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SERVICE AND COMPETENCE YOU CAN RELY ON

ANNUAL REVIEW

2013


CONTENTS 04 06 08 09 10 16 19 21

CEO’S REPORT CHAIRMAN’S REPORT KEY FIGURES SUMMARY SEGMENTS TALENT INSIGHTS KEY FIGURES GOVERNANCE ACCOUNTS

ANNUAL GENERAL MEETING The Annual General Meeting will be held Thursday 4 September 2014.


SERVICE AND COMPETENCE YOU CAN RELY ON SERVICE OUR passion for service goes beyond meeting expectations. By listening to and understanding our members’ and clients’ needs we excel in being proactive, finding solutions and going the extra mile.

COMPETENCE OUR dedicated and professional people offer a high level of competence, representing different cultural backgrounds, altogether 16 legal jurisdictions and maritime experience and expertise.

RELIABILITY OUR controlled growth, positive technical result and a robust financial strength has earned us an ‘A’ rating with Standard & Poor’s. Our people can be relied upon for availability and quality in everything we do.

CONTINUITY WE believe in a strong and unified Skuld, a long-term strategy of growth, financial strength and transparency, innovation in services and investment in our people – all in order to continue supporting our customers’ needs.

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CEO’S REPORT

DIVERSIFICATION AND A ROBUST BOTTOM LINE In February, I was delighted to ring in the new policy year with the Skuld team following a solid renewal round and a strong year. 2013 was, in many ways, marked by continuity; in terms of premium growth, further diversification into new products and geographical areas and above all, a robust bottom line result of USD 29 million at the end of the year. The solid premium growth and positive technical result Skuld delivered in 2013 was in line with our long-term strategy. Controlled growth has earned Skuld a clean ‘A’ rating, an important validation to our financial strength. During 2013, we saw growth from current members, reflecting signs of recovery in the shipping sector. Skuld also harvested from geographical investments, in particular Singapore and the offshore market, and commercial operations delivered a significant growth in line with Skuld’s plans. In total, we recorded USD 379 million in premium, which represents a solid 19% increase from the year before. At the end of the year, our contingency reserves stood at a new record level of USD 335 million. With regards to claims, 2013 was a good year and Skuld members did not have any pool claims. This is partly due to Skuld’s disciplined underwriting philosophy and the work that Skuld’s risk management has done in preventing losses. However, when it comes to claims, there will often also be an element of coincidence. We focus on attracting and retaining quality tonnage and building a close collaboration with members and clients to ensure that we can provide the best possible tools to manage risks. With the premium growth in 2013, Skuld is on track to reach its goal of USD 500 million in written premium in 2015. COMMERCIAL OPERATIONS TO SUPPORT THE MUTUALITY Commercial operations, Skuld 1897 in particular, play a key role in Skuld’s growth strategy. Our offering to charterers and offshore has been profitable from the beginning, and with further growth, our Lloyd’s syndicate will contribute to the bottom line. By 2020, we expect commercial operations to deliver half of Skuld’s premium income. In 2013 we expanded our product portfolio with fixed premium P&I and yacht insurances. We also established Skuld Claims Services; our

4 \ ANNUAL REVIEW 2013

Hull and Machinery claims lead handling. Further diversification is on Skuld’s agenda also going forward. A STRONG AND UNIFIED SKULD Skuld has come a long way from a Scandinavian P&I club. Today we’re a truly global marine insurer that is in a position to offer members and clients with a wide range of insurance covers, robust financial security and continued first-class service. We are larger than ever, but at the same time we are more unified. Strong focus on member and client needs is evident across the organisation - from the management team to claims handlers and support functions. We have invested in our people to ensure continued quality and availability of our services. After all, our business is all about people. CONTINUING TO SUPPORT OUR MEMBERS’ AND CLIENTS’ NEEDS Diversification has brought many new members and clients to Skuld. To meet the different segments’ varying needs and the increasing demand for digital services, we will be introducing new targeted digital publications and information services. We will also introduce enhanced online services that make cover and claims information available 24 hours a day. In April, I was pleased to share the news that Skuld’s chief financial officer Ståle Hansen will take over the role of Skuld CEO in February 2015 as I move into a new position as executive board member. In essence, these changes are about ensuring seamless continuity. A strong financial position, growth from commercial operations at the core of our strategy and innovation in services will remain as key objectives for Skuld’s leadership.

DOUGLAS JACOBSOHN PRESIDENT & CEO


“WE HAVE INVESTED IN OUR PEOPLE TO ENSURE CONTINUED QUALITY AND AVAILABILITY OF OUR SERVICES. AFTER ALL, OUR BUSINESS IS ALL ABOUT PEOPLE.” 5 \ ANNUAL REVIEW 2013


CHAIRMAN’S REPORT

IMPRESSIVE GROWTH AND FINANCIAL STABILITY In 2013, Skuld continued its growth and expansion in a challenging underwriting environment. A combined ratio of 99% and a positive bottom line of USD 29 million is a good result in the current market – it underlines that expanding Skuld’s product portfolio into commercial areas was the right strategy for Skuld and its members. It’s still early days for Skuld 1897, but I’m pleased to see that premium income for the Lloyd’s syndicate is developing according to plan. The value of Skuld’s commercial operations to our members goes beyond increased financial strength: a wider range of insurance covers has been welcomed by our members and clients. Skuld Offshore continued its impressive growth in 2013. Skuld’s offering to the offshore arena has been welcomed by both leading and growing, specialised companies. Skuld Offshore has, over the last years, built a strong position through its passion for service and high level of competence. EXCELLENT RESULTS In late 2012 we expanded our platform in Asia by opening an office in Singapore. The expansion is already generating excellent results. Our members and clients in Asia have welcomed access to local service in addition to our global services available around the clock.

and clients assures me that the hands-on, dedicated service we provide is much appreciated. Our members know that when they need support from Skuld, the team is available at any time of day to provide legal, technical or commercial advice. ALIGNMENT FOR STRATEGIC GOALS I’m also happy to see that there is a very strong alignment across the Skuld management team, board and committee. Everyone is committed to working towards the same strategic goals. This level of alignment makes Skuld strong, and with the financial robustness we have achieved through disciplined growth, Skuld truly stands out among its competitors. Skuld represents service, competence and reliability. In this spirit, the Skuld board was pleased to appoint Ståle Hansen as the new CEO from the beginning of February 2015. With Ståle’s strong commercial drive and commitment to financial strength, Skuld is well positioned to reach the growth targets the board and committee have set for the company.

