Steamship Mutual, the leading P&I Club, has released its 2010 Management Highlights. This includes a question and answer session with the new CEO of the Club’s Managers, Gary Rynsard.
“Since becoming CEO in August 2009 I have found that Members and brokers have very often raised the same or similar issues and I thought it might be helpful to address these in this publication as a series of questions and answers”. Gary Rynsard
Q. What do you see as the key challenges over the next three years?
A. The key challenge for a P&I Club is to provide the best service possible to its Members. To achieve this it is necessary to talk to Members regularly, understand their requirements and issues and engage in a joint effort to solve problems in the most practical and efficient manner. This has always been the case over the history of the Club and the only way to continue this tradition is to recruit and retain talented staff who have the desire and ability to really deliver high quality service. P&I offers the opportunity of a fascinating career, London is a magnet for talented individuals from around the world. If our senior management can select and encourage the right kind of people that will go a long way to assuring that the Club will flourish.
One thing is certain. The demands on shipowners will increase and the need to represent and protect shipowners’ interests will similarly increase. Criminalisation of seafarers, restrictions upon rights of limitation, piracy, CO2 emissions and environmental issues, increased regulation; these and many other challenges will underline the role that the P&I Clubs play in putting forward their Members’ cases in co-operation with other shipowner organisations.
The second major issue will be deciding the appropriate level of capital needed to support the business. Shipowners will want to see their P&I Clubs adequately capitalised and resilient in the face of market volatilities; at the same time they will be unhappy to see more of their capital held by the Club than is absolutely necessary when they could be using that capital within their own businesses. This issue will, of course, be heavily influenced by the attitude of regulators. There the Club will need to put forward the strong arguments to be made on behalf of the mutual system and its unique mechanism for recapitalisation. The Clubs will certainly encourage regulators to discriminate between financial institutions, and to avoid a “one size fits all” approach. We would also like to see an acknowledgement of the size and nature of the risks posed by P&I Clubs to the regulators’ statutory objectives – surely relatively small when compared to the large commercial insurers within the FSA’s remit. An important part of the process will be increased transparency and disclosure to the Members and brokers. It is essential that those who ultimately pay for the business should understand, participate in and hopefully agree the calculations for pricing and capital.
Q. Governance is currently a key issue for companies – how do you view this in the context of Steamship Mutual?
A. The starting point has to be this: “What is the purpose of a P&I Club and the role of the Board?” Above all, the Club exists to serve its Members; the Board to represent the membership in all its diversity and to ensure that the management delivers the service required. The success of the Club requires a vibrant and engaged Board. Given the demands on Directors’ time and the responsibility placed on them, it is certainly a challenge to persuade busy, able people to serve on a P&I Club Board. We are fortunate to have such people, and Board Members and management, have to work hard to provide a worthy succession plan.
Steamship Mutual Board meetings should, I believe, be a place to debate the important strategic issues for the Club and how best to support shipowners in all the challenges they face. It is also a place where the virtues of co-operation between different nationalities and companies, between Directors and management, are pre-eminent.
Q. What effect has the recent financial crisis had on the Club?
A. The financial crisis of 2008 probably gave greater urgency to changes that were already underway. First, the lessening of any reliance on investment income to pay for outgoings, primarily claims and administration costs. Well before 2008 we believed that the premium collected from the Members should substantially pay for claims and administration costs. The events of 2008 confirmed our view, and demonstrated all too clearly the need for this approach to be embedded in the pricing. Second, our investment strategy needed to refocus. After careful review it was decided to adopt a low risk approach, essentially investing in government bonds to match all projected claims liabilities, and in corporate bonds, equities and alternatives only in excess of these requirements, subject to a defined risk budget. This has resulted in a portfolio whose assets are approximately 60% invested in government bonds. Inevitably this means that the Club will benefit less from a buoyant stock market, equally it is less exposed to stock market falls. Our view is that the new strategy is more attuned to the needs of a P&I Club and will contribute to the Club maintaining the financial strength it currently enjoys.
Q. Would you like to see the Club grow in size?
A. The Board has recently debated this question which in itself shows that there is a real issue concerning the benefits of growth. The Club is of significant size, which has enabled it to achieve at least some economies of scale already. But the essence of the argument against growing in size is that the assets belong to the Members, who may ask why that capital should be available for the benefit of new Members who have not contributed to it.
On the other hand, there are arguments for growth – the benefits of spread of risk and further economies of scale. It is also the case that sheer animal spirits make us want to compete and attract new business to the Club, it is one measure of our success or otherwise. With the important proviso that the growth must be in good quality fleets whose membership is likely to add to the financial strength of the Club, we favour steady and measured growth. And I am pleased to say that the Club is achieving this objective, without sacrificing the quality or standards which we are rightly expected to maintain. Steamship Mutual has always believed in diversity of membership by geographical area and vessel type and I hope this will continue.
Q. Do you think that we will see amalgamation of P&I Clubs in the near future?
A. Having just said that there are benefits in the spread of risk and economies of scale, it would be illogical not to acknowledge that there is an argument to be made for the amalgamation of P&I Clubs. That being the case, I believe it must always be a possibility. However, that does not mean that it is likely in the near future. The various P&I Clubs all have their distinctive qualities, their own individualities. Shipowners have a real sense of ownership and participation in their Clubs and many would be very reluctant to see their particular Club effectively disappear. I also believe that shipowners and brokers want to have a wide choice and enjoy vibrant competition between the Clubs. For these reasons, I think it unlikely that there will be amalgamation in the near future. We have just celebrated the Club’s centenary, and I would like to think that Steamship Mutual will in due course celebrate its bicentennial.
Summary of Results
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Free reserves rise to US$ 251.6 million.
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The three year average combined ratio improves to 93.2%.
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Total entered tonnage rises to approximately 83 million GT.
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Reduction in attritional claims counterbalance by adverse large claims experience as pool claims return to levels experienced in 2006 and 2007.
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Investment strategy redesigned around a risk budget set relative to projected claims and capital requirements.
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Combined gain on investments of US$ 45.1 million.
…Ends…
Note to Editors: Additional photography and comments are available upon request
Press contact:
Jackie Callard
+44 (0) 20 7650 6515
jackie.callard@simsl.com
About Steamship Mutual
Steamship Mutual (managed by Steamship Insurance Management Services Limited) is a leading provider of Protection & Indemnity (P&I) insurance. As one of the largest P&I Clubs in the International Group, Steamship Mutual insures a diverse range of shipping around the globe, for both shipowners and charterers.
Steamship Mutual offers a comprehensive range of P&I products and ancillary covers. The Club consistently delivers a first-rate service to its Members, providing high quality professional claims management and services, backed by a stable financial position and strong free reserves.
With offices in London, Bermuda, Hong Kong, Brazil and correspondents in every major shipping port worldwide, Steamship Mutual employs highly professional and experienced staff including qualified lawyers, ex-senior mariners, and specialist insurance and claims experts.
For further information visit: www.simsl.com
Summary of Results
• Free reserves rise to US$ 251.6 million.
• The three year average combined ratio improves to 93.2%.
• Total entered tonnage rises to approximately 83 million GT.
• Reduction in attritional claims counterbalance by adverse large claims experience as pool claims return to levels experienced in 2006 and 2007.
• Investment strategy redesigned around a risk budget set relative to projected claims and capital requirements.
• Combined gain on investments of US$ 45.1 million.
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