Report & Accounts For the year ended 20 February 2007 FINANCIAL HIGHLIGHTS 2007 Total Funds 969m Total liabilities 707m Free reserves 263m Investment Return 9.7% The above figures are in US dollars Chairman's Statement Financial Statements Report and Accounts 2007 The United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Limited Chairman's Statement It is pleasing to be able to report an increase in the Club’s free reserves by $46 million to $263 million at the end of the 2006 year. During the year Standard and Poor’s also lifted their negative outlook on the Club’s ‘A’ rating, which is now ‘A’ Strong (stable outlook). This has been achieved as a result of another good year for our investments which produced a return of 9.7 per cent and has been boosted by a further recovery on the Club’s reinsurance contract with Swiss Re. However, this good news is somewhat offset by a more substantial deficit in the underlying operating account than we would have liked to see. The primary reason for this is the experience of the International Group Pool. Our own premium income duly increased following the general increase ordered by the Board for 2006, and our Members’ own claims in the latest policy year have not shown a significant increase either at the attritional level or as a result of major claims. However, the Pool has seen what may be a record year for the number and value of claims recoverable from the Pool, and the Club’s contribution to these claims has adversely impacted the claims experience for the year. The Pool experience is particularly remarkable in that out of a total of 28 Pool claims notified by the end of the year (as against a normal average of 13 claims at this stage), only three small claims originated from the UK Club. It is tempting to suggest that this positive experience reflects the quality of our membership and their operational standards, but experience indicates that claims at these high levels tend to strike clubs on a fairly random basis. For this policy year, the Club’s contribution to claims from other clubs will far exceed our own recovery, but it can be expected that this will not alwys be the case, as was demonstrated by our own experience in the 2004 policy year. In any event, the Club’s contribution to the Pool will be adjusted downwards to reflect our record if it continues to be favourable. Even so, the number and quantum of claims at this level remains a concern, especially if the recent experience is the beginning of a new trend. We continue to enjoy the benefit of reinsurance protection through the Swiss Re contract for abnormally high numbers of large claims, but we will be investigating closely whether more reinsurance would prove cost effective. However, even with the benefit of reinsurance, in the current regulatory climate capital requirements can be expected to increase to over potential volatility in claims. The Board will therefore need to ensure that premium income keeps pace with foreseeable claims developments. There is no doubt that the Pool and the International Group reinsurance arrangements continue to be of value to the Club, especially if the Pool adapts to the requirements of changing circumstances. Sometimes, it is necessary to compromise the Club’s preferred position in order to reach an agreement between the clubs in the International Group on whose goodwill these benefits ultimately depend. The issue of a limit on cover for passenger risks is an example. Over recent years there has been much discussion between the International Group clubs on whether to restrict the exposure of the clubs to claims in respect of passenger liabilities. The prospect of early entry into force of the Athens Convention 2002 with its very high limits of liability per passenger and the increasing size of passenger ships provided a focus for this debate during the last year. This culminated late in the year in an agreement by all of the clubs to impose a limit on the cover for passenger and crew liabilities for the 2007 policy year. Although set at the highest levels consistent with the Group’s reinsurance programme, this limit still represents a departure from previous tradition in that the restriction was voluntary and not imposed by reinsurers, as was the case originally with the limit on oil pollution risks. The result is that all members of International Group clubs are now protected from an overspill call arising from passenger risks, whilst passenger ship operators still have adequate cover in relation to the Athens Convention 2002 limits of liability for all but the very largest passenger ships. During the year, the Board has completed its review of the governance structure of the Club. Whilst decision making remains with the full Board, it is assisted in the effective discharge of its duties by three main committees of the Board - the Strategy Committee, Audit Committee and Nominations Committee (for each of which revised Terms of Reference have been agreed), and the creation of a new committee on Ship and Membership Quality. The relationship between the Club Board and the operations of the Club’s subsidiary companies has also been clarified. The subsidiaries now include the new London based mutual, UK (Europe), which we