Report and Accounts 2017 cOntents Review 01 Financial highlights 02 Chairman’s statement 06 General information 08 Managers’ review 22 Notice of meeting 24 Report of the Directors 30 Report of the Auditor Financial StatementS 32 Consolidated balance sheet 34 Consolidated income and expenditure account 35 Consolidated statement of cash flows 37 Notes to the consolidated accounts including: 56 Class 1 policy year position 59 Class 2 policy year position FinAnciAl HigHligHts $306.5 free reserve increased tO aM Bests&P financial strength rating A- Amillion 110 million GT Owned and chartered tOnnage in excess Of 87.2% cOMBined ratiO at 11% free reserves grOwth Of investMent retUrn Of 2013 2014 2015 2016 2017 FRee ReSeRveS At 20 February ($m) combined Ratio Year to 20 February inveStment RetuRn Year to 20 February gRoSS tonnage Mutual pro rata by policy Year 197.4 216.2 243.7276.7306.5 102.5% 100.8% 97.4%83.6%87.2% 3.8% 3.4% 4.3%0.8%1.0% 53.7m 59.2m 68.4m73.6m82.5m 01 weSt oF england RepoRt & Accounts 2017 $6.6 million 02 weSt oF england RepoRt & Accounts 2017 i AM veRY pleAsed to be Able to RepoRt tHAt 2016 HAs been AnotHeR iMpRessive YeAR FoR tHe club. ouR YeAR-end FinAnciAl position bY ReFeRence to A nuMbeR oF keY MeAsuRes HAs AgAin been ouR stRongest eveR despite soMe obvious HeAdwinds tHAt AFFect ouR industRY. ouR nuMbeRs conFiRM tHe deptH And stAbilitY oF ouR opeRAtions And ReinFoRce tHe pRedictAble And Robust tRends tHAt HAve been evident FoR soMe tiMe in wHAt continues to be A diFFicult econoMic enviRonMent FoR MAnY oF ouR MeMbeRs witH continuing low FReigHt RAtes A depRessing noRM. our combined ratio reflecting our technical underwriting result is 87.2%, slightly higher than last year’s 83.6% but lower than our strategic target of better than 100% over a three-year rolling period. As was the case a year ago, this low ratio was mainly due to improvements in claims outcomes from our own Members for several policy years. pool claims, especially for 2016, also proved to be lower than forecast. notwithstanding another significant increase in entered mutual tonnage during the year from some 72 million gt to over 80 million gt for 2017, our pool share has also remained low at about 7%, reflecting our continuing positive pool record. our investment performance was also positive. Although a currency and valuation reduction on our office building in london arising primarily from the adverse effect of ‘brexit’ on sterling assets reduced our overall investment gain to 1% for the year, a net overall return of $6.6 million together with a net underwriting surplus of $23.2 million gave rise to another significant increase in our free reserve from $276.7 million a year ago to $306.5 million at year end. At this new level, the club’s balance sheet is very strong from both solvency ii and rating agency perspectives with economic capital significantly in excess of the “AAA” capital levels from both s&p and AM best. this now raises the question of the extent to which a pure mutual club should continue increasing its capital strength. Your board recognises that any potential for some form of a return, whether by a reduction in premium or by some other means, however modest, will be welcome for our Members, and a careful review of our position is to be undertaken later this year. what conclusions may be drawn will depend on a cHAiRMAn’s sTATemenT FrAncis sArre cHAiRMAn 03 weSt oF england RepoRt & Accounts 2017 number of factors. in particular, the develop