Your Managers are pleased to link to the American Club’s Annual Report and Accounts for the year ended December 31, 2020. As will be seen, they are in an electronic format. They were approved at the one-hundred-fourth Annual Meeting of the Members of the Club which was recently conducted remotely from New York. Hard copies of this document will also be available from the Managers over the forthcoming period.
As will be noted from the Club’s latest financial statements, there has been a change in the earlier accounting treatment, and presentation, of premium earned but unbilled (EBUB). Previously, EBUB was used solely as a means of recognizing the unique benefits of the February, 2008 DJA settlement agreement, covering pre-1989 asbestos claims.
In the most recent financial statements, the use of EBUB has been expanded to account for (i) the explicit, pro-rata reinsurance by open policy years of those pre-1989 asbestos claims and (ii) deficits attributable to the development of the open policy years themselves. Both have been balanced by sums designated as EBUB. This properly recognizes the ex post facto, adjustable nature of the premium entitlements of mutual, assessable insurers such as the Club, and both the treatment and presentation of EBUB have been approved by its independent auditors. The approach has also removed certain inefficiencies in the Club’s statutory accounting with the New York regulator.
As will also be seen, the financial statements for 2019 have also been restated in accordance with the change in accounting treatment described above. Absent this change, the GAAP Members’ Equity (free reserves) as of December 31, 2020 would have been $47.35 million, a reduction of about $6.84 million from the 2019 Members’ Equity, recorded on the previous basis, of $54.19 million.
The Club’s combined ratio for 2020 was 112% (116% absent the accounting change), a figure which, although within the lower range of recent market results, nonetheless highlights the need for greater sustainability in premium pricing for the future, a subject upon which several International Group clubs have also commented over the recent past.
Members are asked to note their records accordingly. If there are any questions in regard to the foregoing, or generally, your Managers will be pleased to respond to them.