American Club Circular No. 37/1 6 1 NOVEMBER 21, 2016 CIRCULAR NO. 37/16 TO MEMBERS OF THE ASSOCIATION Dear Member: RECENT CLUB PERFORMANCE. DEVELOPMENT OF CLOSED AND OPEN POLICY YEARS. RELEASE CALLS. PREMIUM REQUIREMENTS FOR THE 2017 POLICY YEAR. At its recent meeting in Houston, 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 analyzed the development of closed and open policy years. Having considered the Club’s position in light of these several perspectives, a number of important decisions were made, including the determination of premium requirements for the 2017 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 continued to influence both the level of turnover and the risk profile of vessels entered in the Club, the more so as the freight market slump has endured. Annualized premium income for 2016 has increased over the period since February 20. At the same time, the Club has experienced a comparatively larger rise in total tonnage and the average size of entered vessels, together with a reduction in their average age. These trends have combined to generate a reduction in the average net rate per ton. However, while pricing challenges persist, the Club’s overall levels of rating continue to acquit themselves well by comparison with recent market norms. As to claims, the Club’s retained exposures have developed as expected over the first nine months of the current year. Claims for the Club’s own account for 2016 are higher than they were for 2015 at the same point of emergence, but the frequency of underlying attritional exposures has been much the same in 2016 as it was during the previous year. So far as the Pool is concerned, the 2013 through 2015 policy years continue to develop favorably, while claims for 2016, albeit at an early stage, are also emerging at a moderate pace. However, since large P&I losses tend to be volatile, it is impossible to say whether the current year will ultimately be less costly for pooling purposes than its predecessors. Nevertheless, present signs are encouraging. American Club Circular No. 37/1 6 2 On the investment front, the Club’s portfolio, as of mid-November, 2016, had generated a year-todate return of just over 2%. This compares with a yield of only 24 basis points at the same point twelve months earlier. Although market uncertainties persist, particularly in regard to continuingly sluggish global growth and concerns about the future direction of world trade following recent political developments on both sides of the Atlantic, it is hoped that investment earnings will continue to make a respectable contribution to global results over the months ahead. Development of closed and open policy years Closed policy years There has been some degree of claims deterioration on closed policy years over the recent period. This, coupled with unrealized losses in the Club’s investment portfolio as of September 30, 2016, has caused the Club’s contingency fund to reduce by about $1.5 million over t