Outline

• Half year figures show strong investment performance but confirmation of increased claims for 2002 policy year.
• Supplementary premium estimates maintained at nil for all open policy years
• 17½ per cent general premium increase ordered for 2004 policy year.

Action

• No immediate action required by Members, this circular is for information only.

TO THE MEMBERS

Dear Sirs

Review of Open Policy Years

2004 Policy Year General Increase

At the meeting held on 20th October the Directors reviewed the development of the Association's funds and claims.

On the positive side there has been a strong investment performance, with a return of 8 per cent recorded for the seven months from February to September.

Furthermore the Association's reserve strength, combined with the protection of the Swiss Re reinsurance contract, means that all the supplementary premium estimates for all the open policy years (i.e., the 2001, 2002 and 2003 policy years) are maintained at nil.

However there is now clear evidence of an increasing trend in claims. While the claims projections for the policy years up to and including the 2001 policy year have shown an overall improvement, there is confirmation of a significant increase in the cost of claims falling on the 2002 policy year. Looking ahead, it is anticipated that the favourable market conditions for the shipping industry, with resulting higher levels of ship utilisation, will produce an increased level of claims.

It is against this changing claims environment that the Board has decided to order a general increase of 17½ per cent in Members' premium ratings for the 2004 policy year, plus any relevant increase in the cost of the International Group's reinsurance arrangements for 2004 (at this stage the cost and structure of the reinsurance arrangements are not yet clear).

The Board recognises that this increase will be unwelcome news, but believes that it is in the best interests of the Association and its Members to take the steps necessary to maintain the Association's financial strength.

As is customary, after application of the general increase, Members' premium ratings will be reviewed in the light of individual loss record and other relevant factors, and a further increase or reduction will be applied as appropriate.

Mutual premiums for 2004 will be payable in four equal instalments, three during the policy year by 20th March, 1st June and 1st September, and the fourth by 1st December in the following year (2005). The estimate of supplementary premium is nil.

Yours faithfully

Thomas Miller (Bermuda) Ltd.