BRITANNIA’S $30m de facto dividend pay-outs this year represents a sensible substitute for waiver of deferred calls, and has boosted the mutual’s previously deteriorating loss ratio in the process, according to top brass at the International Group-affiliated P&I club.

Indeed, the move has proved so successful that it may well be repeated in future, and could even be an example for others to emulate, said chief financial officer Jo Rodgers.

In a wide-ranging interview, Mr Rodgers and senior colleagues also defended Britannia’s 75% combined ratio, a level unusually low for a mutual that is not writing for profit, and also shed more light on the reasons that merger talks with the UK Club earlier this year came to nought.

Britannia has made two so-called ‘capital distributions’ this year, with $10m dished out to owners with P&I cover as of midnight on Tuesday last week, on top of an earlier $20m distribution in May.

Mutuals, by their nature, have members rather than shareholders, but the payments are analogous to dividends in a joint stock company.

This is believed to be the first time that an IG club has taken such a step; the more usual way of giving money back to members when cash reserves are growing is to waive all or part of deferred calls, which Britannia has done in the past.

But growing concern about the accountancy treatment of such waivers has spurred the club to try new tactics. In particular, waivers are apt to increase the so-called loss ratio, a key yardstick for all insurance entities.

The loss ratio represents the ratio between premiums paid in and claims paid out, plus administration expenses. If you take a chunk of premiums out of the equation and losses remain the same, the ratio becomes greater.

After a meeting with Bank of England watchdog the Prudential Regulation Authority, at which the club’s loss ratio was queried, commercial logic seemed to stack up behind capital distribution.

“Both the PRA and the ratings agencies get a bit twitchy if your loss ratio goes up too much. So what we decided to distribute surplus capital by paying a dividend, which comes off the bottom line,” said Mr Rodgers. “That does not have any impact on our loss ratio. So we get the same commercial benefit without having any impact on our underwriting position.”

Chief underwriting officer Mike Hall said: “I would not be surprised if other clubs found themselves in a position to return capital went down the same route. It seems to be quite popular with members. We also have our records with members, and if you reduce your deferred call, that also adversely affects their loss records. The way we do it has no impact at all on their loss record, it is just completely separate.”