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Press Article: Defensive 'Brexit' strategy pays off
News & Insights 25 July 2016
Jeremy Grose, Chief Executive, discusses The Standard Club’s ‘Brexit’ strategy following the UK’s referendum on membership of the European Union.
The Standard Club is perhaps the most European of the protection-and-indemnity (P&I) clubs with 48% of tonnage drawn from the continent.
Two weeks on from the UK's vote to leave the European Union (EU), the club is still considering its options - but a defensive strategy has protected its immediate financial position.
The club brought its equity holding down to a minimum level, repositioning currency exposure away from sterling and euros into dollars, ahead of the referendum last month.
The Standard Club investment portfolio includes gold, an unusual holding for a P&I club.
It discovered gold about six years ago and has been in and out of the yellow metal ever since.
The club currently has 1% of its portfolio in gold, seen as a relatively safe bet against the instability arising since the referendum result on 23 June.
Gold has performed strongly in 2016, rising from just over $34 per gram at the start of this year to more than $43 per gram currently - a 25% rise.
The investment parameters allow the club to hold up to 5% of its portfolio in gold, a strategy that has contributed to a strong investment return in past years.
Overall, there has also been a more opportunistic approach since the referendum, with the club buying subordinated bank debt and other high-yield assets when they have briefly cheapened, while added duration to some investments.
The UK referendum vote to leave the EU has cost the club's investment portfolio - running to about twice the $390m free reserve - maybe half a percentage point.
But this is against a background of a 3.5% rise during the first part of this year, so chief executive Jeremy Grose is relaxed about the overall financial situation.
Longer term, there is the question of whether the club needs to set up an operation within the EU to access the common "passport".
The Standard Club operates through UK and Singapore regulated mutuals but they are effectively subsidiaries of the Bermuda-domiciled parent.
The UK is the core management centre for the Standard Club, which has a benefit in that while premium income is in dollars, employments costs and some other outgoings, such as expenditure on legal and technical services, will be in sterling - a currency that has plunged from $1.50 to below $1.30 since the "Brexit" vote.
The Standard grew its stake in the club's London Stock Exchange-listed manager, Charles Taylor plc, in the week after the referendum from 7.75% to 8.37%. The investment was made through Standard Reinsurance in Bermuda and lifts the holding to 5.6 million shares, valued at almost £14m ($18.3m).
Grose says the move reflected the club's investment strategy.
"I think they like the activities of the company and want the benefit of the energy and enthusiasm in the management business," he said.
A further measure of the confidence of the Standard Club's shipowner board is the low level of release calls, which at 2%, 3% and 7% of estimated total premium for 2014/15, 2015/16 and 2016/17, respectively, are among the lowest in the International Group.