Outline

• International Group Pool upper limit raised to US$50 million

• Individual club retention remains at US$5 million

• Limits and scope of Group Excess of Loss programme otherwise unchanged

• Overspill layer cover to be renewed in line with 2003 arrangements

• US Oil Pollution cover separately reported in Club Circular 3/04

• Special War Risks cover separately reported in Club Circular 4/04

TO THE MEMBERS

Dear Sirs

2004 POLICY YEAR
Reinsurance Arrangements

The significant change for the 2004 policy year is the increase in the upper limit of the Pool from US$30 million to US$50 million. This increase reflects the long-standing intention of the International Group clubs to retain more risk within the "working layer" of the programme so that the Group reinsurance is preserved for more serious or catastrophic losses. The Club's retention will remain at US$5 million for 2004.

The International Group excess of loss programme now applies to claims in excess of US$50 million to reflect the Pool's increased retention. Otherwise, the structure of the reinsurance contract will be similar to the current policy year. For 2003 the Group simplified its co-insurance of the first layer of the excess of loss programme by retaining 25 per cent of that first US$500 million of cover.

For the 2004 policy year the Group has again retained 25 per cent of that first layer of reinsurance for claims in excess of US$50 million. The retention will be protected, once again, by a specific reinsurance protection.

Overspill Arrangements

If a claim were to exceed US$2.05 billion i.e. the limit of the Group Pool's excess of loss contract, the excess or overspill will be pooled amongst the Group clubs. The overall Group Pool limit for such an overspill claim remains unchanged at 2.5 per cent of the property limitation funds under the 1976 Limitation Convention of all ships entered in the International Group Pool clubs. Members remain ultimately liable to pay an overspill call up to a maximum of this limit for each entered ship, in accordance with Rule 22 of the Rules of the Association.

For 2003 the Association purchased a special overspill reinsurance to cover approximately 85 per cent of the Association's share of a US$1 billion claim in excess of the Group reinsurance contract. At the meeting of the Board of the Association on 26th January, 2004 the Directors decided to buy, subject to capacity, at least the same level of protection for the 2004 policy year as the Club has taken for 2003. Details of these arrangements will be notified to the Members once the contract has been placed.

Oil Pollution Limit

The Board has determined in accordance with Rule 5B (iii) that for the 2004 policy year the sums to which the Association's liability in respect of any and all claims for oil pollution shall be limited are:

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US$1,000 million each accident or occurrence in respect of each ship entered by or on behalf of an owner not being a charterer other than a charterer by demise or bareboat charterer

or

US$100 million each accident or occurrence in respect of each ship entered separately by or on behalf of a charterer (other than a charterer by demise or bareboat charterer) or by more than one such charterer as joint owners, subject to an aggregate limit in accordance with proviso (c) to Rule 5B (iii) of US$300 million.

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The terms of Rule 5B (iii) govern the application of these limits.

Oil Pollution Risks in the United States - Tanker Voyage Additional Premium

Details of the additional premiums for 2004 are set out in the Association's circular Ref: 3/04

War Risks - P&I

Details of the Association's special war risks P&I cover for the 2004 policy year are set out in the Association's circular Ref: 4/04

Yours faithfully

Thomas Miller (Bermuda) Ltd