US pollution

Circular No. 10/96 November 1996

TO THE MEMBERS

Dear Sirs,

CERTIFICATES OF FINANCIAL RESPONSIBILITY (COFRs) The Shipowners Insurance and Guaranty Company Ltd

The Gard Association, together with the managers of the Steamship Mutual P&I Club and the UK Club, have worked with Stockton Re and other interests to develop an improved facility for shipowners needing to obtain COFRs from the United States Coast Guard ("USCG").

Structure of the Company

The company, The Shipowners Insurance and Guaranty Company Ltd. ("SIGCo"), is a Bermuda-based, limited liability company, incorporated with the sole objective of providing COFR guarantees to the USCG on behalf of shipowners, as required under OPA 90 and CERCLA. SIGCo is licensed as a Class 3 company under the Bermuda Insurance Act, has paid-up capital of USD 25 million and is approved by the USCG to act as a guarantor of COFRs.

The ordinary shares of SIGCo have been set up in a trust for the benefit of its shipowner clients who will therefore have an interest in the net worth of the company and any profits generated by the premiums they pay.

The capital has been provided through preference shares held by Stockton Re, ACE Limited, Global Capital Re and a number of shipping-related interests. These shares are redeemable and will be phased out over time, leaving ownership of SIGCo solely in the hands of the Trust. The Trustee is a private trust company whose Board of Directors will be made up of representatives of shipowner clients of SIGCo.

The Chairman of the Board of Directors of SIGCo is Miles Kulukundis, Chairman of London & Overseas Freighters Limited and a former Chairman of both the UK P&I Club and INTERTANKO.

SIGCo is unaffiliated to any broker and will have its own independent management team.

The COFR

SIGCo will provide COFR guarantees up to USD 400 million for shipowners who are members of the International Group of P&I Clubs with effect from 28 December 1996. However applications for COFRs to take effect from that date can be made in advance of that date. The guarantees provided by SIGCo are based on a difference in conditions insurance contract with the shipowner.

SIGCo will provide COFRs on a fixed premium basis. The object of the current structure, including the trust arrangement, is to allow SIGCo?s shipowner clients to benefit from any profits the company may make without financial exposure of their own balance sheets. There will be no published tariffs. Premiums will be fixed by individual agreement. It is anticipated that these rates will be considerably lower than rates charged by COFR facilities this year.

A shipowner requiring a COFR guarantee commencing or renewable on or after 28 December 1996 may contact SIGCo through his brokers at:

P.O. Box HM 3398 Hamilton HM PX Bermuda Telephone: 441 298 0600 Telefax: 441 298 0610

SIGCo is temporarily located at 55 Par-la-Ville Road in Hamilton but will be relocating to new premises in early 1997.

Terms and Conditions

The terms and conditions of entry to SIGCo are similar to those contained in the First Line contract. The main difference between the First Line contract and the SIGCo terms and conditions relates to the indemnity clause.

Under the First Line contract the shipowner must reimburse to First Line all claims paid by First Line together with costs.

In the case of SIGCo, SIGCo will not seek reimbursement of claims paid, which fall outside the scope of Club cover nor will it seek reimbursement of the first USD 50,000 of any costs and expenses provided that the shipowner is not in breach of any of its obligations under the agreement.

The application form consists of two pages which can be submitted by fax. Three letters will be required from the Club (see below). The Club can confirm that it will issue such letters. Members requiring such letters are asked to send their requests in writing to the Club confirming that they are agreeable to such confirmation / undertakings being given to SIGCo. Requests should be addressed to Liv Gundersen in Gard, Arendal or Anne Walker in Gard (UK) Ltd., London.

Application

SIGCo has issued the following guidelines for applicants / brokers.

The documents referred to above will be obtainable from SIGCo in the near future.

FIRST LINE

Stockton Re will continue its First Line Program on behalf of shipowners requiring COFR guarantees commencing or renewed with an effective date between now and 27 December 1996. It will not accept applications for COFRs after this date.

SHORELINE

It is understood that Shoreline will be revising its rates before the end of the year. Further details will be provided in due course.

THE CLUB'S POSITION

At its meeting in Vienna on 28 October 1996 the Committee reviewed the implications of providing COFRs. It remained of the view that the Association should not provide COFRs direct to the USCG for the reasons stated in Circular 5/94.

However, it remained of the views expressed previously and in particular in circular 6/94 that the Association should facilitate schemes for the provision of COFRs at as low a cost as possible, always mindful of the fact that no steps should be taken that would jeopardise shipowners' and P&I Clubs' long-term efforts to eliminate the real threat under OPA 90 of unlimited liability for US oil pollution and, furthermore, any COFR vehicle should be designed in such a manner that the Club's assets are not exposed to direct action as a guarantor under the legislation. The Committee considered that SIGCo met these criteria.

GENERAL CONSIDERATIONS

It will be for each Member and his broker, where relevant, to assess the scheme most suited to his needs and to satisfy himself that he has sufficient information on the scheme for which he is applying with regard to financial viability and otherwise. Notwithstanding the assistance the Club has provided in setting up SIGCo, the Club does not recommend this scheme above any other.

Yours faithfully, ASSURANCEFORENINGEN GARD -gjensidig-

John G. Bernander Managing Director