US Terrorism Risk Insurance Act 2002 ("TRIA") - Special war risks P&I Cover for owner's and charterer's entries reinsured under the Pooling Agreement and the Group's Excess Loss Reinsurance Contract

Circular No. 6/2002 February 2003

TO THE MEMBERS OF ASSURANCEFORENINGEN GARD - gjensidig -

Dear Sirs,

We refer to our previous Circular of 27 November 2002 (Circular No. 4/2002) on the subject of TRIA. We can confirm that a large number of Members have replied confirming that they do not require the cover set out in the Notice of Coverage of Acts of Terrorism attached to Circular No. 4/2002. No Member paid the required additional premium for this coverage within the 30 days required.

The remainder of this Circular reports on the outcome of the dialogue the International Group of P&I Clubs have had with US authorities with regard to the future operation of TRIA, and the terms of the special war risks P&I cover provided by the Association for Members for the 2003 policy year commencing at noon GMT on 20 February 2003. The Association is reinsured for these liabilities under a market cover.

Your Committee has considered the basis on which special war risks P&I cover can be made available to Members in accordance with Rule 2.2 (a) of the Rules for P&I and Defence covers for ships and other floating structures (the “Rules for ships”) and the extent to which this cover can include claims arising from acts of terrorism as defined in TRIA. Following the receipt of US legal advice and reinsurance quotations your Committee has resolved that special war risks P&I cover can be provided by the Association to Members under Rule 2.2 (a) of the Rules for ships for the 2003 policy year and that this cover will include claims arising from acts of terrorism as defined in TRIA.

Under this approach liabilities and losses caused by certified acts of terrorism as defined in TRIA will be partly reimbursed by the United States under a formula established by federal law. Under this formula, the United States will pay 90 percent of covered terrorism losses exceeding a statutorily established deductible to be paid by the insurer providing coverage. The proportion of the premium that is attributable to coverage for certified acts of terrorism as defined in TRIA is identified below.

The terms of the special war risks P&I cover are similar to those applying for current policy year, save with regard to premium and limit. The special war risk P&I cover is automatically provided by the Association for the benefit of Members who have effected owner’s and charterer’s entries in respect of standard P&I risks reinsured under the Pooling Agreement and the Group’s Excess Loss Reinsurance Contract. The cover is treated as a reinsurance of the Association.

The terms and conditions of the special war risks P&I cover for the 2003 policy year can be summarised as follows:

The cover afforded is subject to Assuranceforeningen Gard’s Statutes and Rules for ships for the 2003 policy year (save that the war risks exclusion in Rule 58 in the Rules for ships shall not apply) and the attached Institute Notice of Cancellation, Automatic Termination of Cover and War and Nuclear Exclusion Clause – Hulls. This means that the cover can be terminated upon the Association giving 7 - seven - days’ notice of its intention to do so. In certain circumstances the cover will terminate automatically.

The special war risk P&I insurance will cover P&I risks set out in Part II, chapter 1, of the Rules for ships caused by war risks as described in Rule 58 of the Rules for ships, but subject always to special terms of entry agreed between the Association and the individual Member attached to the relevant vessel’s certificate of entry.

Chemical, Bio-Chemical, Electromagnetic Weapons and Computer Virus Exclusion Clause All perils included in this special war risks P&I cover shall be subject to the following clause:

This clause shall be paramount and shall override anything contained in this contract of insurance inconsistent therewith

1. In no case shall this contract of insurance cover loss damage liability or expense directly or indirectly caused by or contributed to by or arising from

2. any chemical, bio-chemical or electromagnetic weapon.

3. the use or operation, as means for inflicting harm, of any computer virus.

For the 2003 policy year the special war risks P&I cover for owners is limited to USD 400 million each incident or occurrence each vessel in excess of the proper value of the entered ship or any amounts recoverable under any other P&I war risks cover which the Member has arranged, whichever is greater. The proper value of the ship is determined in accordance with Rule 71.1(a) of the Rules for ships, although for the purpose of this special war risks P&I cover this is deemed not to exceed USD 100 million. The cover is subject to a deductible of USD 50,000 per ship per event.

