention, global office network, member portals etc all have an impact on the AER.