We see that an increasing number of P&I clubs are pursuing diversification to ensure their financial stability. All thirteen International Group clubs are facing the same challenges; Solvency II brings many changes and a range of regulatory requirements. Meeting these requirements calls for solid finances and some clubs will likely seek to strengthen their position by joining forces. In terms of financial robustness, Skuld stands out as one of the strongest. Reliability is important to our members, and with further growth we can preserve that. A PASSION FOR SERVICE In terms of service, I have been particularly pleased to see that as Skuld has grown, the Skuld culture has become stronger than ever. I’m confident that the customer focus is unique; all Skuld employees want to do the best they can to help members and clients. The global Skuld team shares a passion for service. Direct feedback from our members

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KLAUS KJÆRULFF CHAIRMAN OF THE BOARD


“I’M CONFIDENT THAT THE CUSTOMER FOCUS IS UNIQUE; ALL SKULD EMPLOYEES WANT TO DO THE BEST THEY CAN TO HELP THE MEMBERS AND CLIENTS. THE GLOBAL SKULD TEAM SHARES A PASSION FOR SERVICE.”


KEY FIGURES SUMMARY Even with a challenging market, we managed our business well and delivered profitable growth in a volatile market. Here are some key figures to help sum up the last year.

99%

COMBINED RATIO Skuld has set maintaining a combined ratio below 100% as a long-term strategic objective and the underwriting philosophy is designed to support this goal.

379

MUSD PREMIUM INCOME This represents a19% premium income growth compared to 2012. A significant portion of the premium growth is driven by our Lloyd’s syndicate operation.

29

MUSD POSITIVE RESULT Skuld had a robust bottom line result of USD 29 million, an improvement of USD 11 million compared to last year.

27.1

MUSD NET INVESTMENT INCOME Skuld has a moderate risk profile on its investments but still achieved an investment return of 5.4% for the 2013 financial year.

335

MUSD CONTINGENCY RESERVES Skuld increased its contingency reserves to a record high USD 335 million, leaving us more robust and better suited to handle future challenges.

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MEETING OUR CUSTOMERS’ NEEDS SKULD INSURANCE COVERS

Every Skuld member and client is unique. Through Skuld P&I and Skuld 1897, our syndicate at Lloyd’s, we offer a wide range of insurance covers designed to meet the needs of our marine industry segments. We aim at providing the best possible service and competence for our members and clients to rely upon.

SHIPOWNERS

CHARTERERS / TRADERS

OFFSHORE CONTRACTORS

P&I insurance for shipowners is where Skuld started and this is still our core business. Through our diversification over the last years we now offer a much wider range of insurance products for shipowners.

Charterers and traders may be exposed to a wide range of liabilities. Skuld offers a flexible approach and separately developed charterers’ terms and conditions, supplying insurance for both time and voyage charterers.

Based on a clear understanding of the offshore and energy industry, Skuld has become a leading specialist insurance provider. Clients range from major oil corporations to private shipowners and renewable energy.

For Shipowners Skuld covers P&I (Protection & Indemnity), FD&D (Freight, Demurrage & Defence), Fixed P&I, Ancillary liability, Hull & Machinery, War Risks, Loss of Hire, TDI, and more

Skuld covers Charterer’s Liability, FD&D, Bunker insurance, Cargo equipment insurance, Ancillary liability, Piracy LOH for charterers, and more

Skuld covers Offshore liability, FD&D, Ancillary offshore liabilities, Energy, Mobile Offshore Units, Operators Risks, Offshore LOH, Subsea and Offshore Equipment, and more

YACHT OWNERS

PORTS AND TERMINALS

CARGO OWNERS

Skuld recognises the special needs and requirements for the yacht community and has designed special covers for yacht owners. A dedicated team offers professional and experienced service to our clients.

Port authorities, container terminals, dry and liquid bulk terminals etc. are all exposed to risks. A Skuld combined insurance product now caters for the sophisticated technical needs of the ports and terminals industry.

Within the cargo portfolio Skuld offers insurance which caters for all modes of transit – land, sea and air – including incidental storage. Cargoes covered range from bulk oil or LNG to offshore equipment.

Skuld covers Yachts P&I, Ancillary liabilities, Superyacht Hull & Machinery, Increased value, and more

Skuld covers Ports & Terminals all risks

Skuld covers a variety of Cargo insurance

9 \ ANNUAL REVIEW 2013


\ TALENT INSIGHTS

YOUR SERVICE YOUR COMPETENCE YOUR RELIABILITY YVONNE THAULOW Senior Executive, Client Servicing and Marketing

“OUR BUSINESS GOES BEYOND HELPING OUR MEMBERS AND CLIENTS MANAGE THEIR RISKS. IT IS, ABOVE ALL, ABOUT RELATIONSHIPS.”

I work towards the Greek market renowned for its long traditions, high level of know-how and dynamic nature. As support to many of our Greek members and clients, I work closely with the team we have assigned to them consisting of claims handlers, risk management and credit control. Whether it’s a new cover

10 \ ANNUAL REVIEW 2013

the member needs, questions regarding a claim or invoices, the team works together. We aim to offer solutions before they’re asked for and discuss potential challenges before they have an opportunity to develop. The need for our assistance can arise at any time of the day – or any day of the year – but our job is to be

there when needed. Loyalty from our members and clients is the best reward for a job well done. Our members and clients expect a lot from us, but we are driven to exceed those expectations - to go the extra mile.