Where the Member and another party or other parties interested in the operation of the ship are insured under more than one owner’s and/or charterer’s entry with the Association or with the Association and any other association(s) which participates in the Pooling Agreement and the General Excess Loss Reinsurance Contract, the aggregate of claims brought against the Association and such other association(s) in respect of losses, liabilities, costs and expenses covered under this special war risk P&I cover for owners and/or charterers, shall be limited to USD 400 million any one incident or occurrence each vessel. If such claims exceed this limit, the liability of the Association in respect of each certificate of entry shall be limited to that proportion of that limit that claims recoverable from the Association under that certificate of entry bear to the aggregate of the said claims recoverable from the Association and from such other association(s), if any.

It ought to be emphasised that the special war risks P&I cover is an excess cover only as far as owner’s entries are concerned. It is not intended to be a substitute for the Member’s primary P&I war risks cover, whether arranged with his hull and machinery insurer or with another insurer, which the Member should effect with a minimum limit of the proper value of the ship. If the Member has effected P&I war risks cover in excess of the proper value of the ship, either by opting for a higher limit on his primary cover or by purchasing additional cover, the special war risks P&I cover will still apply only in excess of the amounts recoverable under all of the other P&I war risks covers.

As far as charterer’s entries reinsured under the Pooling Agreement and the Group’s Excess Loss Reinsurance Contract are concerned, the special war risks P&I cover functions as a primary cover. The limit is USD 400 million each incident or occurrence each vessel, provided always that where a ship is separately insured under more than one charterer’s and/or owner’s entry with the Association or with the Association and any other association(s) which participates in the Pooling Agreement and the General Excess Loss Reinsurance Contract, the aggregate of claims brought against the Association and such other association(s) in respect of losses, liabilities, costs and expenses covered under this special war risk P&I cover for charterers and/or owners, shall be limited to USD 400 million any one incident or occurrence each vessel. If such claims exceed this limit, the liability of the Association in respect of each certificate of entry shall be limited to that proportion of that limit that claims recoverable from the Association under that certificate of entry bear to the aggregate of the said claims recoverable from the Association and from such other association(s), if any. The cover is subject to a deductible of USD 50,000 per ship per event.

For owner’s entries a premium of US cents 2.25 per GT is included in the reinsurance rates quoted. Of this, US cents 0.25 per GT is attributable to coverage for certified acts of terrorism in accordance with the terms of TRIA. For charterer’s entries a premium of US cents 0.75 per GT is included in the reinsurance rates quoted of which US cents 0.25 per GT is attributable to coverage for certified acts of terrorism.

If you have any questions, please contact the P&I underwriting department of Gard Services AS.

Yours faithfully, GARD SERVICES AS as agent only for Assuranceforeningen Gard –gjensidig-

Claes Isacson Chief Executive Officer

This clause shall be paramount and shall override anything contained in this insurance inconsistent therewith

Cover hereunder in respect of the risks of war, etc. may be cancelled by either the Underwriters or the Assured giving 7 days notice (such cancellation becoming effective on the expiry of 7 days from midnight of the day on which notice of cancellation is issued by or to the Underwriters). The Underwriters agree however to reinstate cover subject to agreement between the Underwriters and the Assured prior to the expiry of such notice of cancellation as to new rate of premium and/or conditions and/warranties.

Whether or not such notice of cancellation has been given cover hereunder in respect of the risks of war, etc, shall TERMINATE AUTOMATICALLY

1. upon the outbreak of war (whether there be a declaration of war or not) between any of the following: United Kingdom, United States of America, France, the Russian Federation, the People’s Republic of China;

2. in respect of any vessel, in connection with which cover is granted hereunder, in the event of such vessel being requisitioned either for title or use.

3. Five Powers War and Nuclear Exclusions This insurance excludes

   1. loss damage liability or expense arising from

      1. the outbreak of war, whether there be a declaration of war or not between any of the following: United Kingdom, United States of America, France, the Russian Federation, the People’s Republic of China;

      2. requisition either for title or use

   2. loss damage liability or expense directly or indirectly caused by or arising from

      1. ionising radiations from or contamination by radioactivity from any nuclear fuel or from any nuclear waste or from the combustion of nuclear fuel

      2. the radioactive, toxic, explosive or other hazardous or contaminating properties of any nuclear installation, reactor or other nuclear assembly or nuclear component thereof

      3. any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter.

4. Law and Practice This clause is subject to English law and practice.