In 2004, in respect of the control of underwriting scope and risks covered, the managers, took the following necessary and effective measures = to keep good control of the operation:

= &nb= sp; Annual Report 2004 &n= bsp; = ; &n= bsp;

The provision of hull & machine= ry insurance by reason of the nature of the risk and the insured value is necessarily an international business, and the China’s Hull Market is no exception and relies on international reinsurance markets. The China’s Hull Market continued to show growth and profitability in line with the international insurance markets and also due to improved management within = the local insurance companies.

During the 2004 policy year, the Ma= nagers implemented the following measures to better manage the risks being underwr= itten

(1) Striving to obtain more benefic= ial reinsurance terms while reducing the reinsurance costs.

(2) Achieving the renewal premium r= ises as directed by the board of directions and Hull combine as well.

(3) Adjust insurance conditions and= rate in line with international insurance markets.

(4) Improving efficiency in claims = handling and settlements in addition to loss prevention.

Due to the implementation of the fo= regoing measures, the underwriting result improved.

&nb= sp;

&= nbsp;	2004	2003	Change in Percentage
N= umber of Members	22	23	-4.3%
N= umber of Entered ships	122	106	15.1%
T= otal Insured amount (inUSD100million)	12.83	8.19	56.7%
R= egistered claims	71	94	-67.86%

Note: the total insured= amount includes those under HM cover and IV cover (but exclude War cover).

1.&n= bsp; Underwriting<= /p>

As of 31^st Dec 2004, 122 ships from 22 Members were insured by the Association for Hull and Machinery= for the 2004 policy year for total insured value USD12.83 million. There was a 15.1% increase in the number of entered vessels and 56.7% increase in the insured amounts relative to the same period in 2003.

&nb= sp;

2.&n= bsp; Reinsurance

The loss= ratio of reinsurance for the last six years (from 1999 to 2004) remained at a comparatively high level, as a consequence of which, the reinsurers participated in the program have made very small profit or even sustained losses in these consecutive years. Furthermore, as a direct impact of the “9.11” event, the international reinsurance market suffered significant losses, wh= ich in turn reduced the capacity and numbers of reinsurance underwriters. Due to all these factors, the Managers of the Association encountered very tough reinsurance market situation.

&nb= sp;

Notwiths= tanding the above market environment, the policy year of 2004 proved to be a comparatively successful year. The Managers of the Association had attempte= d to improve the reinsurance terms and conditions under such negative and tough reinsurance environment, but unfortunately such attempts have been proved n= ot futile.

&nb= sp;

The rein= surance contracts of 2004 concluded under such difficult situation were considerably excellent with the total reinsurance costs being reduced 33% compared with = the previous year. The reinsurance costs accounts for 51.36% of the gross premi= um in respect of the Hull and Machinery insurance decrease 13 ports With comparison of last years = the 64.82%.

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3.&n= bsp; Claims Handling

&nb= sp;

Years Items =	2004	2003	Change in Numbers	Changes in percentage
Number of Claims Received	71	94	-23	-24.46%
Claims Settled	54	32	22	68.75%
Total Liabilities(US＄ 1,000)	447.56	420.37	27.19	6.46%

&nb= sp;

As of 31= ^st December, 2004, the Managers had received, under the cover of Hull and Machinery cover, 71 claims and= settled<= /span> 54 claims as well. Comparing with = the previous year, the claims in 2004 were significantly reduced , 23 in numbers and 24.46% in percentag= e. The total liabilities of the Association for these claims are estimated at USD4.5million, representing 6= .46% increase compared with the previous year.&= nbsp; In the policy year of 2004, the Managers of the Association dealt wi= th 4 big casualties with estimated claim amount/liabilities of each exceeding USD 0.4 million, which are shown as follows:

&nb= sp;

&= nbsp;	Vessel	Member	Incident Date	Incident Place	Nature Of Claim	Amount of Claim
1	Da Peng Hai	Shenzhen Ocean ShippingCo, Ltd	20/05/2004	Gibraltar	Collision	0.975 million
2	Nan Shan	Shekou Shipping TransportationCo,Ltd	20/07/2004	Korea	Collision	0.416 million
3	Jin Da 266	FuzhouHongyang Far East Inve= stment Co,Ltd	11/09/2004	Shan Dong	Total Loss	1.7 million
4	Hebei Lion	Hebei Ocean Shipping Co, Ltd	08/09/2004	Brazil	Machinery Damage	0.5 million

4. The Committee Meeting

The Hull and Machinery Committee of the Board of the Association held the 2^nd Annual meeting in Jinghong in Dec, 2004, at which, the Managers presented the annu= al report for the policy year of 2004. Having heard the report, the Committee confirmed its satisfaction to= the jobs the Managers had done in respect of the underwriting as well as the cl= aims handling. Particularly, the Committee expressed its satisfaction to the Managers for the achievements in expanding and developing the Association&#= 8217;s hull business significantly by grasping the market opportunities. The commi= ttee also discussed the problems and the market situations faced to the hull business of the Association and the issue of strategy and policy of the development in the future. The committee confirmed its forceful support to = the Managers and set up specific guidelines for the underwriting plan of the po= licy year of 2005. In addition, in order to minimize or eliminate potential defi= cits in the future, some specific measures were provided by the committee to be taken relating to reinsurance and the business operation of the Association= .

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5. The Principle of Mutuality

The Hull and Machinery business of the Association has been and shall be always operated under the principal of mutuality is a general principle set up in the 1998 hull commi= ttee meeting. As a general princip= le for the business, the Association started to provide hull and machinery covers = to its members in the same mechanism as the traditional P&I covers. Differ= ing from any other commercial insurance companies, the Association’s Hull and Machinery business has been operated on a mutual and non-profit making basis. Therefore, all the general mutual = terms and rules set out in the Rules of the Association in connection with the principle of mutuality shall be always applicable to the Hull and Machinery covers. In case of a= ny deficits in a specific policy year, the Board Meeting is authorized to coll= ect supplementary calls from its members or even release calls against any Memb= ers who withdraw from the Association.

&nb= sp;

The 2004= policy year is the year in which the hull business of the Association got rid of t= he shadow of the deficit. The hull business volume in the year increased drama= tically and the claims handling and loss prevention have achieved remarkable result= s. It is believed that with the improvements of the market environment as well= as the further strengthening and improving of the Associations’ services, the Managers will continue its endeavor to develop the hull business into a prosperous and promising future with the guidance of the board and full sup= port of all the members.