American Club Circular No. 33/13 1 NOVEMBER 19, 2013 CIRCULAR NO. 33/13 TO MEMBERS OF THE ASSOCIATION Dear Member: RECENT CLUB PERFORMANCE. DEVELOPMENT OF CLOSED AND OPEN POLICY YEARS. RELEASE CALLS. PREMIUM REQUIREMENTS FOR THE 2014 POLICY YEAR. At its recent meeting in New York, your Board reviewed the Club’s present and prospective circumstances by reference to several factors. These included the overall economic climate, the outlook for both the investment and freight markets, and the near- and longer-term implications of emerging trends within the P&I environment. Against this background, your Board also reviewed the development of closed and open policy years and, having considered the Club’s position in light of these various perspectives, made several important decisions, including the determination of premium requirements for the 2014 policy year. The remainder of this Circular describes the issues discussed by your Board, and the decisions it reached in consequence thereof. Recent Club Performance During the past twelve months, the “churn effect” (the term commonly applied to the reduction of premium volume as older, higher-rated vessels are replaced by newer, lower-rated ships) has subsided to some extent, even if it has not entirely disappeared. The significant attenuation of premium revenue experienced in the first six months of 2012 has, fortunately, not been repeated in 2013. Income has been stable during the year to date, while entered tonnage has grown encouragingly over the first nine months, even if at a somewhat lower rate per ton by comparison with historic levels. However, reflecting the experience of other clubs, retained exposures for the American Club’s own account have increased during 2013 by comparison with both 2011 and 2012, claims development at the eight month point for the current year being about $9 million higher than 2012 at the same stage. As to Pool claims, 2012 continues to develop unfavorably. As of February 20, 2013, there were 20 Pool claims notified to the International Group with an aggregate value of $369 million. This compares with 12 claims totaling $231 million for the 2011 year at the same stage of development a year earlier. As of October 20, the current year is developing in line with 2012 at the same point of emergence. Since the incidence of large P&I claims, particularly of those which fall within the Pool, is apt to be volatile, it is difficult to say with certainty whether 2013 will prove to be more or less costly for pooling purposes than its two predecessor years. However, present trends are unpromising, particularly given the adverse regulatory and political climate within which such claims nowadays often arise. American Club Circular No. 33/13 2 However, on the investment front, the American Club continues to enjoy solid results, particularly in a market characterized by historically low yields across many asset classes. As of mid-November 2013, the portfolio had earned a year-to-date return of 5.24%. This has added impetus to the overall financial performance of the Club. Although market uncertainties remain, it is hoped that investment earnings will continue to develop positively over the months ahead. Development of Closed and Open Policy Years Closed Policy Years The development of closed years continues as expected. The excess of assets over liabilities for closed years, which constitutes the Club’s contingency fund, stood at $78.3 million as of September 30, 2013, a recor