GENADIJS MILUSKOVS Senior Executive, Risk Management

“MANAGING RISKS IS A TEAM EFFORT BETWEEN SKULD AND THE MEMBER OR CLIENT.” Working with risk management means that I arrange and evaluate surveys and company management reviews and often meet our members and clients before their vessels are entered into Skuld. This way I get to know them better and they build trust in the Skuld team; our competence, reliability and service. I support our customers in reaching a

high risk management standard by giving recommendations or helping them find the right technical expertise. What is best for our members and clients is often good for Skuld and other members as well. Casualty incidents require immediate response, and often call for hands-on service, for instance flying a Skuld representative on

site to support the member or client in emergency response coordination. With 15 years of sailing and eleven years’ experience as a superintendent, I understand the value of getting help quickly, whether it concerns a grounding, collision or technical problem.

FLAVIA MELLILO Vice President, Claims, Personal Injury Claims Coordinator

“THE SUCCESS OF OUR MEMBERS AND CLIENTS IS VERY IMPORTANT TO SKULD AND WE WANT THEM TO SEE US AS PART OF THEIR TEAM.”

Skuld members and clients understand that a qualified crew is essential to the success of their operations, and have invested substantially in their people. However, many claims have a human factor background. We therefore work closely with our members and

clients to develop solutions that minimise the people-related losses, such as supporting preemployment medical examination programmes. As Skuld’s personal injury claims coordinator, I’m involved in incidents where people’s health is at risk or casualties are involved. In these

cases, time is of the essence. Regardless of who has been injured – the captain, a crew member or a stowaway – we prioritise access to medical care and provide other support to handle casualties. To many of our members and clients we are part of their team, and handling

personal injuries is above all team-work. As we work more closely together, we can limit the losses to our members’ investment in their people.

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LIABILITY CLAIMS SERVICE

80 8416

SKULD EMPLOYEES WORKING WITH LIABILITY CLAIMS EVERY DAY

LIABILITY CLAIMS CASES OPENED DURING THE POLICY YEAR

THESE 8416 CLAIMS CASES ARE SPLIT INTO EIGHT MAIN CATEGORIES, SHOWN IN PERCENTAGES BELOW

31% CARGO

27%

16%

13%

4%

1%

0.3%

PERSONAL INJURY

7%

CHARTERERS’ LIABILITY TO HULL

DEFENCE

COLLISION

POLLUTION

OTHER

WRECK REMOVAL

BUSINESS GROWTH

1089 19605

NEW CUSTOMERS JOINED SKULD DURING THE YEAR

INSURANCE POLICIES WERE SIGNED IN TOTAL

130

1034

1

2

73% 2008 1)

2009

2010

2011

2012

2011

2013

130 units

The Rig Market has been one of the major growth areas for Skuld Offshore. Since 2011 it has grown by 73%.

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173%

2)

2012

2013

1034 Policy Sections sold in 2013

Skuld 1897 continues growing, especially with good premium income in the Hull Market which has grown by 173% since 2011.


SKULD OFFICES 1

3

2

6

5

4

7

8

10

9

1

LONDON UK

2

ABERDEEN UK

3

BERGEN NORWAY

4

OSLO NORWAY

5

COPENHAGEN DENMARK

6

NEW YORK USA

7

PIRAEUS GREECE

8

HAMBURG GERMANY

9

SINGAPORE SINGAPORE

10

HONG KONG HONG KONG

YOUR SKULD EMPLOYEES EMPLOYEES

240

MEN / WOMEN

50/50

NATIONALITIES

LEGAL JURISDICTIONS

AV. YEARS EMPLOYED

AVERAGE AGE

16

9

22

43

13 \ ANNUAL REVIEW 2013


\ TALENT INSIGHTS

YOUR SAFETY YOUR TRUST YOUR SECURITY KATE LI QING Underwriting Executive, Skuld Offshore

“UNDERSTANDING OUR SUBSEA AND OFFSHORE CLIENTS’ BUSINESS AND OPERATIONS ENABLES ME TO OFFER THEM TAILORED INSURANCE COVERS.”

As an underwriting executive, my role is to increase the awareness of the Skuld brand and grow our business, especially in the dynamic offshore market in Asia. The global responsibility for offshore risks rests with the Oslo underwriting team so we keep in close touch with Oslo on behalf of our customers. The Singapore

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office was opened in late 2012 and the number of new members and clients who have joined us in the area since the opening demonstrates that local service is much appreciated. My work involves a great deal of contact with our members and clients. In addition to addressing enquiries swiftly, I often visit them to ensure

that we deliver the quality service Skuld is renowned for. Knowing their individual needs and challenges enables us to provide them with tailored covers. Brokers are also very important to us, and good co-operation with them is mandatory to our mutual success.


SONDRE AASBØ Executive, Credit Control

“SEAMLESS CASH FLOW ENABLES US TO PROVIDE OUR MEMBERS AND CLIENTS WITH STRONG FINANCIAL SECURITY.”

As an insurance company, Skuld is dependent on financial strength and credit control is all about preserving that strength. Each day, I have a lot of contact with members, clients, brokers and our underwriters regarding money flow issues, whether it’s a deductible invoice a member has

received or a broker fee to be paid. Often payments are connected to each other. For example, a broker fee will be released when a member has paid his invoice and my role is to facilitate seamless cash flow. In order to find the best possible solution for a member’s or client’s situation, I try to look

at the big picture. For example set-offs often simplify the process for the member or client. Being proactive is a key element in Skuld’s approach to service and our members and clients appreciate when we work together to find the best solution to their individual situations.

ALEX MARTINEZ Claims Adjuster, Skuld 1897 at Lloyd’s

“PROMPT SETTLEMENT OF CLAIMS IS WHAT BOTH OUR CLIENTS AND SKULD STRIVE FOR.” Skuld Claims Services handles claims for Skuld Syndicate 1897 clients when chosen as the claims lead on a Hull & Machinery policy. We have our own in-house claims team dedicated to handling the claims in an efficient manner. This is where my role comes in. Based on the client’s insurance,

I liaise with Skuld Claims Services in Oslo to determine which costs are covered and for example coordinate a surveyor to evaluate the damage and find the best repair option so that the client can go back to business as usual as soon as possible. We like to think of client relationships as

partnerships, where we also share the ambition to approve the claim and close the file promptly. To me, every claim is an opportunity to remind the client why they chose Skuld Syndicate 1897 and Skuld Claims Services.

