­­­AnnuAl­ RepoRt 2018­­­­ H i g h l i g h t s AContents S&p FInAnCIAl­StRenGtH­RAtInG Review 1­­­­ Financial­Highlights 2­­­­Chairman’s­Statement 8­­­­Notice­of­Meeting 9­­­­ General­information 11­­Report­of­the­Directors 20­­Report­of­the­Reviseur­d'entreprises­Agréé­­­­­­­­ CoNSoliDAteD­ACCouNtS 24­­Consolidated­Balance­Sheet­ 26­­Consolidated­income­and­expenditure­Account­ 27­­Consolidated­Statement­of­Cash­Flows­ 28­­Note­to­the­Consolidated­Statement­of­Cash­Flows NoteS­to­tHe­CoNSoliDAteD­ACCouNtS 29­­General­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­ 29­­Presentation­of­the­Consolidated­Accounts­­­­­­­­ 31­­Summary­of­Significant­Accounting­Policies ­­­­­­ 33­­other­Notes­to­the­Consolidated­Accounts ­­­­­­­­ 47­­Class­1­Policy­Year­Position­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­ 50­­Class­2­Policy­Year­Position­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­ ­­­­­­ 95.6% 3­YeAR­AveRAGe­ ComBIned­RAtIo $308.5 FRee­ReSeRve­InCReASed­to­ 120 mIllIon­Gt owned­&­CHARteRed tonnAGe­­­In­exCeSS­oF­­ InveStment­RetuRn­oF­ 2014 2015 2016 2017 2018 FRee­ReSeRveS At­20­February­($m) 3­YeAR­AveRAGe­ CoMBiNeD­RAtio Year­to­20­February iNveStMeNt­RetuRN Year­to­20­February GRoSS­toNNAGe mutual­pro­rata by­policy­Year­(Gt­m) ­­­­­216.2 ­­­­­­­­­­­243.7 ­­­­­­­­­­­276.7306.5308.5 ­­­104.0%­­­­­­­­100.2%­­­­­­­­­93.9%89.4%95.6% ­­­­­3.4%­­­­­­­­­­­­4.3%­­­­­­­­­­­­0.8%1.0%4.8% ­­­­­­59.2 ­­­­­­­­­­­­­68.4 ­­­­­­­­­­­­­73.483.790.6 mIllIon­ $30.2 mIllIon­ 1 2 west­of­england­Annual­Report­2018­ Chairman’s Statement ­­­­­i­am­pleased­to­report­another set­of­strong­financial­results for­the­Club­in­2017,­with­the Free­ Reserve­ increasing­ to $308.5m,­its­highest­ever­level. this­underlines­the­strength­of the­ balance­ sheet­ and­ the Club’s­robust­financial­health, with­ capital­ continuing­ to­ be well­in­excess­of­the­S&P­“AAA” rating­ levels­ and­ the requirements­of­Solvency­ii.­ These results have however been achieved in the face of a significant change in the pattern of Members’ claims in 2017 when compared with previous policy years. Whilst more claims might have been expected because of the higher number of vessels entered in the Club, the magnitude of claims in 2017 is forecast to reach a level not seen for many years and has included an unusually large number of losses arising from collisions and navigational errors. Whilst claims on the International Group Pool in 2017 also looked to be more positive initially, two very large claims, the stranding of the “KEA TRADER” and the tragic loss of the “SANCHI” have now been notified. The full financial impact of these two casualties has yet to become clear. It is also not clear whether or not the claims development in 2017 was simply an aberration or is evidence of a more sustained increase in claims across the industry. If claims values are moving away from the stable levels the Club has enjoyed over recent years, then premium will need to respond to meet this new pattern. This will be unwelcome news for ship owners, many of whom continue to trade in depressed markets, but caution dictates that to counteract increased claims, more premium will be necessary to avoid putting at risk the financial strength we have carefully built over recent years. The claims performance I have described is directly reflected in an increase in our combined ratio to 116% for the year, but I am pleased to say that the Board’s objective of a rolling three-year average combined ratio of better than 100% is