UK Defence Club
Reserves strategy copes with increased claims

Despite claims levels rising significantly as a result of the worldwide financial turmoil and downturn in the shipping market, the UK Defence Club increased its entries, premium and investment income and level of reserves in 2008/9.

In a difficult year, the Club has produced strong figures, maintaining that the significant increase in claims has vindicated the long-term strategy of building reserves.

The Club----the world's leading provider of FD & D cover to ship owners and operators----has reported its results for the year ended 20th February 2009.

Net claims incurred rose to £14.5 million, compared with £9 million in 2007/8. However, premium income rose by six per cent because of continued growth in entries. Investment return totalled £4.3 million, £1.6 million better than the previous year. This was helped by a cautious investment strategy assisted by the weakness of sterling, which depreciated by 26 per cent against the US dollar and 14 per cent against the Euro. This strengthening also contributed to net exchange gains of £2.2 million.

There was an overall surplus for the year of £2.1 million, taking free reserves from £17.73 million to £19.87 million. Combined funds rose from £48.4 million to £54.0 million.

The Club had 3,965 owned and chartered ships entered at the close of the year. This compared with 3763 ships 12 months earlier.

UK Defence Club Chairman Mr P C Laskaridis pointed out that as global market confidence evaporated, freight rates fell to levels not seen since the turn of the century. Overnight, parties sought to renegotiate contracts previously viewed as profitable but which had suddenly become hurdles rather than opportunities.

At the start of the year, the Defence Club had been involved in cases concerning late delivery which unsurprisingly gave way to questions of early redelivery as the year progressed. New building and sale and purchase cases raised new issues of interpreting commonly used standard form contracts.

The outcomes of particular cases clarified various legal issues for the shipping community. They included the SILVER CONSTELLATION, which involved an owner's obligations with regards to RightShip approvals; the PARAGON, which involved a clause aimed at compensating an owner for losses arising out of illegitimate last voyage orders; and the TS SINGAPORE, which focused on whether the ship remained on-hire during a passage to a shipyard while continuing on her intended cargo course.

The increasing cost of claims had highlighted the issue of proportionality between claim amount and cost.

Increased use of Alternative Dispute Resolution (ADR) had been beneficial, particularly mediation and the early determination of key issues which had enabled a number of cases to be resolved without hearings. These methods of dispute resolution should be encouraged where appropriate. The Managers enhanced their Value for Money programme, aimed at controlling legal costs and improving value from legal suppliers.

With the EU Solvency II requirements due to be introduced in 2012, Board was committed to maintaining the Association's funds well above regulatory and solvency requirements.

Mr. Laskaridis acknowledged that further challenges lay ahead but hoped for "calmer seas. Resilience and adaptability epitomise anyone associated with ship owning and operating in the current economic crisis. The events of 2008 are a reminder of the value of our cover. The principles of mutuality are as important today as they were many years ago when the Association was established."

Daniel Evans, of Thomas Miller Defence Limited, commented: "Given its financial position and the cost and breadth of cover available, the Association remains strong and well positioned to continue to meet the needs of its Members. The Board has always approached the financial affairs of the Association conservatively with a long term vision to benefit its Members. This approach has meant that the Association avoided many of the investment difficulties faced by others in 2008 and this is reflected in the investment return for the year."

UK Defence Club

The UK Defence Club provides legal expenses insurance (also known as freight, demurrage and defence insurance) to ship owners and operators and manages litigation in all jurisdictions and forums for dispute resolution. It is the largest Defence club in the world with over 3,500 owned and time chartered ships of all main oceangoing types entered. Membership is drawn from across the world, including Europe (68%), Asia Pacific (24%) and the Americas (8%).

It covers the costs associated with bringing and defending proceedings relating to ship operation in any jurisdiction or forum. This includes providing security for costs in those jurisdictions; and investigative and other costs arising out of claims including surveyors,' experts' and arbitrators' fees.

The types of dispute covered include hire and redelivery, newbuilding (with shipyards), sale and purchase, bunker contamination and the safety of ports or berths to which Members' ships have been directed. The Club also provides an advisory service on charterparty, newbuilding and other contracts.

The UK Defence Club continues to reinsure past and present risks on a quota share basis with the UK Defence Insurance Association (Isle of Man) Ltd.

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