2016 Chairman's Statement
The good news to report for the financial year 2015/16 is a combined surplus from both ITIC and its mutual reinsurer, TIMIA, of US$9.0m, largely due to an improvement in current and historical claims figures together with a reasonable investment return.
During the last year, although the level of claims had improved, the anticipated investment return for 2015/16 was downgraded from 3.2% to a negative return due to the volatility of the markets worldwide. The eventual investment return of 1.9%, whilst lower than the previous year which was 4.5%, was still a good return in a fluctuating investment market and was above the investment return benchmark.
Despite the reduced investment income, your board, at its meeting in March 2016, decided to support the members of ITIC during the current market conditions by keeping the level of the continuity credit for one year policies at 12.5% of the premium and for two year policies at 17.5% per year. These credits apply to all renewals from 1st June 2016 onwards.
Your board considers the payment of such credits to be a very important benefit of being covered by a mutual insurer, particularly in these more difficult economic times. The amount of credit paid in 2013/14 was US$3.0m, in 2014/15 it was US$4.9m, in 2015/16 it was US$7.5m and the anticipated credit that will be paid out in 2016/17 is US$8.2m. Since the continuity credit payments began 21 years ago, I am pleased to report that more than US$90.0m has been returned to you, the members.
ITIC continues to retain the risk for all claims up to US$1.0m and also retains an additional two claims of US$1.0m each (so a maximum of US$2.0m) excess of the primary US$1.0m. This structure is beneficial to both the reinsurance underwriters, as they have seen the number of claims reported to them reduce, and to ITIC which has saved on reinsurance premium in 2015/16 and again in 2016/17.
ITIC has increased its premium income in 2015/16 through a combination of new members joining and existing members buying the additional insurances offered by ITIC, such as cyber liability, Directors’ & Officers’, loss of commission and cash in transit covers.
The number of new members joining ITIC between 1st June 2015 and 31st May 2016 increased by over 5%. ITIC continues to retain approximately 95% of its members at renewal each year, which is a very high retention rate.
It is important for ITIC to maintain its level of free reserves and I am pleased to advise that the free reserves of the combined ITIC and TIMIA clubs have increased from US$127.7m at 31st May 2015 to US$136.7m as at 31st May 2016. This is a modest increase but a very important buffer as the regulatory regime that governs ITIC, called Solvency II, has increased the future capital requirements for all UK and EU based insurers.
The board will be considering options for ITIC as a result of the recent Brexit referendum result so as to ensure that ITIC can still access the 35% of its business that will remain in the EU after the UK leaves.
The clubs’ (ITIC and its reinsurer TIMIA) reserves are invested in a wide portfolio of assets and these are invested to match any currency exposure that ITIC may have to its existing claims (which are mostly in US dollars), whilst also balancing the ability to yield a return based on an acceptable level of risk.
In common with previous years, the board has decided to close the 2014/15 policy year, meaning that no additional premium can be requested from members for this or any earlier year. The only full year that remains open is 2015/16. It should be noted that ITIC has never requested additional premium for any policy year.
Your board, at its meeting in March 2016, considered whether to recommend to the membership that ITIC become a fixed premium mutual. The board decided to keep the club structure unchanged, it having served the membership well over the last 25 years.
Four years ago, ITIC conducted a qualitative member and broker survey. The results were very positive from the relatively small number of businesses that were contacted. In 2016, ITIC conducted a wider quantitative survey of all members and their insurance brokers. The results were overwhelmingly positive. This was a great compliment to the managers, who run ITIC on your behalf. The results were emailed to all members and are also available for download here.
The accounts and financial highlights for the period from 1st June 2015 to 31st May 2016 will be available on the website before the AGM on 15th September 2016.
ITIC is committed to consistently providing competitively priced professional indemnity insurance (and related insurance covers) with valuable / high quality loss prevention advice to businesses servicing the marine, aviation, rail and general transport industry through a mutual insurance company supported by at least “A-” rated security from its external reinsurers. Strong reserves will be maintained and quality service and sound risk management provided by its highly competent staff.
International Transport Intermediaries Club Ltd