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KEY FIGURES 2013 POSITIVE RESULTS, WELL CAPITALISED

Skuld ended 2013 with a positive result of USD 29 million. The result is an improvement of USD 11 million compared to last year, and the contingency reserves now stand at a record high USD 335 million. The focus on controlled growth continues to deliver a positive technical result, now for the 11th year in a row, and maintaining a combined ratio below 100%. The positive technical result is mainly derived from our non-mutual book of business and positive adjustments on claims for earlier years. Skuld 1897, our Lloyd’s syndicate, is growing in size and the results are moving in a positive direction. The club has had a 19% increase in premiums. A significant portion of the premium growth is driven by our Lloyd’s syndicate operation, which is consolidated into the Skuld figures. The churn effect on the mutual owners’ book of business continues to be a challenge for the whole P&I industry and does not contribute substantially to the growth in premium. Net investment income contributed with USD 27.1 million to the bottom line. Skuld has a moderate risk profile on its investments but still achieved an investment return of 5.4% for the 2013 financial year due to strong returns on equities. A conservative risk profile with the majority of assets in low risk bonds has been a strategic choice in order to match our liabilities, reduce volatility and secure sufficient capital for further growth. Skuld is continuously developing its Enterprise Risk Management framework and uses it actively in strategic decisions on risk appetite and risk allocation. This ensures that Skuld will be well capitalised when the new Solvency II requirements are implemented.

16 \ ANNUAL REVIEW 2013

COMBINED RATIO \ In percent 140

120

100

80

60

2006

2007

2008

2009

2010

2011

2012

2013

The combined ratio is a measure of underwriting performance calculated by the sum of claims and operation expenses as a percentage of premium income. A ratio below 100% indicates a positive underwriting result, while a ratio above 100% means that more money is paid out in claims than what is received in premiums.

CONTINGENCY RESERVE \ USD mill. 335 291

308

266 202

2009

2010

2011

2012

2013

TRANSPARENCY POLICY Skuld is the only member of the International Group of P&I clubs that publishes half year and third quarter reports in addition to the annual statement and has done so since 2003. Transparent, clear and precise communication with members and clients, brokers, the general public and the media is a priority for Skuld. Our objective is to ensure that all information that is made available by Skuld is accurate and relevant, and we continuously develop our communication with stakeholders.


PREMIUM DISTRIBUTION*

PREMIUM DISTRIBUTION

\ By vessel type

\ By region

Others

Tanker Gas/ Chemical Tanker

Offshore Passenger

DISTRIBUTION OF CLAIMS COSTS \ In percent

Others

Norway Nordic countries excl. Norway

Asia

Germany Greece

Americas Bulk Carriers

Rest of Europe

*

Total gross premium all products: USD 300 million

Pollution 1%

Personal injury 27% CLH 7% Collision 16% Only claims relating to the Association included in the above chart.

P&I OWNERS’ GT

CHARTERERS’ LIABILITY GROSS PREMIUM

CONTINGENCY RESERVES PER GT

\ Mill. GT

\ USD mill.

\ USD 72

FDD 4%

Wreck removal 0%

Cargo 31%

Unitized General Cargo

Other 13%

75

65

4.6

4.5

4.3

54

4.5

58

52

48

4.0

49

51

51

2009

2010

2011

2012

2013

2009

2010

2011

2012

NET PREMIUMS AND CALLS FOR OWN ACCOUNT

NET CLAIMS INCURRED FOR OWN ACCOUNT

\ USD mill.

\ USD mill. 246

323

229

240

261

2009

2013

179

2011

2012

2013

BALANCE CARRIED TO CONTINGENCY RESERVE \ USD mill.

212

278

2010

65

194 57

165

29 24 18

2009

2010

2011

2012

2013

2009

2010

2011

INVESTMENT PERFORMANCE

NET INVESTMENT INCOME

\ In percent

\ USD mill.

2012

2013

2009

2010

2011

2012

2013

INVESTMENTS BY ASSET CLASS \ In percent

18.9

Cash 52

Alternative investments* Commodities

37

9.7

Fixed income

27

5.4 19 15

1,0

Equities

-0.9 * EQUITIES ALTERNATIVE FIXED COMMODITIES INVESTMENTS INCOME

TOTAL

2009

2010

2011

2012

2013

Alternative investments consists of Hedge Funds and Private Equity

17 \ ANNUAL REVIEW 2013


\ KEY FIGURES

CONSOLIDATED INCOME AND EXPENDITURE ACCOUNT AS AT 20 FEBRUARY MUSD

2013

2012

2011

2010

2009

TECHNICAL ACCOUNT Premiums and calls

379.4

317.9

300.0

272.4

255.4

Reinsurance premiums

-56.6

-40.2

-38.5

-32.3

-26.5

Premiums for own account

322.8

277.7

261.5

240.1

228.9

-245.6 -58.8

-212.2 -50.5

-193.7 -43.0

-165.1 -33.5

-179.0 -30.2

Claims incurred for own account Acquisition costs Administrative expenses

-14.5

-14.1

-13.2

-10.9

-9.0

Net operating expenses

-73.3

-64.6

-56.1

-44.4

-39.2

4.0

1.0

11.7

30.6

10.6

Balance carried to non-technical account NON TECHNICAL ACCOUNT Balance from technical account

4.0

1.0

11.7

30.6

10.6

Net investment income

27.1

18.7

14.7

37.0

52.1

Taxes

-2.0

-2.0

-2.0

-3.0

-5.7

Balance carried to contingency reserve

29.1

17.5

24.4

64.6

57.0

BALANCE SHEET AS AT 20 FEBRUARY MUSD

2013

2012

2011

2010

2009

ASSETS Financial investments

717.5

641.8

628.8

597.8

514.0

9.3

7.9

10.0

4.6

9.3

108.6

92.8

72.8

58.5

37.3

Debtors Other assets

20.6

15.4

11.0

10.2

6.7

Total assets

Prepayment and accrued income

856.0

757.9

722.7

671.1

567.3

LIABILITIES Provision for outstanding claims for own account

470.2

412.1

402.2

367.5

333.2

Contingency reserve

334.5

308.4

291.4

266.4

201.5

-0.3

0.0

0.0

0.0

0.0

804.4 8.6

720.5 8.3

693.7 10.9

633.9 9.6

534.7 14,8 11.9

Minority interest Technical provisions for own account Provisions for other liabilites Creditors

23.1

13.6

11.1

21.0

Accruals and deferred income

19.9

15.5

7.0

6.6

6.0

856.0

757.9

722.7

671.1

567.3

Total liabilities

In the P&L, a relevant portion of overhead expenses are allocated to claims-, acquisition- and investment expenses respectively.

