THE DIRECTORS OF THE UK P&I CLUB

BARINGS BANK

As Directors will be aware, the Association has relationships with Barings in several areas:

a. Cash

As of 25 February funds of US$1.2 million were on deposit. This deposit is maintained as part of the arrangements whereby Barings also issue claims guarantees without holding a general charge over the Club's assets (see (d) below). These funds are now frozen and are at risk.

b. Bonds

The Association holds no Barings paper as investments.

c. Equity Sub-Managers

Barings manage two portfolios on behalf of the Association under investment management agreements. The equities (current value US$44 million) are held in custody by State Street Bank & Trust Company, Boston, Massachusetts in a fiduciary capacity for the Association in the name of the Association. This position will be verified when Boston opens.

There may be a risk to the extent that Barings (as equity sub-managers) hold cash deposits and open foreign exchange contracts in relation to these portfolios with the Barings bank. At 20 February approximately US$2 million fell into this category but of this amount we believe the majority is also at State Street, and therefore not at risk.

The exact amount cannot be verified until Barings is able to confirm the position themselves or Boston opens this afternoon.

Included within the Association's investments are also two vehicles which may have Barings deposits. Barings have been asked to provide information about the extent of these deposits; if they are exposed, the risk should not be more than about US$100,000.

d. Bank Guarantees

Barings have been the major issuer of bank guarantees in respect of claims where the claimant threatens to arrest or has arrested a ship and the Club's own letter of guarantee is not acceptable. The current total value of such guarantees issued by Barings is œ83 million (US$133 million). In all bar three cases, however, the claimants hold paper from a correspondent bank rather than Barings itself, and may not be aware of Barings' involvement. The estimated likely cost of those claims in respect of which the guarantees have been issued is significantly lower than the amount guaranteed and is provided for in the total of outstanding liabilities appearing in the Association's annual accounts.

Barings issue their guarantees against a standard letter of indemnity from the Association which commits the Association to pay in the event of Barings themselves having to pay under the terms of the guarantee they have issued. The Association is taking legal advice as to whether, in the current circumstances, there is any chance that the administrators of Barings will have the right to call upon the Association's indemnity other than in circumstances where the claim itself has been resolved. Nevertheless this is regarded as an unlikely situation and in any event does not raise additional liabilities beyond those that already exist to claimants.

The Association also uses Banque Worms for provision of guarantees and that arrangement provides an immediate fall-back position while longer term replacements for Barings are found.

In summary, while the Association has some limited exposure to the ollapse of Barings, the total exposure appears to be less than 0.4% of the Association's total funds in the worst case. The major consideration is in fact in ensuring that there remains available a bank facility able to provide guarantees worldwide and to this effect the Managers' London Agents are in urgent discussions with a number of leading banks.

We will keep you informed of developments.

Yours sincerely

Stephen James
Chairman
Thomas Miller P&I
as agents for Thos. R Miller & Son (Bermuda)