Hull & Machinery Risks

　　In the 2007 policy year, the Managers took active control of the scale of underwriting and implemented the following measures to make the underwriting more effective:

1. Striving to obtain more beneficial reinsurance terms and reduce the reinsurance cost by keeping self-retention and investing in reinsurance (10% share)
2. Strictly implementing the decisions of the Board of Directors and the Hull committee to adjust the renewal premium
3. Adjusting conditions of underwriting in accordance with the insurance market
4. Improving efficiency in claim handling and actively mitigating the loss.

　　The implementation of these measures achieved distinct results. The H&M business was able to retain surplus in four consecutive years.

１.Underwriting

　　As at 31st December 2007, 125 ships from 21 members, with a total insured value of US$2.37 billion were insured by the Association for Hull & Machinery Risks (including IV Risks). Compared with 2006, the 2007 policy year experienced a decrease of 2.34% in terms of the number of ships insured and 12.5% in terms of the membership. However, the insured value increased by 46.14%.

　　Notes: the total insured amount includes those under HM cover and IV cover (but excludes War Risks cover). The statistical period starts from 1st January to 31st December of the relevant policy year.

２.Reinsurance

　　Although there have been very few claims, the loss record of the Association in the reinsurance programme has deteriorated over the past 3 years. The international reinsurance market also suffered significant losses, due to the direct and indirect impact of the “9/11” event and various global natural disasters (such as hurricanes), which, in turn, resulted in the reduction in the numbers and capacity of reinsurers. As a consequence, the Association’s efforts to improve its reinsurance conditions yielded a less than satisfactory results.

　　However, the Association was able to withstand the pressure of a significant increase in premiums from the reinsurer. The increase in reinsurance costs was well controlled at 3.85%. Nevertheless, it is expected that a further deterioration of the reinsurance record would occur due to several major engine failure claims in the 2007 policy year.

３.Claim Handling

　　Note: Estimated Liability = Liability pending + Paid-up

　　As at 31st December 2007, the Association has received 80 claims under Hull & Machinery risks, rising 19.4% compared to 67 cases in the 2006 policy year. The total liability of the Association for these claims is estimated at US$ 13.1 million, representing a significant increase of 112.93% from US$6.11million in the 2006 policy year.

　　In the 2007 policy year, there were 8 major claims with estimated liabilities exceeding US$ 400,000.
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４.Operation Result

　　Despite huge losses from several major claims in the 2007 policy year, there remains a surplus of US$ 2.12 million on H&M business, benefiting from reinsurance arrangements. This is the fourth consecutive year that H&M business has retained a surplus.

5.Financial Statements

　　According to the Audit Report of 2007, as at 31st December 2007, free reserves of H&M insurance is US$ 19.37 million, which is an increase of US$ 5.437 million compared to US$ 13.92million of the 2006 policy year. This is a substantial achievement for the Association in respect of capacity of underwriting and risk resistance.

　　Overall, 2007 has witnessed a steady growth of the Association in regards to H&M insurance. Despite the unfavorable global market environment, there has been increasing insurance volume, satisfactory loss prevention and successful claim handling. In spite of the continuing rise in the reinsurance costs and claims, the Association achieved a significant increase of 39% in free reserves. These results greatly benefit and supported the sustainable growth of H&M insurance of the Association.

Loss Prevention

１.Ship Inspection

　　The Association has arranged 90 condition surveys in the 2007 policy year, which represents a decrease of 5% compared with the 95 condition surveys in the previous policy year. Entry condition surveys were carried out on 75 ships, 9 of which were subject to follow-up surveys. Random inspections were carried out on 6 entered ships. However, not every entered ship received random inspections due to various reasons not specified here. The Association plans to perform random inspections on 12 ships in the 2008 policy year. In the 2007 policy year, several vessels were denied entry into the Association due to failure to meet the required standards. The rest of surveys were mostly entry surveys for old ships or random inspections and annual surveys for oil tankers.

　　The ship inspections carried out has revealed that the general condition of newly entered ships in the 2007 policy year was basically the same as those of the previous policy year. Members should pay attention to the fact that, restriction clauses have been imposed on the cover of majority of the entered ships after the condition surveys, and such restriction clauses can only be lifted under the condition that the entered ships are able to rectify all deficiencies in time and pass the follow-up surveys.

