American Club Circular No. 41/1 6 1 DECEMBER 13, 2016 CIRCULAR NO. 41/16 TO MEMBERS OF THE ASSOCIATION Dear Member: INTERNATIONAL GROUP REINSURANCE ARRANGEMENTS FOR 2017 The arrangements for the renewal of the International Group’s general excess of loss reinsurance contract (GXL) and Hydra reinsurance program for the forthcoming 2017 policy year have now been finalized. The Group has taken the opportunity provided by the currently favorable state of the marine reinsurance markets and the long relationship with its panel of reinsurers to advance the traditional renewal timetable by approximately one month with the objective of assisting both shipowners and clubs in their negotiations for the 2017 P&I renewals. Renewal overview The loss experience of the reinsurance program on the 2012 to 2016 (year-to-date) policy years remains favorable to reinsurers, notwithstanding some past year claims deterioration. This factor, combined with surplus market capacity, the positive financial development of the Group captive, Hydra, the effective use of multi-year private placements and a number of structural changes outlined below, has enabled the Group to achieve advantageous reinsurance renewal terms, with reductions across all layers of the program and on the Excess War P&I cover, resulting in a further year of reinsurance rate reductions across all vessel categories. Club retention and GXL attachment The individual club retention, which was increased with effect from February 20, 2016 to US $10 million, remains unchanged for the 2017 policy year. The attachment point on the Group GXL reinsurance program, which has remained at US $80 million since 2014, will be increased to US $100 million from February 20, 2017. Hydra participation Currently, the layer from US $80 million to US $100 million is reinsured 75% by Hydra and 25% by the first layer of the market GXL placement. From February 2017, Hydra will absorb the 25% market share in this layer and will therefore reinsure 100% of the layer. Hydra also currently reinsures 60% of the layer from US $100 million to US $120 million and, from February 2017, will reduce this participation to 30%, with the remaining 30% being absorbed by the market GXL placement. The objective of these changes is to simplify the current Group reinsurance program structure through the introduction of a “flat” attachment for the GXL and private placements at US $100 million. Private placements The first of the three current 5% private placements covering the first and second layers of the Group GXL placement (US $1 billion excess of US $100 million) expires at the end of the current policy year in American Club Circular No. 41/1 6 2 February 2017. A new 5% three-year private placement will replace this expiring placement as from February 20, 2017 on more favorable terms and pricing. In addition, the Group has negotiated an extension to the second 5% three-year private placement for two years beyond February 20, 2018 on favorable terms and pricing. Maritime Labor Convention (MLC) cover As part of the solution developed by the Group clubs to assist and meet shipowners’ certification requirements under the financial security provisions of the Maritime Labor Convention which will enter into force in January 2017, the Group clubs have collectively arranged a market reinsurance cover (US $190 million excess of US $10 million) at a competitive cost. This will be included within the overall reinsurance cost for allocation at Februar