Outline

• The Club's overspill reinsurance arrangements protect its share of the Pooled claims exposure in excess of the US$2.05 billion upper limit of the Group excess loss reinsurance.

• The Club's overspill reinsurance protection for 2004 covered 100 per cent of its estimated share of the first US$1 billion of such a claim, with an additional protection component under the Swiss Re reinsurance arrangements.

• For 2005 the Club has bought US$200 million of overspill reinsurance protection which covers slightly more than its estimated share of that first US$1 billion of Pool exposure.

TO THE MEMBERS

Dear Sirs

Overspill Reinsurance Arrangements 2005

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 the 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.

Last year, the Association purchased a special overspill reinsurance to cover 100 per cent of its estimated share of the first US$1 billion of such an overspill claim. The Association also had available to it additional protection under the long term reinsurance arrangements with the Swiss Re. That reinsurance policy was designed to maintain the Association's free reserves within a target band and, in addition, it provided specific protection against an overspill claim at a high level. The planned five year review of this contract was referred to in the Circular announcing the reinsurance arrangements for 2005 (Ref 2/05). It was always envisaged that the additional overspill protection that was available in the original contract would cease after the first five years. The second five years of the Swiss Re contract will retain the balance sheet protection element and include a new excess of loss protection cover for high level claims but will not have the additional overspill claim protection.

In order to compensate for the loss of this additional protection and taking advantage of a further reduction in the price of overspill reinsurance in the market, the Association has increased the limit of its overspill cover for the 2005 policy year to US$200 million. This will ensure that the Association's share of a US$1 billion overspill claim can be recovered and still leave a balance to meet a claim in excess of this level depending on the Association's share of the International Group's overspill Pool at the time the claim is made.

Yours faithfully

Thomas Miller (Bermuda) Ltd.