TO THE MEMBERS

Dear Sirs

2002 POLICY YEAR

Reinsurance arrangements

The Members will recall that for the 2000 policy year the Group's reinsurance arrangements were agreed on the basis of a two year contract (i.e. the 2000 and 2001 policy years) with an option for a third year on the first two layers of the contract (i.e. up to US$1 billion). The third year option was subject to a maximum increase of 20 per cent on the expiring rate. That option was exercised and the cover is in place for 2002. The brokers have now confirmed that the two layers excess of US$1 billion (i.e. a further US$1 billion) will be in place for next year.

The combined impact of the increase on the third and fourth layers and the option has resulted in an overall increase in 2002 in the reinsurance costs of around 28 per cent. These costs have now been allocated across the major ship categories and will form part of the renewal for the forthcoming policy year.

For the 2001 policy year the Association purchased a special reinsurance for its share of an overspill claim (i.e. a claim in excess of the Group reinsurance contract limit). This reinsurance provided protection against the Association's share of an overspill claim of approximately US$1 billion in excess of the Group reinsurance limit of US$2.03 billion. As it stands today, it is not certain that it will be possible to renew this overspill reinsurance protection and even if it is available in the market, it is unclear whether the cost of purchasing that cover will be economic.

A final decision on whether to buy overspill protection reinsurance will be taken by the Directors of the Association when once the full facts become clear. Members will be advised of the Directors' decision and the overspill protection arrangements which will be available for the 2002 policy year, taking into account any overspill reinsurance purchased, the Association's catastrophe reserve and the existing long term reinsurance contract with Swiss Re.

Oil pollution limit

The Board has determined in accordance with Rule 5B (iii) that for the 2002 policy year the sums to which the Association's liability in respect of any and all claims for oil pollution shall be limited are:

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 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.

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 2002 are set out in the Association's

War risks P&I

Details of the Association's special war risks P&I cover for the 2002 policy year are set out in the Association's

This special cover will respond to claims under Rule 2 which would otherwise be excluded by the war risks exclusion in Rule 5E (after the amendment which is proposed at the Special General Meeting on 14th February, 2002).

The limit of this special cover has been increased to US$200 million but, as before, 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 risks underwriters, whichever is the greater. For ships with a proper value in excess of US$100 million, the proper value will be deemed not to exceed US$100 million for the purposes of this resolution.

Yours faithfully

THOMAS MILLER (BERMUDA) LTD.

circular ref: 5/02. circular ref: 4/02.