Club Circular 03/07: Special War Risks P&I and Bio-Chem Covers & US Terrorism Risk Insurance Act of 2002, as Amended by the Extension Act of 2005

OUTLINE

TO THE MEMBERS

Dear Sirs

SPECIAL WAR RISKS P&I AND BIO-CHEM COVERS & US TERRORISM RISK INSURANCE ACT OF 2002, AS AMENDED BY THE EXTENSION ACT OF 2005

War Risks P&I Cover

At their meeting on 29 January 2007, the Directors reviewed the basis on which special war risks P&I cover could be made available to Members in accordance with the proviso to Rule 5E and determined that this cover should be made available to Members for the 2007 policy year in accordance with the terms of the attached Directors' Resolution of 29th January 2007.

The terms on which the War Risks P&I cover is provided remain essentially the same as for the 2006 policy year, including the limit of cover of US$500 million. As for the 2006 policy year, the cover will only respond to claims in excess of the proper value of the entered ship as defined in Rule 5D or whatever sum is recoverable from war risk underwriters, whichever is the greater.

The Managers continue to draw the Members' attention to the note to Rule 5D in relation to the proper value for which an entered ship should be insured or deemed to be insured for this purpose. This provides that the relevant policies of the Member concerned should have been the subject of periodic review as market conditions may require so that the total amount of liability coverage contained in these policies is maintained at levels approximating to the market value of the ship without commitment.

Members are recommended to consult their brokers and/or ship valuers to assess periodically in the light of the above the proper amount for which insurance should be effected to cover P&I liabilities under their war risks policies. At a time of rapidly changing market values, the relevant values should be reviewed more frequently and the proper value assessed in the light of more frequent consultation with the Member's brokers and/or ship valuers.

A minor improvement to the terms of cover for 2007 will allow claims under TOPIA (the Tanker Owners' Pollution Indemnification Agreement) arising from certain war risks (but not arising from terrorism) to be covered under the special war risks P&I.

Bio-Chem Cover

The Directors also decided to provide cover for “Bio-Chem” claims in respect of crew risks and legal costs relating to all P&I liabilities that are excluded from the War Risks P&I cover by virtue of the “Bio-Chem” exclusion, on the same terms as for the 2006 policy year, including the limit of this cover which is US$30 million. Claims on this cover will again be pooled with the International Group clubs in excess of the club retention of US$7 million.

The detailed terms and conditions of the cover are set out in the attached Supplementary Directors' Resolution of 29th January 2007. The principal provisions are that:

Notices of Coverage

Terrorism Risk Insurance Act of 2002, as amended by the Extension Act of 2005

The US Terrorism Risk Insurance Extension Act of 2005, amending the Terrorism Risk Insurance Act of 2002 (TRIA), extended the Program created under TRIA for an additional two years through to the end of 2007.

A portion of the War Risks P&I cover and the “Bio-Chem” cover afforded to Members pursuant to the Directors' Resolutions are provided in accordance with the requirements of the US Terrorism Risk Insurance Act of 2002, as amended by the Extension Act of 2005 (“the Act”) (which will apply to losses arising from acts of terrorism occurring on or before 31st December 2007) and give coverage for losses arising out of “acts of terrorism,” as defined in Section 102(1) of the Act and as required by Section 103(c) of the Act.

Cover for losses caused by certified “acts of terrorism” can be partially reimbursed by the US Government under a program established by the Federal Law. Under the program, as amended by the Extension Act of 2005, the United States pays 85% (decreased from 90% with effect from 1st January 2007) of covered terrorism losses exceeding the statutory established deductible paid by the insurance company providing the cover.

The Extension Act of 2005 also imposes a new program trigger on the Government's compensation: i.e. insurers cannot have the benefit of the Government's compensation unless the aggregate industry insured losses from a certified act of terrorism exceed certain insured loss or “trigger” amounts. The Program Trigger applies to acts that occur after 31st March 2006. The trigger amount was $50m in 2006 and is $100m in 2007.

Although no additional premium is charged for coverage for “acts of terrorism”, a premium of US cents 0.25 per entered ton is deemed to be attributable to the US risk in accordance with the terms of the Act.

Yours faithfully

THOMAS MILLER (BERMUDA) LTD.