American Club Circular No. 41/1 5 1 NOVEMBER 20, 2015 CIRCULAR NO. 41/15 TO MEMBERS OF THE ASSOCIATION Dear Member: RECENT CLUB PERFORMANCE. DEVELOPMENT OF CLOSED AND OPEN POLICY YEARS. RELEASE CALLS. PREMIUM REQUIREMENTS FOR THE 2016 POLICY YEAR. At its meeting yesterday 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 outlook for the freight and investment markets, and the implications of emerging trends within the P&I environment. 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 2016 policy year. Recent Club performance Over the last 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 revenue than was the case from 2012 through 2014. Accordingly, although it declined somewhat at February 20, annualized premium income for 2015 has increased over the intervening period. Entered tonnage has remained stable, while rates per ton have shown a welcome degree of firmness year-on-year. Indeed, the average net rate per ton for P&I entries is at present only two percent lower than it was twelve months ago, despite unrelenting pressure on premium pricing over that time. As to claims, the Club’s retained exposures have developed favorably over the first nine months of the current policy year. Claims for the Club’s own account for 2015 are over 40% lower than they were for 2014 at the same point of emergence. The year remains highly immature, of course, but early indicators are positive. So far as the Pool is concerned, the 2013 and 2014 policy years are developing more favorably than 2011 and 2012, while claims for 2015, albeit at an early stage, are also emerging at a moderate pace. However, since large P&I losses tend to be volatile, it cannot be said with certainty whether the current year will ultimately be less costly for pooling purposes than its predecessors, but present trends are encouraging. On the investment front, the Club’s portfolio, as of mid-November, 2015, had generated a year-to-date return of 24 basis points, only slightly above break-even. This compares with a 4% yield at the same point twelve months ago. Although market uncertainties persist, particularly in regard to continuingly American Club Circular No. 4 1/15 2 sluggish global growth, it is hoped that investment earnings will gain greater momentum 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 $76.2 million as of September 30, 2015, a figure some $6 million lower than it was at the end of the second quarter of 2015 ($82.2 million). The reduction in the contingency fund is mainly due to unrealized losses sustained within the Club’s investment portfolio consequent upon a late summer market correction. However, a respectable proportion of those losses has since been recouped as investment conditions have improved over recent weeks. Open policy years 2013 The 2013 policy year continues to develop in acco