A merican Club Circular No . 41 / 1 9 1 DECEMBER 20, 2019 CIRCULAR NO. 41/19 TO MEMBERS OF THE ASSOCIATION Dear Member: INTERNATIONAL GROUP REINSURANCE ARRANGEMENTS FOR 2020 The arrangements for the renewal of the International Group’s general excess of loss reinsurance contract (GXL) and Hydra reinsurance program for the forthcoming 2020 policy year have now been finalized. Structurally, the GXL program is relatively unchanged, with the emphasis having been on continuity and respecting the long-term relationships which the Group has built up with many of the world’s leading reinsurers. Those relationships have enabled the Group to achieve a fair balance between the utilization of the commercial reinsurance market and the risk retained by the Group through Hydra, its captive. Renewal overview The loss experience of the GXL program on the policy years 2012 through 2019 (year-to-date) has remained acceptable to reinsurers. The Group’s reinsurance captive Hydra continues to give positive results through its loss retention strategy. In addition, there has been considerable appetite in the market to write multi-year private placements at competitive pricing. Together, these factors have enabled the Group to achieve another satisfactory GXL program renewal result, with rates for shipowners remaining flat across all vessel categories. Individual club retention and GXL program attachment point The individual club retention (ICR) remains unchanged for the 2020 policy year at US$10 million, as does the structure of the Pool above that, as well as the attachment point for the GXL program. The further ICR of 7.5% in the upper layer of the Pool remains unchanged. Reinsurance structure changes Following the structural changes made last year (which also saw co-brokers being appointed), the Group’s Reinsurance Sub-Committee decided not to make significant changes this year. This was to allow time for the new program to bed in and produce results. However, for 2020 there has been a modest adjustment, in that the two expiring 5% private placements in the US$1 billion excess of US$100 million layer have been replaced by two new 10% multi-year private placements in the first layer. This will therefore see three 10% private placements for the 2020 policy year, with the 70% balance placed in the market. Otherwise, the US$100 million annual aggregate deductible (AAD) – which is retained by the Group’s captive Hydra – within the 70% market share of the first layer of the program (from US$100 million to US$750 million) remains. The second layer will cover US$750 million to US$1.5 billion and the A merican Club Circular No. 41 /1 9 2 third layer from US$1.5 billion to US$2.1 billion. There is no change to the collective overspill layer, which provides US$1 billion of cover in excess of US$2.1 billion. Hydra participation Hydra continues to retain 100% of the Pool layer from US$30 million to US$50 million, and 92.5% of the Pool layer from US$50 million to US$100 million. In addition, Hydra will retain a US$100 million AAD in the 70% market share of the GXL program. Maritime Labor Convention (MLC) cover The US$200 million (excess of US$10 million) market reinsurance cover will be renewed unchanged for a further twelve months from February 20, 2020. This renewal has also been achieved at a competitive level of pricing, which has been included within the overall reinsurance cost. War risks cover The Group’s excess war risks P&I cover will be renewed for 2020 for a p