The underwriting deficit has fallen by some 40% whilst the investment income has disappeared entirely, leaving the free reserves exposed to the underwriting result without the buffer generally afforded by the contribution from investments. So whilst there is a clear improvement in the underwriting outcome – the loss having been significantly eaten into - there is actually a greater hit against free reserves due to the absence of that buffer.

This is not the forum for looking at individual Clubs performance in detail, this will be done in our annual pre-renewal report available in October, but it is useful to consider one or two trends that will have impacted all Clubs’ results across the board.

• Pool Losses. By August 2021 club managers were pointing to increasingly heavy, record, levels of pool losses incurred in 2021-22, following on from two earlier years of sustained high severity levels in pool claims. However the second half of the policy year has seen a drop off in exposure to such, and we understand that the year ended with only 15 pool level claims, compared to 21 in the previous year. Furthermore we understand that there have been no significant pool claims in the first 4 months of 2022-23. Whilst the past three years have suggested that high pool claims are here to stay, perhaps this conclusion was premature – but it is way too early to suggest that we are seeing a decline in the significance of pool claims in premium rating.

• COVID-19 losses: At the half way point in the year the Clubs were seeing continuing high levels of COVID-19 related losses as the world cautiously emerged from the restrictions imposed by the response to the virus. These will continue to effect combined ratios, but perhaps with lesser impact as time passes.

• Premium Rating: The 2021-22 policy year reflects the second year where general increase of substance were imposed, averaging around 8% - the impact on the result is beginning to be seen. The 2022-23 general increase averaged around 12% and should further improve the underwriting result, but there remains some way to go to reach the nirvana of breakeven underwriting. Another year of, perhaps reduced, general increases remains a strong possibility and the spectre of excess calls still hangs over the market.

The investment markets continued to display extreme volatility in response to geopolitical instability and the impact of the pandemic and the market bounce-back from it. As much as the previous year’s positive result was a surprise - in that the yields were so good - so this year’s poor result was more predictable, if exaggerated in the last quarter of the year. In reality, averaged across the two years in question investment yields were about ‘typical’ and at least the surprisingly good year preceded the poor one.

Rising interest rates and inflation will continue to put pressure on real investment yields, again confirming that the Clubs need to get the underwriting rating correct and that they cannot back off the current rate correction regime just because they appear to have made inroads into the underwriting deficit.

Global macroeconomic factors such as supply chain issues, inflation, tightening financial conditions and climbing freight rates are leading to heightened market volatility and increasing political risk. We continue to monitor this instability and impact on the P&I market and will update our clients and partners accordingly.