18 \ ANNUAL REVIEW 2013


\ GOVERNANCE AND CSR

GOVERNANCE CORPORATE GOVERNANCE Skuld’s board and management are committed to maintaining high ethical standards and contributing to good corporate governance in line with regulatory requirements in all jurisdictions where Skuld operates. Management and employees must practice fair dealing, honesty and integrity in every aspect in dealing with other employees, members, business relations and customers, the public, business community, suppliers, competitors and government authorities. Skuld aims for transparency in communication with internal and external stakeholders and regularly publishes information that is relevant to members, clients, brokers, staff members or other stakeholders. ANTI-CORRUPTION Skuld is opposed to corruption in all forms and is committed to conducting business in accordance with the highest ethical guidelines. Detailed policies regarding Skuld employees’ conflicts of interest and relationships to customers, brokers and suppliers are set out in the company’s Ethical Guidelines. Skuld requires all employees to fully comply with the Ethical Guidelines. The purpose of the Ethical Guidelines is to create a solid company culture and to preserve Skuld’s integrity by helping employees to promote high standards of good business practice. Skuld’s main action with regard to anti-corruption is raising awareness of the Ethical Guidelines. HUMAN RIGHTS AND EMPLOYMENT CONDITIONS Skuld’s policy prohibits unlawful discrimination against employees, members, directors, customers and suppliers on account of ethnic or national origin, age, sex or religion. All individuals shall be treated with dignity and respect. All employees shall assist in creating a work environment free from any discrimination based on religion, skin colour, gender, sexual orientation, age, nationality, race or disability. ENVIRONMENT Skuld is positive to adapting practices that lead to more environmentally friendly and ecologically responsible decisions.

19 \ ANNUAL REVIEW 2013


HIGHLIGHTS 2013 à Launch of Skuld Yacht insurance, dedicated exclusively to the needs of superyacht owners à Launch of Fixed P&I cover with its own terms and conditions à Establishing Skuld Claims Services supporting claims leads for Skuld 1897 à Affirmed ‘A’ rating (stable outlook) by Standard & Poor’s à Launching cooperation between Skuld and Mitsui Sumitomo Insurance Company (MSI), Japan à  Skuld’s owner share of Skuld 1897 at Lloyd’s was raised from 58.3% to 66.7%, now only shared with Scor at 33.3%


ACCOUNTS 2013

ANNUAL REVIEW

2013

21 \ ANNUAL REVIEW 2013


CONSOLIDATED INCOME AND EXPENDITURE ACCOUNT

Note

2013

2012

2

379 391 -56 557 322 833

317 936 -40 244 277 692

Claims incurred Gross claims paid - Reinsurance recoveries Gross change in estimated outstanding claims - Reinsurers share Claims incurred for own account

3 3 3 3

228 707 -36 536 34 580 18 803 245 554

276 329 -65 098 -51 129 52 065 212 167

Operating expenses Acquisition costs Administrative expenses Net operating expenses

4 4

58 844 14 477 73 321

50 486 14 070 64 556

3 959

969

3 959

969

6 052 22 656 9 872 38 579

5 542 7 128 8 137 20 808

1 827

1 613

Foreign exchange adjustments Foreign exchange adjustments

-9 690

-456

Balance before tax on ordinary activities

31 021

19 707

1 964

2 189

29 058

17 518

All figures in USD 1000

TECHNICAL ACCOUNT Premiums and calls Gross premiums and calls - Reinsurance premium Earned premiums and calls for own account

Balance carried to non-technical account

NON-TECHNICAL ACCOUNT Balance from technical account Investment income Investment income Unrealised gains / losses on investments Realised gains / losses on investments Total investment income Investment expenses Investment management expenses

Taxes Taxes Balance carried to contingency reserve

22 / SKULD ACCOUNTS 2013


BALANCE SHEET AS AT 20.02.14

Note

2013

2012

6 6 6 6 6

12 847 160 122 500 356 41 643 2 495 717 462

9 917 124 553 473 072 32 377 1 927 641 845

242 6 311 2 745 9 298

353 5 796 1 715 7 863

0 8 597 4 435 95 569 108 602

1 227 6 937 3 957 80 669 92 790

20 623

15 441

855 985

757 940

470 159 334 548 -265 804 443

412 123 308 426 0 720 549

8 375 198 8 573

8 256 0 8 256

Creditors Members and brokers Reinsurers Other creditors Total creditors

2 160 13 061 7 831 23 052

2 809 4 741 6 055 13 605

Accruals and deferred income Accruals and deferred income

19 918

15 529

855 985

757 940

All figures in USD 1000

ASSETS Financial assets Strategic investments Shares Bonds Alternative investments Other assets Total financial assets Debtors Members and brokers Reinsurers Other debtors Total debtors Other assets Net deferred tax assets Fixed assets Pension assets Cash at bank Total other assets

5

Prepayments and accrued income Prepayments and accrued income

7

Total assets

LIABILITIES Technical provisions Provisions for outstanding claims for own account Contingency reserve Minority interest Technical provisions for own account

9 8 9.10

Provisions for other liabilities Pension liabilities Provision for taxation Total provisions for other liabilities

Total liabilities Copenhagen, 8 May 2014 sign. Klaus KjĂŚrulff

sign. Bernt O. Bodal

sign. Sergey Popravko

sign. Roberto Giorgi

Chairman of the Board

sign. Trygve Seglem

23 / SKULD ACCOUNTS 2013

sign. Manfredi Lefebvre D’Ovidio

sign.

sign.

