The Board reviewed the latest financial results for the Club at their meeting in Shanghai on 18th October. A general increase of five per cent was agreed.

A detailed review of the Club's financial performance is provided in the October Review 2010 which can be downloaded as a pdf. Hard copies of the Review are being mailed to Members.

Financial Highlights - October 2010

• General increase for 2011 set at 5 per cent
• Free reserves and capital increased to $419 million at 20th August
• Improving overall claims position particularly on 2009 and also 2008
• Reserve release of $34 million at half year, whilst maintaining the same level of reserving confidence
• Investment income in line with forecast return of 4 per cent for the year
• 2009 policy year combined ratio of 102 per cent
• A- (stable outlook) S&P rating

Chairman's foreword

I am pleased to be able to report continuing improvement to our restored financial position over the first six months of the year. Our free reserves and capital have increased to $419 million at the half year point. Most encouragingly, we have seen confirmation of the fall in claims on the 2009 policy year which we had expected to see and a more modest improvement also in the 2008 policy year. Now that it is possible to have a clearer picture of the 2009 policy year claims development at 18 months, we have been able to reduce the claims ultimate for that year. Combined with the improvement in 2008, this has enabled the Club to release some $34 million from the reserves whilst still maintaining the same level of reserving prudence. Further details of where this improvement has been seen is contained in the detailed commentary on claims development in this review.

It is one of our planned targets to reach a combined ratio of 100 per cent and we are closing in on that level with 105 per cent for the 2008 policy year (excluding supplementary call) and 102 per cent for 2009. Of course 2010 is only halfway through and it is too early to form a confident view of its outcome but the experience to date is not dissimilar to 2009 - reserving is inevitably still at a cautious level at this stage.

Investment income over the first six months has also been positive, with September in particular being a very good month, and the investment return is so far comfortably on track to meet our relatively conservative forecast of a 4 per cent return over the full year.

Against this encouraging financial picture, your Board at its recent meeting had to consider the position for the future and after full consideration, decided to set a general increase of 5 per cent for the 2011 policy year. This decision was taken in the light of the inflationary increases we have seen in claims since much of the improvement experienced recently comes from lower numbers of claims not from lower values. Indeed, we have seen average claims costs continue to increase and this is further exacerbated by a weaker dollar. Furthermore if we are to achieve our balanced underwriting goal of a 100 per cent combined ratio, this modest increase is in our view necessary to offset the impact both of ordinary claims inflation mentioned above and the likelihood of claims increasing more rapidly at some point in the future if market conditions generally improve further.

Having restored the Club's capital position through the measures taken over the last two years, it would be folly to allow that renewed strength again to be dissipated by a new surge in claims levels. The awareness of the speed at which claims can escalate during an economic recovery also led to the introduction of the Club's new reinsurance strategy to protect us against unexpected increases both in retained and pool claims which I reported in my year end statement.

We are also working towards a new Solvency regime in Europe - Solvency 2 - which will require us to maintain a stronger capital position than the current regulatory regime. Our progress in preparing for Solvency 2 is going well. The new regime involves more than mere capital requirements since it focuses

on the entire risk management of the organisation, including the arrangements for governance.

In this connection, the work of the Board's Strategy Committee which meets eight times a year has become increasingly important to the effective governance of the Club and I am grateful to all the Directors who serve on this Committee for the time, energy and commitment they have been giving. The Deputy Chairmen - Eric André (who also chairs the Audit and IPIR financial committee), Alan Olivier (who represents the Club on the Thomas Miller Board) and Patrick Decavèle are members of nearly all the Board committees and their support and wise counsel is invaluable. Aside from those mentioned above considerable demand is made on the time of all Directors and I would like to thank them all for the contribution they make to the oversight and successful running of our Club.

Dino Caroussis Chairman