1 of 7 NOVEMBER 13, 2009 CIRCULAR NO. 27/09 TO MEMBERS OF THE ASSOCIATION Dear Member: CLUB PERFORMANCE IN THE CURRENT ECONOMIC CLIMATE. DEVELOPMENT OF CLOSED AND OPEN POLICY YEARS. LEVYING OF THE FORECAST SUPPLEMENTARY CALL FOR 2009. PREMIUM REQUIREMENTS FOR THE 2010 POLICY YEAR. At its meeting yesterday in New York, your Board reviewed the Club’s financial performance over recent months in light of the current economic climate. It also reviewed the development of closed and open policy years and, having considered the Club’s circumstances by reference to these related perspectives, made decisions in regard to the levying of the forecast supplementary call for 2009, and in regard to premium requirements for the 2010 policy year. This Circular describes the issues which were discussed by your Board and the decisions it reached. Club Performance in the Current Economic Climate Background Twelve months ago, the challenges confronting the global economy were widely regarded as being almost without precedent in their severity and scope. There was, moreover, a broadlybased consensus that the slump would endure for some time and, by reason of modern market integration, have an extensive global reach. While some recent indicators suggest that the worst of the recession may now be over, it is generally accepted that the recovery will be patchy and slow, and that global trade will only gradually regain its previous momentum. Against this background, and to a large degree reinforced by widespread government intervention to preserve the integrity of the banking system and to stimulate economic activity, the financial markets have, despite some volatility, performed surprisingly well over the past several months, particularly in the equities sector. Concerns remain as to the longer-term consequences of the massive overhang of government debt which recent stimulus initiatives have created, especially within the US economy, and the impact this will have over time on Treasury obligations and other dollar-denominated fixedincome investments. While dollar weakening and rising interest rates would appear to be likely at some point in the future, inflationary pressures have so far been absent in most of the major economies as continuing consumer pessimism, linked to rising unemployment, has suppressed demand, to 2 of 7 say nothing of limited bank lending and an overall lack of pricing power through continuing excess capacity in the manufacturing sector. Accordingly, recent performance in the fixed-income sector has also held up well with some areas – notably investments in municipal and corporate bonds – having produced respectable returns throughout the recession. The American Club’s recent investment performance The American Club’s portfolio, which continues to hold an allocation of some 70% to fixed income and 30% to equity investments, ended 2008 some 8.5% down on the year. This was better than a benchmark decline of some 11% over the period. As of the end of October, 2009, the portfolio was up 8.3%, having taken advantage of the stock market rally which began in the spring, and benefiting from a steady performance in the fixedincome sector, particularly as to the Club’s investments in municipal bonds. This year-to-date result was broadly in line with a benchmark figure of plus 8.9%. The American Club has never relied on investment income to subvent underwriting losses. In consequence, it continues to maintain a leading position among its peers by ref