John P. Tavlarios

Simone Ingeberg

sign. Peter Wilsund

sign. Claus Spinding

sign. Ulf G. Ryder

sign. Douglas Jacobsohn President & CEO


Note 1

ACCOUNTING POLICY The accounts are prepared in USD. Furthermore, the accounts have been prepared according to regulations for Norwegian Insurance Companies. These regulations are based on International Financial Reporting Standards with some relaxations on disclosure information. These sets of USD accounts are based on the official Norwegian accounts, but some reclassifications have been made to make the accounts more comparable to the accounts of the other P&I clubs. • Provisions for bad and doubtful debts are included in calls and premiums. • Interest on overdue payments is included in calls and premiums • Claims management expenses are included in claims incurred. The notes have been prepared in accordance with International Group of P&I Associations agreed accounting standards, hence they are a simplified version of the official accounts. Basis of accounting The accounts are prepared on an annual accounting basis and include the following: • All premiums for policies commencing during the year. • The cost of claims incurred and reinsurance for the current year. • Any adjustments relating to earlier years. • Operating expenses and investment income. Consolidation The consolidated accounts include the accounts for Skuld Mutual Protection & Indemnity Association (Bermuda) Ltd. and the Association’s subsidiaries: Vika Management AS, Skuld Germany GmbH, Skuld Far East Ltd., Skuld Hellas Ltd., Skuld North America Inc., Skuld Services Ltd and APS Generalagenturet for Skuld, Copenhagen, Skuld Investments Ltd, Skuld I Ltd (capital provider for Syndicate 1897 at Lloyd’s) and Skuld II Ltd (capital provider for Syndicate 1897 at Lloyd’s). Hydra Insurance Company Ltd, Skuld Holding Ltd and Skuld Reinsurance (Bermuda) Ltd are fully-owned and controlled by Skuld Mutual Protection & Indemnity Association (Bermuda) Ltd. In the accounts, shares in subsidiaries, receivables from and payables to subsidiaries, and transactions between the Association and the subsidiaries, have been eliminated. Calls and Premiums Calls and premiums include gross calls and supplementary calls, less return premiums and provisions for bad and doubtful debts. These calls and premiums are the total receivable for the whole period of cover provided by the contracts commencing during the accounting period, together with any premium adjustments relating to prior accounting years and unearned premium for future accounting years. The calls and premiums include provisions for estimated future supplementary calls in respect of open policy years. Claims The claims expenses include all claims incurred during the year together with claims administration expenses. The technical provision for claims outstanding includes an element of claims incurred but not reported (IBNR). Historical data is used in assessing IBNR. Provision for the cost of future claims handling is included. Reinsurance premiums These include premiums payable to market underwriters, charged to the consolidated income and expenditure account on an accruals basis. Reinsurance recoveries Reinsurance recoveries are accrued to match relevant claims, and include estimated recoveries on estimated outstanding claims. Operating expenses Account is taken of accruals and prepayments in arriving at operating expenses. Foreign currency Assets and liabilities have been translated to USD at the rate of exchange on the balance sheet date.

24 / SKULD ACCOUNTS 2013

Investments Account is taken of accrued interest on fixed interest securities and deposits; dividends are credited when receivable. The investments are assessed at market value on the balance sheet date.


Taxes The tax expense consists of the tax payable and changes to deferred tax. Deferred tax/tax assets are calculated on all differences between the book value and tax value of assets and liabilities. Deferred tax assets are recognised when it is probable that Skuld will have a sufficient profit for tax purposes in subsequent periods to utilise the tax asset. Similarly, the company will reduce a deferred tax asset to the extent that Skuld no longer regards it as probable that it can utilise the deferred tax asset. Deferred tax and deferred tax assets are measured on the basis of the expected future tax rates applicable to the companies in Skuld where temporary differences have arisen. Deferred tax and deferred tax assets are recognised at their nominal value and classified as noncurrent asset investments (long-term liabilities) in the balance sheet.

PREMIUM DISTRIBUTION BY COUNTRY Country

Premiums

%

Norway

38 219

10,1%

Nordic countries excl. Norway

40 509

10,7%

Germany

39 213

10,3%

Greece

16 118

4,2%

Rest of Europe

96 988

25,6%

USA

43 566

11,5%

Far East

69 641

18,4%

Other

35 136

9,3%

379 391

100,0%

Total gross premiums and calls

Note 3

NET CLAIMS INCURRED 2013

2012

Gross claims paid Own claims Group Pooling arrangements Gross claims paid

215 112 13 595 228 707

245 984 30 345 276 329

Reinsurers’ share Group Pooling arrangements Market underwriters Reinsurers' share

-32 104 -4 432 -36 536

-38 708 -26 390 -65 098

Net claims paid

192 171

211 231

Change in provision for gross claims Provision opening balance Provision closing balance Change in currency valuation at year end Change in provision for gross claims

490 326 523 230 1 677 34 580

531 434 490 326 -10 021 -51 129

Less movements in provision for reinsurers’ share Provision opening balance Provision closing balance Change in currency valuation at year end Less movements in provision for reinsurers' share

-78 203 -53 071 -6 330 18 803

-128 587 -78 203 1 681 52 065

53 383

936

245 554

212 167

Change in provision for future claims Net change in claims provision Claims incurred for own account

25 / SKULD ACCOUNTS 2013


Note 4

NET OPERATING EXPENSES

Administrative expenses

Consolidated 2013 2012 14 477 14 070

Association 2013 2012 9 353 7 033

Salary, etc. Commissions Marketing Surveys Other acquisition costs Acquisition costs

15 824 31 602 3 896 333 7 188 58 844

14 305 24 412 3 327 381 8 061 50 486

15 824 22 261 2 144 334 7 188 47 752

14 305 17 133 2 336 381 8 236 42 391

Net operating expenses

73 321

64 556

57 104

49 424

In the P&L, direct claims cost and a relevant portion of overhead expenses are allocated to claims-, acquisition- and investment expenses respectively. The consolidated figures include Skuld’s share of Syndicate 1897 at Lloyd’s operating expenses.   In accordance with Schedule 3 of the International Group Agreement, the Association is required to disclose the Average Expense Ratio for the Association’s P&I business. The operating expenses include all expenditure incurred in operating the Association’s P&I business, excluding expenditure dealing with claims and a reasonable allocation of general overhead expenses. The premium includes all earned premium allocated to the policy year of origin. For the five years ended 20 February 2014, a ratio of 12.3% (12.3% at 20 February 2013) has been calculated in accordance with the Schedule and the guidelines issued by the International Group and is consistent with the relevant Financial Statements.

