Circular 05/07: Limit on Club Cover for Claims in Respect of Passengers and Seamen

TO THE MEMBERS

Dear Sirs

LIMIT ON CLUB COVER FOR CLAIMS IN RESPECT OF PASSENGERS AND SEAMEN

Directors' Resolution of 29th January 2007

At their meeting on 29th January 2007, the Directors passed a Resolution limiting the Club's cover for claims in respect of liability to passengers and seamen to $3,000 million with a sub-limit on passenger claims of $2,000 million. The terms of the Resolution are set out at the end of this circular, and these limits take effect for all Members (not only Members operating passenger ships) from 12 noon GMT on 20th February 2007.

Background

Members will be aware that there has been considerable debate in recent years over the level of cover given for passenger risks. The Club's circular 9/03 of July 2003 reported that the Board was not in favour at that time of singling out passenger risks for a special limit on cover, but was concerned at the general exposure of members of the International Group to the risk of a catastrophic incident and had instructed the Managers to explore with the other Group clubs ways of reducing this extreme exposure especially at overspill level.

Since that time, there has been much further discussion amongst the International Group clubs on how best to achieve this objective and preserve a proper balance between the interests of the owners of passenger and cargo ships.

The prospect of early entry into force of the Athens Convention 2002, with its substantially increased limits per passenger and the introduction of new cruise ships with higher passenger capacity have introduced greater urgency into the search for an acceptable solution to these issues.

Overspill reinsurance

The decision to introduce these limits on passenger and seamen claims is being taken by all clubs in the International Group and has been accompanied by a decision by the Group to buy further reinsurance protection on behalf of each club for a claim of up to $1,000 million in excess of the limit of the Group's excess loss reinsurance ($2,050 million). This reinsurance will be available to all Group clubs to reduce the need to make an overspill call on their Members.

The Group managers have also reassessed the contributions payable by different ship types to the overall cost of the Group's reinsurance programme, including the new overspill reinsurance protection. Consideration in particular of the claims record of different ship types on the Group reinsurance programme over a period of years has led to a readjustment of the reinsurance rates which are charged to the different ship categories on the same basis by all clubs in the Group. This has resulted in the significantly increased rate being applied to passenger ships for the 2007 policy year, while rates for other categories will remain similar to 2006.

Details of applicable rates will be advised to Members as part of the normal renewal process.

Although the limit on each mutual Member's liability to pay an overspill call remains unchanged at 2.5 per cent of each entered ship's Convention Limit, the combination of the limit on cover for passenger and seamen claims and the purchase of the new $1,000 million reinsurance protection will reduce the exposure of all Members to an overspill claim and thereby improve the security of the cover offered by all clubs.

Yours faithfully

THOMAS MILLER (BERMUDA) LTD.

Directors' Resolution of 29th January 2007

Passenger/Seamen Limit

"That in accordance with the proviso (ii) of the introduction to Rule 2 it is hereby determined that with effect from 12 noon GMT on 20th February, 2007, the Association's aggregate liability for any and all claims arising out of any one event shall not exceed (1) in respect of liability to Passengers US$2,000 million; and (2) in respect of liability to Passengers and Seamen US$3,000 million, for each ship entered by or on behalf of an owner not being a charterer other than a demise or bareboat charterer.

Provided always that:

Where there is more than one owner's entry in respect of the same ship in the Association and/or or with any other insurer which participates in the Pooling Agreement the aggregate of claims in respect of liability to Passengers recoverable from the Association and/or such other insurers shall not exceed US$2,000 million any one event and the liability of the Association shall be limited to such proportion of that sum as the claim recoverable by such persons from the Association bears to the aggregate of all such claims otherwise recoverable from the Association and all such insurers;

The aggregate of all claims in respect of liability to Passengers and Seamen recoverable from the Association and/or such other insurers shall not exceed US$3,000 million any one event and the liability of the Association shall be limited:

Where claims in respect of liability to Passengers have been limited to US$2,000 million in accordance with proviso (a) to such proportion of the balance of US$1,000 million as the claims recoverable by such persons in respect of liability to Seamen bears to the aggregate of all such claims otherwise recoverable from the Association and all such insurers; and<br>

In all other cases, to such proportion of US$3,000 million as the claims recoverable by such persons in respect of liability to Passengers and Seamen bears to the aggregate of all such claims otherwise recoverable from the Association and all such insurers.

For the purposes of this Resolution and the provisos thereto, and without prejudice to anything else contained in the Rules, a "Passenger" shall mean a person carried onboard a ship under a contract of carriage or who, with the consent of the carrier, is accompanying a vehicle or live animals covered by a contract for the carriage of goods and a "Seaman" shall mean any other person onboard a ship who is not a Passenger."

Members requiring further information should contact their usual Club contact

Club cover for claims in respect of liability to passengers and seamen is limited to $3,000 million, with a sub-limit on passenger claims of $2,000 million.

Decision by the International Group to buy overspill reinsurance protection on behalf of each club for all categories of claim up to $1,000 million in excess of the limit of the Group's reinsurance programme ($2,050 million).

Group reinsurance rates to include the cost of the new overspill reinsurance protection.

Combination of the new limit and purchase of the collective overspill protection reduces exposure to an overspill claim