American Club Circular No. 31/12 1 NOVEMBER 20, 2012 CIRCULAR NO. 31/12 TO MEMBERS OF THE ASSOCIATION Dear Member: RECENT CLUB PERFORMANCE. DEVELOPMENT OF CLOSED AND OPEN POLICY YEARS. PREMIUM REQUIREMENTS FOR THE 2013 POLICY YEAR. At its recent meeting in New York, your Board reviewed the Club’s present and prospective circumstances by reference to several factors. These included the near and longer-term implications of the current economic climate, emerging trends within the P&I environment, and the continuing difficulties affecting the freight markets. Your Board also reviewed the development of closed and open policy years and, having considered the Club’s position in light of these related perspectives, made a number of important decisions, including the determination of premium requirements for the 2013 policy year. The remainder of this Circular describes the issues discussed by your Board, and the decisions it reached in consequence thereof. Recent Club Performance The American Club continues to make steady progress in accomplishing both its near and longer-term goals. Although premium rates per ton have experienced some attenuation during the past twelve months as older, higher-rated vessels have been replaced by newer, lower-rated ships (commonly referred to as “the churn effect”), tonnage has remained stable, and the Club’s retained claims exposure has developed encouragingly. As to the latter, 2012 is emerging much in line with 2011. Although not as benign as the results for 2010, claims development for the two most recent years has nonetheless conformed to original projections. Pool claims, however, remain a concern. Aggregate losses for both 2011 and 2012 to date are among the highest ever experienced. The incidence of large P&I claims, particularly of those which fall within the Pool, is apt to be volatile. This makes the modeling of such claims difficult. The frequency and individual severity of large claims generally, and those entering the Pool in particular, may ultimately abate, despite the adverse regulatory and political climate within which such claims often arise, but present trends are unpromising in this regard. On the investment front, the American Club has enjoyed good results during 2012. As of midNovember, the portfolio has earned a year-to-date return of 6.1%. This has added strength to the overall performance of the Club. It is hoped that investment earnings will continue to develop positively over the months ahead. American Club Circular No. 31/12 2 Given these trends, the American Club has been able to grow both its GAAP and statutory surpluses during the year. The Club’s statutory surplus grew by approximately $4.7 million during the nine months to September 30, 2012 (to $69.7 million), while its GAAP surplus grew by just under $1 million (to $61.2 million) during the same period. Given a challenging business climate, this is a respectable result, auguring well for the future. In counterpoint to these positive developments, the continuing crisis in the freight markets has also animated your Board’s consideration of premium policy for 2013. It has been conscious of the need to limit any increase to a level which acknowledges the difficulties currently confronting Members, yet recognizes that claims and other costs are likely to increase, rather than diminish, in the future. In reaching their decision in regard to premium rating for 2013, however, your Board first conducted a review of the development of