have successfully established from 2007 to ensure that those Members who need or wish to do so, can access the Club through an insurer with a European regulatory passport. I noted in my last Chairman’s Statement the demands on the Board’s time and attention arising from increasing regulatory requirements. This can only be expected to continue. The new European solvency regime, Solvency 2, continues to evolve, although the final form of the regulation will not be established for some time. Our Managers have been actively engaged in industry discussions of its development in addition to the regular contact we also maintain with the Club’s own regulators, particularly the Financial Services Authority in the UK. Developments in this area need to be constantly monitored to guard against unwelcome surprises. The revised governance structure inevitably imposes more demands on some Directors, particularly those involved in the work of the committees of the Board. I am grateful to them for their willing commitment of the necessary time, and especially to the three Deputy Chairmen on whom much of the burden falls. Without the constant support and assistance they have given me, the role of the Chairman would be very much more difficult. Over the year, four Directors have left the Board. The contribution of Klas Kleberg to the conduct of the Club for many years as Deputy Chairman has been immense and we will miss his wise counsel. Annarita Marion and Giorgio Sulser have also been long serving members of the Board whose commitment to the Club has been exceptional. To them and Ma Zehua I extend our thanks. I also welcome to the Board new Directors: Mrs Lone Fønss Schrøder, Myles Itkin, Mrs Kathryn Siggins, Nikolas Tsakos and Paul Wogan, and look forward to their participation in our affairs. Finally, I would like to thank our Managers and all those working in their various offices around the world for the work they do for our Members. Their ability and willingness to provide assistance to Members, especially in times of crisis, remains one of the most important and valuable features of our Club. Tullio Biggi Chairman Financial Statements The United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Limited Consolidated Statement of Operations for the Year ended 20th February 2007 Amounts in US$000   2007 2006 Income     Calls and premiums   358,419 354,943     Reinsurance premiums   (78,308) (128,560)   208,111 226,383 Expenditure     Incurred claims   264,841 223,018     Acquisition costs 20,815 21,868     Operating expenses 20,314 19,426   305,970 264,312 Operating deficit (25,859) (37,929) Investment income 76,927 49,199 Surplus before taxation 51,068 11,270 Taxation (5,371) (664) Surplus after taxation 45,697 10,606 Reserves at beginning of year 216,819 206,213 Reserves at end of year 262,516 216,819 The United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Limited Consolidated Balance Sheet at 20th February 2007 Amounts in US$000 2007 2006 Assets     Investments 758,653 823,240     Cash balances 112,569 28,577     Amounts due from Members 2,792 5,801     Calls not yet due 68,649 63,534     Reinsurance recoveries on     outstanding claims 211,795 160,948     Accrued interest 4,060 1,682     Sundry debtors 41,075 17,435 1,199,593 1,101,217 Liabilities Outstanding claims (gross) 918,531 869,155 Creditors 18,306 15,043 936,837 884,158 Reserves 262,516 216,819 Statutory reserve 240 240 262,756 217,059 1,199,593 1,101,217 The United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Limited Holding Company Balance Sheet at 20th February 2007 Amounts in US$000 2007 2006 Assets     Investments 65,780 64,014     Cash balances 57,859 22,214     Amounts due from Members 2,792 5,801     Calls not yet due 68,649 63,534     Reinsurance recoveries on outstanding claims 850,374 798,298     Accrued interest 199 344     Sundry debtors 40,969 17,393 1,086,622 971,598 Liabilities     Amounts due to subsidiary company 118,561 67,319     Outstanding claims (gross) 918,531 869,115     Creditors 18,146 14,088 1,055,238 950,522     Reserves 31,144 20,836     Statutory reserve 240 240 31,384 21,076 1,086,622 971,598 The United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Limited Consolidated Cash Flow Statement for the year ended 20th February 2007 Amounts in US$000 2007 2006 Operating Activities     Calls and premiums received 362,226 354,717     Receipts from reinsurance recoveries (43,291) 131,181     Interest and dividends received 28,810 27,987 A 347,745 513,885     Claims paid 201,989 358,451     Acquisition costs 20,815 21,868     Operating expenses paid 23,161 18,974     Reinsurance premiums paid 80,022 74,458     Pool claims paid 44,633 33,748     Taxation paid 3,459 100 B 374,079 507,599     Cashflow from/(used by) operating activities A-B=C (26,334) 6,286 Investing Activities     Purchase of investments (1,803,814) (1,555,547)     Sale of Investments 1,914,140 1,476,768     Net cashflow from/(used by) investing     activities D 110,326 (78,779)     Net increase/(decrease) in cash and cash     equivalents C+D 83,992 (72,493)     Cash balances at beginning of year 28,577 101,070     Cash balances at end of year 112,569 28,577

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