Note 5

FIXED ASSETS Fixed assets Cost As at 20 February 2013 Purchases in the year Sales / Scrapping in the year As at 20 February 2014

26 / SKULD ACCOUNTS 2013

9 288 2 878 -61 12 104

As at 20 February 2013 Depreciation on sold / scrapped assets Depreciation this year As at 20 February 2014

1 978 282 1 247 3 507

As at 20 February 2013 As at 20 February 2014

6 937 8 597


Note 6

FINANCIAL INVESTMENTS 2013 Market value

2012 Market value

5 122 155 000 160 122

3 106 121 446 124 553

329 914 170 575 -134 500 356

334 605 138 761 -294 473 072

8 966 10 878 21 799 41 643

7 461 4 835 20 081 32 377

2013 15 20 608 20 623

2012 15 15 426 15 441

2013 308 426 29 058 -2 935 334 548

2012 291 429 17 518 -521 308 426

Shares Norwegian shares Foreign shares Total shares Bonds Treasuries Corporate Securities Cash and Money Market Total bonds Alternative investments Commodity derivatives Hedge Funds Private Equity Total alternative investments

Note 7

PREPAYMENTS AND ACCRUED INCOME Accrued interest Other prepayments Prepayments and accrued income

Note 8

CONTINGENCY RESERVE Contingency reserve opening balance Balance carried forward to contingency reserve Difference related to subsidiaries Contingency reserve closing balance

27 / SKULD ACCOUNTS 2013


Note 9

PROVISIONS FOR OUTSTANDING CLAIMS BY POLICY YEAR Gross estimated outstanding including IBNR The Association’s estimated share of other associations’ pool-claims including IBNR Gross provision for outstanding claims

2013

2012

2011

Closed years

Total

170 221

80 589

53 679

149 210

453 700

30 197 200 418

19 168 99 757

3 797 57 476

16 368 165 578

69 530 523 230

0 0 1 332 1 332

0 0 117 117

3 189 0 3 815 7 003

13 330 15 689 15 600 44 619

16 519 15 689 20 863 53 071

199 087 1 911 200 998

99 640 16 059 115 699

50 473 9 136 59 609

120 959 307 443 428 402

470 159 334 548 804 707

Estimated outstanding recoveries including IBNR from Pooling agreements Group excess loss Other reinsurers' share Total estimated outstanding recoveries Provisions for outstanding claims for own account Contingency reserve Technical provisions for own account

Note 10

TECHNICAL PROVISIONS FOR OWN ACCOUNT 2013

2012

393 348

382 218

69 530 462 878

65 189 447 407

Pooling agreements Other reinsurers’ share Total estimated outstanding recoveries

-16 519 -31 950 -48 469

-36 865 -36 335 -73 201

Provision for outstanding claims for own account

414 409

374 206

41 241 41 241

19 440 19 440

Other reinsurers’ share Total estimated outstanding recoveries

-2 609 -2 609

-1 203 -1 203

Provision for outstanding claims for own account

38 631

18 237

19 111 19 111

23 479 23 479

Other reinsurers’ share Total estimated outstanding recoveries

-1 992 -1 992

-3 799 -3 799

Provision for outstanding claims for own account

17 119

19 680

470 159 334 548 804 707

412 123 308 426 720 549

P&I Gross estimated outstanding including IBNR The Association’s estimated share of other associations’ pool-claims including IBNR Gross provision for outstanding claims Estimated outstanding recoveries from

Lloyd’s Syndicate Gross estimated outstanding including IBNR Gross provision for outstanding claims Estimated outstanding recoveries from

Other Gross estimated outstanding including IBNR Gross provision for outstanding claims Estimated outstanding recoveries from

Total P&I, Lloyd’s Syndicate and Other Provision for outstanding claims for own account Contingency reserve Technical provision for own account

28 / SKULD ACCOUNTS 2013


Note 11

OFF-BALANCE SHEET ITEMS Guarantees Bank Guarantees and “Club Letter of Guarantees” amounting in total to USD 537.9 mill. have been issued in connection with claims, of which the latter makes up by far the greater part. The face value of these guarantees greatly exceeds the expected payments from the related claims. The expected payments from these claims are fully covered in the provisions made for outstanding claims. The Association entered into a 10 years lease period for the Oslo office building starting 1 June 2012.

Note 12

FINANCIAL RISK Investment risk is managed in accordance with the Enterprise Risk Management policy. The risk level is controlled by holding it within a specified percentage range of contingency reserves. During 2013 the investment risk was within the permitted range at all times. Interest and currency risk of claims liabilities are immunized by the hedge portfolio. The portfolio contains government bonds and bills issued by low risk states. The composition of the Association’s hedge portfolio is rebalanced according to changes in claims provisions, in order to neutralise interest rate and exchange rate risk. Interest risk is immunized by holding the duration of the portfolio equal to the duration of the claims liabilities, while currency risk are minimized by letting the currency composition of the hedge portfolio mirror that of the claims liabilities. The remaining part of the investment portfolio is divided between a liquidity portfolio, providing liquid assets for cash management, and a risk portfolio, aimed at maximizing the expected return. The majority of the risk portfolio is invested in passively managed fund vehicles. Exposure limitations are applied to the internally actively managed portfolio, “Tactical Overlay Portfolio”.

