AMERICAN CLUB - 2012 Financial Analysis

The American Steamship Owners Mutual Protection and Indemnity Association Inc.

Basis of accounting:- Principles generally accepted in the United States of America.

Dashboard of Key Performance Indicators

American Club Dashboard of Key Performance Indicators

2012 Financial Results

After five successive years of surpluses the American Club has had a disappointing year with an overall Deficit of $3m for the year ending 31 December, 2011. This was as a result of a nine percent fall in net premiums and a six percent rise in Incurred Claims. The Investment Return of only 3.5 percent was not sufficient to cover the resulting Deficit.

Underwriting

The American Club was unable to build on the good results of the previous years, as the Combined Ratio rose from 99 percent to 111 percent. The Club achieved a modest increase in tonnage, but the level of net premiums could not be maintained due to the purchase of additional reinsurance to cover the cost of (lower) Pool Claims.

As a consequence of this, even though the 2011 policy year was probably the second best year for claims at this stage (for the last ten years), the result was still an overall Deficit.

After 13 months, the 2011 policy year had Incurred Claims of $45m, compared to $33m for 2010, $54m for 2009 and $69m for 2008. There were only six claims over $1m in 2011 and, although attritional claims were slightly higher than 2010, the trend remained favourable. Seventy percent of the claims fell in the main P&I categories, i.e. Cargo, Collision, Property and Personal Injury. The number of cargo claims fell from 349 to 212, but the total value was higher.

The other reason for the Deficit was an $8m deterioration in the earlier years, which follows a similar Deficit reported last year. The Club will need to make adequate provisions for Future Claims in each of the policy years to ensure future financial years are not adversely affected. The IBNR (incurred but not reported) claims on the open policy years were $34m, the same as the previous year.

Tonnage - Ship Type: Dry Bulk 61%, Tankers 25%, Tugs, Barges & Small Craft 4% and Cargo, Passenger, Container & Ferry 10%.

Tonnage - Management Domicile: Europe 46%, Asia 40%, North America 11% and Others 3%.

Premium - Management Domicile: Europe 33%, Asia 30%, North America 29% and Others 8%.

Investments

The Investment Managers had a quiet year with an Investment Return of 3.5 percent on the portfolio. The best performing assets were Fixed Income Bonds with a 7.9 percent return, followed by Equities with a 1.7 percent loss. Assisted by advisors Merrill Lynch, the managers amended the investment guidelines, reducing Equities from 35 percent to 15 percent, and increasing their Fixed Income from 45 percent to 65 percent. The Club also has Hedge Funds and real assets (property).

Future

After a good year for claims, the American Club's Deficit was a disappointment and may raise issues regarding the future level of Calls in the event that claims start to rise (in line with the experience of the other clubs). The purchase of the additional insurance will help protect the Club against claims from the Pool. However, it would appear that the underlying level of premiums may need to be increased to support the cost of reinsurance and the future level of claims.

The American Club has started a diversification programme by investing in the Eagle Ocean facility (covering non-American small craft for P&I and FD&D risks) and improved its S&P Rating to BB+.