A merican Club Circular No. 4 3 /1 8 1 NOVEMBER 15, 2018 CIRCULAR NO. 43/18 TO MEMBERS OF THE ASSOCIATION Dear Member: RECENT CLUB PERFORMANCE. DEVELOPMENT OF CLOSED AND OPEN POLICY YEARS. RELEASE CALLS. PREMIUM REQUIREMENTS FOR THE 2019 POLICY YEAR. At its meeting in New York earlier today, your Board considered 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 operating performance, the nature of the present investment landscape 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 discussed the Club’s position in light of these several perspectives, made a number of important decisions, including the determination of premium requirements for the 2019 policy year. Recent Club performance The overall direction of the global freight markets remains ambiguous. While there are signs of growing confidence in several sectors, optimism as to the sustainability of the current expansion of seaborne trade has been tempered by concerns over rising geopolitical and macroeconomic tensions. Against this shipping industry background, premium softness in the marine insurance space has persisted. However, the relentlessly downward momentum of P & I rates caused by the “churn effect” appears to have abated somewhat as the pace of newbuilding deliveries has slackened, and the withdrawal of capacity from the Hull markets may presage some uplift in overall risk pricing over the months ahead. Whether the intersection of these trends will ultimately represent a positive inflection point for marine insurers remains to be seen. Nevertheless, the indicators currently emerging could imply that the bottom of a lengthy cycle of insurance pricing weakness may finally have been reached. American Club Circular No. 4 3 /1 8 2 As to recent claims experience, the American Club’s retained losses for the current year to date are developing very favorably. Claims in the aggregate for the Club’s own account as of mid-November, 2018, at $14.6 million, are 23% less than the total for the previous year ($19.0 million) at the same stage of emergence. The Club’s exposure to Pool claims is tracking at a rather higher level than was the case twelve months ago, but not to a degree which causes concern, since a reversion to the mean of historical losses might in the ordinary way be expected, following a subdued incidence of such claims from 2014 through 2016. The Club’s investment earnings for 2018 to date have not been as robust as they were in 2017. As of mid-November, the portfolio has recorded a marginally positive result (+0.12%), but markedly lower than the figure recorded at the same point twelve months ago (+6.2%). However, premium revenue for the Club has grown by about 2% since the beginning of the 2018 policy year, coupled with a tonnage rise of approximately 1%, connoting an increase in the average rate per ton for P & I entries of about 1%. Given the market-wide decline in average premium rating experienced over recent years, and in view of market conditions generally, there are grounds for cautious optimism that P & I risk pricing is gaining a firmer footing as the new policy year approaches. Development of closed and open policy years Closed policy years The Club’s contingency fund, representing its surplus on closed poli