American Club Circular No. 3 4/14 1 NOVEMBER 20, 2014 CIRCULAR NO. 34/14 TO MEMBERS OF THE ASSOCIATION Dear Member: RECENT CLUB PERFORMANCE. DEVELOPMENT OF CLOSED AND OPEN POLICY YEARS. RELEASE CALLS. PREMIUM REQUIREMENTS FOR THE 2015 POLICY YEAR. At its meeting earlier today in New York, your Board reviewed the American Club’s present and prospective circumstances by reference to a variety of factors. These included the overall economic climate, the current state of the freight markets, the Club’s recent operational performance, the nature of the present investment landscape and the implications of emerging trends within the P&I environment. Against this background, your Board also reviewed the development of closed and open policy years and, having considered the Club’s position in light of these several perspectives, made a number of important decisions, including the determination of premium requirements for the 2015 policy year. The remainder of this Circular describes the issues discussed by your Board, and the decisions it reached. Recent Club performance During the past twelve months, the “churn effect” (the term applied to the reduction of premium volume as older, higher-rated vessels are replaced by newer, lower-rated ships), has had a more subdued impact upon premium revenue than was the case in 2012 and 2013. Accordingly, premium income has been stable during 2014, while entered tonnage in relation to the Club’s core business has grown, rates per ton having shown a welcome degree of firmness year-on-year. As to the Club’s retained exposures, these have declined over the first eight months of the 2014 policy year by comparison with 2013 at the same stage of development. There has nevertheless been a gradual upward trend over the past several years from the low point experienced in 2010. So far as Pool claims are concerned, the rising exposures which characterized the 2012 policy year twelve months ago appear to have stabilized, while claims for 2013 at the same stage of development are encouragingly better. The 2014 Pool is showing a favorable emergence at this early stage. However, since the incidence of large P&I claims, particularly of those which fall within the Pool, is apt to be volatile, it is difficult to say with certainty whether the current year will prove to be more or less costly for pooling purposes than 2013, although present trends are promising. On the investment front, recent market volatility – particularly within the equities space – has caused returns to fluctuate, but the most recent upturn in stock pri ces has assisted the Club’s American Club Circular No. 3 4/14 2 portfolio in achieving a year-to-date return of some 4% as of mid-November 2014. This compares with just over 5% twelve months ago. This has assisted the overall financial performance of the Club. Although market uncertainties remain, it is hoped that investment earnings will continue to develop positively over the months ahead. Development of closed and open policy years Closed policy years The development of closed years continues as expected. The excess of assets over liabilities for closed years, which constitutes the Club’s contingency fund, stood at $87.4 million as of September 30, 2014, a figure over $9 million higher than it was twelve months earlier ($78.3 million). Open policy years 2012 2012 was affected at an early stage by a strong churn effect, resulting in an erosion of premium volume over the first half of the year. However,