　　It must be pointed out that the lack of communication between the personnel on board and the personnel in the commercial and maintenance departments of some Members has become a distinct problem in surveys. This lack of communication has resulted in some condition surveys not being arranged or carried out successfully.? In addition, the delay of communication of the survey results and the rectification of deficiencies has seriously undermined the efficiency of the condition surveys.

　　To ensure that the condition surveys can be carried out successfully, Members ought to contact the surveyors and the Association in a timely manner and should arrange a reasonable time frame for the survey. As survey starts, personnel onboard ought to provide their full assistance and cooperation to the surveyors.

　　The Association would like to remind all Members of the terms and conditions of the cover for entered ships. If any restriction clauses have been attached to the ship’s cover due to defects or deficiencies found in a condition survey, Members are required to conduct the repair within the time scale required, so as to avoid any disputes in respect of cover.

2. Seminars

　　On 5th November 2007, the Association held a seminar on claim handling in Nanning, Guangxi Province, China with 53 participants from Maritime Court, survey companies, law firms and Members. The Association invited judges from the High Court of Guangxi Zhuang Autonomous Region, the experts from the Huanghua Maritime Safety Administration, the specialists from COSCO (Group) and Dalian Ocean Shipping Co. Ltd., lawyers, specialists from the Managers as well as some experienced lawyers in the field to give lectures on various topics, such as legal issues in Marine Insurance, ISM Code and its auditing, oil pollution compensation and liability in tort, contingency plan for oil pollution in the US, SCOPIC Clause, tactics and practice in claim handling, etc. The seminar was highly valued by the Members, as it provided a great opportunity for the participants to exchange their opinions and gain the awareness of loss prevention.

3. Advisory Service

　　In the 2007 policy year, the Managers compiled 12 issues of Advisory Service, mainly focused on shipping laws and loss prevention, with a total number of 29 articles.

　　In the shipping law section, the article “Discussion on SCOPIC Clause” presented in detail the background and contents of the SCOPIC clause based on translation of the clause itself and its attachments. By introducing cases occurred on the entered ships, this article provided some practical guidance to the Members for signing the SCOPIC Clause when it’s necessary. The article “Research on oil pollution compensation regime in China” introduced the concept of oil pollution compensation and the principles of liability attribution in oil pollution cases. It discussed the main issues in the oil pollution compensation regime of China by exploring the laws and practice of this area in China. The article “Law and Practice in Salvage” observed the legal principle in salvage and provided some practical guidance by analyzing the new judgments from the English courts.

　　In the loss prevention section, the article “Tactics in claim handling” introduced a series of cargo claims and marine casualties occurred on the entered ships and provided some loss prevention suggestions to the Members on routine operation and navigation of vessels, so that such claims and accidents could be minimized. The article “Study on collision accidents between Seagoing vessel and fishing vessel in the coast of Fujian Province” introduced fishery industry in Fujian Province and normal operation of fishing vessel there. The article analyzed the collision between seagoing vessels and fishing vessels and revealed primary causes of such accidents. Furthermore, the article stressed on some points for attention when navigating on customary route in that area.

　　These articles are of great value to the Members in enhancing safety management and avoiding accidents.

　　In addition, 9 Loss Prevention Circulars were issued based on experiences from the past accidents and typical cases.

Investment

　　In compliance with the resolutions of the Board, the Managers have engaged in reasonable investment activities under the principle of safety and efficiency. During 2007, the Association not only reached the highest ever level on investment income and return on assets, but also achieved the largest ever increase on those two indexes, with increase of 278.9% and 157.7% respectively.

　　The investment return of 69.78% in 2007, which was much higher than the market interest rate as well as average investment return of 10.9% acquired by other insurers in China. Although investment activity is not the core business of the Association, its income not only reduced the insurance costs of the Members but also enhanced the capacity of risk resistance and cohesion of the Association.

Other Business Activities

　　During the 2007 policy year, the following activities were carried out:

　　１.As members of the Chinese Delegation, the experts of the Association attended the No.93 Legal Committee conference of the IMO.

　　２.The Association was awarded “the International Star Award for Quality” by the Business Initiative Directions, (BID). The representatives of the Association attended the International Summit for Quality and Award Ceremony held by BID in Switzerland.

　　３.The Hull and Machinery Committee of the Board held two regular meetings in 2007 to discuss the marketing strategies and operation criterions.

　　4. The new office building was under decoration.