A merican Club Circular No. 41 / 20 1 NOVEMBER 20, 2020 CIRCULAR NO. 41/20 TO MEMBERS OF THE ASSOCIATION Dear Member: BACKGROUND TO THE 2021 AMERICAN CLUB RENEWAL. DEVELOPMENT OF CLOSED AND OPEN POLICY YEARS. RELEASE CALLS. PREMIUM AND RELATED REQUIREMENTS FOR THE 2021 POLICY YEAR. At its virtual meeting conducted from New York yesterday, your Board made important decisions concerning the Club’s premium and related requirements for the 2021 renewal. Those decisions are described later in this Circular, which begins by reviewing the issues your Board considered in making them. Background to the 2021 American Club renewal In addition to its baleful effect on global health, the COVID-19 pandemic has caused extensive disruption to international commerce. From a shipping industry perspective, the impact of the pandemic has varied: while the cruise ship sector has suffered the greatest adversity, other constituencies have proved more resilient. Claims patterns over the period have differed in much the same way. The experience of International Group clubs appears largely to reflect their individual membership profiles. However, the incidence of larger losses shared within the Group Pool has continued unrelentingly. While the American Club has not itself brought a claim on the Pool since 2016, the cost of its contribution to other clubs’ exposure is substantial. Indeed, Pool losses in the aggregate for 2020 may ultimately emerge as the largest ever recorded. Against this background, both the American Club and Eagle Ocean Marine (EOM), its fixed premium facility, have performed comparatively well. Despite some attenuation of premium in the Club’s P&I (Class I) portfolio, its Class II (FD&D) and Class III (Charterers’ Insurance) business has grown in recent months, suggesting that the Club’s annualized year-end revenue will be only moderately lower than it was at the beginning of the year. On the EOM front, the new facility period which began last July has experienced year-on-year premium growth to date of 16% over last year’s income, which was itself a record figure at the time. As to claims, and notwithstanding the significant increase in pooling costs mentioned above, the Club’s 2020 policy year has so far developed favorably, losses for the Club’s own account being significantly lower at the eighth month of emergence than they were for the previous year. Although COVID-19 cases have had some impact, none has been A merican Club Circular No. 41 / 20 2 disproportionately large and the Club’s primary exposures have in any event been substantially mitigated by reinsurance recoveries. Accordingly, the American Club approaches the 2021 renewal with cautious optimism as to the technical performance of the current year to date. However, any contribution from investment earnings to the Club’s overall results for 2020 – notwithstanding a 3.1% return on its portfolio as of mid-November – is unlikely to rise to the level of 2019 (a 10.6% return) given continuing political and economic uncertainties. And, in any event, there remains an overarching market consensus that pricing levels for P&I risks are at an unsustainably low point and require, as a matter of general principle, sensible movement upward. Development of closed and open policy years Closed policy years The Club’s contingency fund, representing its surplus on closed policy years, stood at approximately $73 million as of September 30, 2020, a figure very similar to that of twelve months earlier