Note 13

POLICY YEAR STATEMENT BY CLASS AS AT 20.02.14 2013

2012

2011

0 0 297 041 297 041

0 263 033 6 325 269 358

261 104 1 801 89 262 993

0

0

0

0 0

0 0

0 0

297 041 -49 521 247 519

269 358 -33 032 236 326

262 993 -36 718 226 275

-209 120 38 399

-185 839 50 487

-181 361 44 914

-53 764 26 126 -1 841

-50 436 16 741 -2 036

-46 029 13 849 -1 868

8 920

14 756

10 867

P&I Advance calls, releases and other gross premiums­charged in: years to 20 February 2012 years to 20 February 2013 current accounting year

Supplementary calls levied in: years to 20 February 2013 current accounting year

Total calls and premiums Reinsurance premiums

Claims incurred net of reinsurance recoveries Net underwriting profit Net operating expenses Net investment income Taxes Total P&I

29 / SKULD ACCOUNTS 2013


2013

2012

2011

0 0 39 820 39 820

0 22 283 20 422 42 705

13 808 7 336 -388 20 756

0 0 0

0 0 0

0 0 0

39 820 -9 109 30 711

42 705 -5 290 37 415

20 756 -3 351 17 406

Claims incurred net of reinsurance recoveries Net underwriting profit

-22 403 8 308

-26 279 11 136

-13 149 4 257

Net operating expenses Net investment income Taxes

-17 117 -1 981 0

-15 920 285 0

-10 158 -89 0

Total Lloyd’s Syndicate

-10 791

-4 499

-5 990

2013

2012

2011

0 0 19 761 19 761

0 20 503 -30 20 472

21 212 424 24 21 661

0 0 0

0 0 0

0 0 0

19 761 -336 19 425

20 472 -699 19 773

21 661 -1 870 19 791

-19 624 -199

-14 863 4 910

-15 450 4 341

Net operating expenses Net investment income Taxes

863 3 240 -123

-217 1 262 -153

-987 1 053 -148

Total Other

3 782

5 802

4 258

Total P&I, Lloyd’s Syndicate & Other

1 911

16 059

9 136

Lloyd’s Syndicate Advance calls, releases and other gross premiums­charged in: years to 20 February 2012 years to 20 February 2013 current accounting year

Supplementary calls levied in: years to 20 February 2013 current accounting year

Total calls and premiums Reinsurance premiums

Other Advance calls, releases and other gross premiums charged in: years to 20 February 2012 years to 20 February 2013 current accounting year

Supplementary calls levied in: years to 20 February 2013 current accounting year

Total calls and premiums Reinsurance premiums Claims incurred net of reinsurance recoveries Net underwriting profit

Calls and premiums, reinsurance premiums, claims and commission to brokers are allocated to the policy year to which they relate. Operating expenses and investment income have been allocated­to the policy year corresponding to the accounting year. Since the Lloyd’s syndicate is writing business throughout the year, policy year 2013 shows a lower premium income and bottom line as there are still significant unearned premium related to the year. 30 / SKULD ACCOUNTS 2013


Note 14

POLICY YEAR STATEMENT AS AT 20.02.14 - MUTUAL AND FIXED BUSINESS 2013

2012

2011

Total calls and premiums

232 510

216 437

214 422

Reinsurance premiums

-30 349

-20 283

-24 432

202 161

196 154

189 990

Mutual

Claims incurred net of reinsurance -182 181

-164 152

-167 645

Net underwriting profit

recoveries

19 980

32 002

22 345

Net operating expenses

-40 444

-40 512

-37 021

Net investment income

17 453

13 719

11 245

Taxes

-1 423

-1 700

-1 538

Total Mutal

-4 435

3 509

-4 970

2013

2012

2011

Total calls and premiums

39 820

42 705

20 756

Reinsurance premiums

-9 109

-5 290

-3 351

30 711

37 415

17 406

-22 403

-26 279

-13 149

8 308

11 136

4 257

Net operating expenses

-17 117

-15 920

-10 158

Net investment income

-1 981

285

-89

0

0

0

-10 791

-4 499

-5 990

2013

2012

2011

Lloyd’s Syndicate

Claims incurred net of reinsurance recoveries Net underwriting profit

Taxes Total Lloyd’s Syndicate

Fixed Total calls and premiums Reinsurance premiums

84 292

73 394

70 231

-19 508

-13 449

-14 155

64 784

59 945

56 076

Claims incurred net of reinsurance -46 563

-36 550

-29 165

Net underwriting profit

recoveries

18 221

23 395

26 911

Net operating expenses

-12 456

-10 141

-9 995

Net investment income

11 913

4 284

3 657

-540

-489

-478

17 137

17 049

20 095

1 911

16 059

9 136

Taxes Total Fixed Total Mutual, Lloyd’s Syndicate & Fixed business

Calls and premiums, reinsurance premiums and claims are allocated to the policy year to which they relate. Commission has been allocated to the respective policy year. Other operating expenses and net investment income have been allocated to the policy year corresponding to the accounting year. Since the Lloyd’s syndicate is writing business throughout the year, policy year 2013 shows a lower premium income and bottom line as there are still significant unearned premium related to the year.

31 / SKULD ACCOUNTS 2013


PUBLISHED AUGUST 2014

SKULD VISION & VALUES CLEAR VISION Skuld will be a world leading marine insurance provider through innovation, financial strength and the talents of our people.

AMBITIOUS GOALS 2015 Premium income to reach USD 500 million 2020 Commercial business to deliver 50% of Skuld’s premium income

STRONG CULTURE Skuld has a strong corporate culture with a unique customer focus. Everything we do has a foundation in our values:

ACCURATE – BOLD – CARING – DEDICATED The global Skuld team shares a passion for service. Living our values allows us to take quick action that will provide the most value for our members and clients.

DESIGN: ITERA GAZETTE / PHOTO: BLUNDERBUS, MORTEN TONSBERG, MARIANNE LIND

WWW.SKULD.COM


Skuld annual review 2013