Skuld latest marine mutual victim of credit crisis

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Jerry Frank - Tuesday 23 December 2008

 

Douglas Jacobsohn

NORWAY’S Skuld has emerged as the latest marine mutual casualty of the 2008 financial crisis, with plummeting investments almost halving its free reserve bulwark. 
The Oslo club, which has clawed back to financial strength over the decade, today revealed a $90m investment loss over the first nine months from a $12m gain over the same period in 2007. 
Douglas Jacobsohn, president and chief executive of Skuld, also warned that the protection and indemnity sector faces a likely loss of premiums — known as the churn effect — if 2009 brings a cull of veteran tonnage. 
“If weak markets stimulate further scrapping of the oldest ships in fleets, the churn effect on club average premiums may be worsened,” Mr Jacobsohn said. 
“The combination of likely renewal outcomes at February 2009, the churn effect and the dwindling investment return will represent a major challenge to nearly all clubs.” 
Brokers have been warning that the International Group of P&I Club members have been relying on investment income in recent years, which has offset underwriting deficits. 
Willis, in its recent P&I Market Review stated that the reliance on investment income has “become all too painfully clear following the global economic problems in the current year”. 
Compatriot protection and indemnity specialist Gard, which also offers hull and energy insurance, last week was delivered a pre-Christmas outlook revision by rating agency Standard & Poor’s to negative from stable. 
Gard is now recognised as the largest and one of the most financially strong of the P&I clubs, but S&P made its decision on the back of falling investments returns. 
S&P credit analyst Peter McClean said: “Losses on Gard group’s investments have caused the level of capitalization, as measured by its free contingency reserves, to fall below that implied at this rating level.” 
Gard chief executive Claes Isacson sadi that S&P’s decision was in the context of an industrywide review by S&P and rating action in the wake of the “exceptional volatility” in the financial markets. 
“The imposition of the negative outlook only reflects unrealised investment losses,” Mr Isacson. Gard retained its A+ financial rating. 
Gard reported a $49m deficit for the six months to 20 August down from a $11m surplus, while free reserves over this period dwindled to $532m from $580m on February 20. Investments were down to around $1.2bn from just over $1.3bn six months earlier. 
Skuld said that its poor investment return for the first nine months of the year had sunk its bottom line to a $83m deficit, and reduced free reserves to $120m from $204m a year earlier. 
But if a further measure is needed of the present volatility of financial markets Skuld said that its investments had taken a $20m improvement in the month since these were valued at $90m on November 20. 
Mr Jacobsohn emphasised that free reserves remained within present solvency requirements and the estimated levels of the new regime due in 2012. 
“The reduction in free reserves is unfortunate but shows that the club has the strength and resources to handle extreme volatility,” said Mr Jacobsohn. 
“The level of free reserves is expected to recover in the long term without having to recourse to dramatic measures with our members.” 
One note of optimism for Skuld is that its technical result, including underwriting incomes minus claims and expenses, over the first three quarters was almost $7m, compared with around a $5m loss at the same period last year. 
Although Skuld and the other IG members are so far looking at a moderate 2008 pool claims year, it cautioned that the northern hemisphere winter and the tail-end of the policy year was “claims intensive” with some deterioration still expected. 
* In yesterday’s article, Insurers have to write new chapter, it was reported that Dex was the hull facility of the Thomas Miller-managed UK Club. Dex is a separate insurance facility also managed by Thomas Miller and underwritten by Groupama.