American Club Circular No. 33/11 1 NOVEMBER 18, 2011 CIRCULAR NO. 33/11 TO MEMBERS OF THE ASSOCIATION Dear Member: RECENT CLUB PERFORMANCE. DEVELOPMENT OF CLOSED AND OPEN POLICY YEARS. LEVYING OF THE FORECAST SUPPLEMENTARY CALL FOR 2011. PREMIUM REQUIREMENTS FOR THE 2012 POLICY YEAR. At its meeting yesterday in New York, your Board reviewed the Club’s present and prospective circumstances across a broad range of criteria. These included the Club’s recent operational performance, the current state of the freight markets, the nature of the present investment climate and the implications for its business of the global economy in general. 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 decisions in regard to the levying of the forecast supplementary call for 2011, and in regard to premium requirements for the 2012 policy year. The remainder of this Circular describes the issues discussed by your Board, and the decisions it reached as a consequence of those discussions. Recent Club Performance Background Twelve months ago, the circular which reviewed Club performance at that stage referred to an economic climate of “unusual uncertainty” as then recently described by the chairman of the US Federal Reserve. Many of the negative factors which prompted Mr. Bernanke’s comments have further deteriorated in the interim, the Eurozone debt crisis being probably the greatest threat to the financial system at present. While the major developing nations continue to move the global economy forward, albeit at a diminished pace, the overall outlook continues to be uncertain, the more so if Eurozone contagion were to cause a further systemic breakdown. Against this unpromising backdrop, the freight markets continue to languish. The current imbalance between supply and demand appears unlikely to experience a positive readjustment any time soon. Accordingly, shipping industry earnings are unlikely to rise significantly over the short-term. However, depending on the extent to which the global economy avoids a further downturn and continues to expand, however modestly, over the next two years, there is hope that prospects will improve for 2013 and beyond. The recent experience of the American Club The underwriting, claims and investment experience of the American Club over the last nine months broadly reflects the trends outlined above. American Club Circular No. 33/11 2 On the underwriting front, there has been modest – and deliberately prudent – growth in tonnage since last February’s renewal in all classes of business. As at the middle of November, Class I (P&I) tonnage has grown by about 6% since the beginning of the policy year. Tonnage entered for coverage under Class II (FD&D) and Class III (Charterers’ insurance) had also increased over that period. As to the pricing of risk, the widely referred to “churn” – where newer, lower-rated vessels enter the Club to replace older, higher-rated ships – has had some effect in reducing overall premium per ton, but its impact to date has been relatively subdued. Moreover, the risk profile of newer tonnage is typically better than that of the older vessels which it replaces, implying superior claims performance for such tonnage over time. Indeed, so far as the Club’s claims performance is concerned, the favorable trends emerging in regard to 2010 twelve months ago appear to have continued in the developme