Circular No. 4/97 - American Club Renewal 1997
To: Members of the AssociationMarch 11, 1997
Dear Member:Circular No. 4/97
The American Club Renewal 1997
The purpose of this Circular is to inform Members of the results of the recent February 20 renewal, particularly in view of the publicity surrounding certain changes which took place at that time. Some of this publicity was misinformed and may have created an inaccurate impression as to the true circumstances of the Club following renewal and, more especially, its prospects going forward.
The results of the recent renewal in tonnage and premium terms are discussed in the first part of this Circular. In addition - and in order to give Members an enhanced perspective of the Club's future prospects - the remainder of this message contains some preliminary details of the Club's latest financial results by reference to its accounts as of December 31, 1996. These are currently under audit.
The withdrawal of a number of well-known fleets at renewal was a source of great regret to the Club. Nevertheless, while these withdrawals had the effect of reducing to some extent premium year-on-year, the fact that the Club's general requirements were achieved overall in respect of ongoing tonnage which renewed, and the fact that a substantial volume of new business was added as of February 20, meant that the reduction of premium in E.T.C. terms was, as of that date, only somewhat over 10% in total. Given the rating softness which characterized the last renewal worldwide, this is a creditable result which compares favorably with those apparent elsewhere in the market.
Just prior to the last renewal, the Club's entered tonnage stood at its highest level for many years. While the withdrawals above have had a negative impact upon this recent progress, the Club is still some 7% bigger today than it was twelve months ago. This tonnage growth has been matched by the expansion of Member services over the past year, specifically in regard to charterers' cover for P&I and Damage to Hull, and in respect of the insurance now available for Freight, Demurrage and Defence risks. Concomitantly, the year to December 31, 1996 also saw the expansion of the Club's correspondent network in the Far East, Africa, South America and Europe.
By way of tonnage type, the Club now has a greater weighting in the international ocean-going and dry cargo sectors than was previously the case. Similarly, the proportion of entered tonnage represented by non-U.S. interests has also increased over the past twelve months. These developments represent specific aims of the Vision 2000 strategy on which the Club remains focused with uncompromised commitment.
Financially, The American Club has never been in a stronger position than at present. As is well known, the Club reports annual figures in accordance with two regimes: first, subject to the statutory requirements of the New York State Insurance Department and, secondly, in accordance with Generally Accepted Accounting Principles ("GAAP") as mandated by the American Institute of Certified Public Accountants.
Circular No. 4/97-2-March 11, 1997
The statutory filings as of December 31, 1996 have just been submitted to New York State. They disclose a policyholders' surplus of $16.36 million, the highest the Club has ever recorded. This figure is 6% greater than it was a year ago and some 218% of the minimum surplus prescribed by the Insurance Department. Given the rigorous standards which the New York regulator applies, this is a thoroughly sound position and speaks persuasively for the underlying financial strength of the Club.
So far as the Club's GAAP results are concerned, its auditors, Deloitte & Touche LLP, are currently reviewing the figures and fully audited accounts will be available within the next few weeks. However, in order to give Members at least an impression of the favorable development of the Club's finances over the past year, the following preliminary figures may be of interest.
Encouragingly, cash and funds under investment grew by nearly 25% during the year to December 31, 1996. Over a two year period, growth in this area has been almost 110%. Total cash and funds under investment at year end exceeded U.S. $62 million.
Although investment income, net operating cash flow and net operating income did not grow as dramatically in 1996 as they did during 1995, the figures nevertheless all moved in positive direction. Most importantly, however, Members' Equity (that is to say the surplus of the Club's assets over its liabilities) grew to an historical high point of U.S. $18.6 million, some 9% higher than the figure twelve months previously, which was itself a record.
A ratio commonly used by P&I analysts as an indication of Club financial soundness is the ratio between a Club's total year-end assets and the nett claims it has paid during that year. As at December 31, 1996 The American Club's ratio was 7:1. As reference to any of the major insurance brokers' annual P&I Reviews will confirm, this figure compares very favorably with the best P&I industry standards in general.
In short, The American Club's progress over the past year, notwithstanding some disappointing features of the recent renewal, has been thoroughly positive. Buoyed by the continuing consolidation of its financial resources and by the support of its ongoing Members as it seeks to extend its global reach, The American Club enjoys excellent trading prospects and looks forward with confidence to the further development of its market position over the months and years to come.
Shipowners Claims Bureau, Inc., Manager
for THE AMERICAN CLUB
Joseph E.M. Hughes
Chairman & CEO