CGNU Group Members Affirmed

Standard & Poor’s (S&P) affirmed its “AA” counterparty credit and insurer financial strength rating (FSR) on the core operating companies of the CGNU Group. Concurrently, S&P raised its insurer FSR on London & Edinburgh Insurance Co. Ltd. to “AA” from “A.” In addition, the counterparty credit rating on Norwich Union Holdings Ltd. was removed from CreditWatch with developing implications, and raised to “A+” from “A.” The outlook is stable.

The rating action reflects CGNU’s extremely strong business position, strong management, and the potential for higher-quality earnings based on planned cost savings and the group’s exit from volatile and unprofitable lines of business and markets. The cost of strategic repositioning and short-term investment fluctuations has reduced capitalization. This limits financial flexibility in the short term, until CGNU demonstrates to the markets that the merger and costs are value creating.

Major rating factors include: CGNU’s diverse portfolio of businesses, both geographically and in terms of products; and the fact that CGNU is a new group; significant nonrecurring items continue to depress reported profits, even at the first half of 2001; the global general insurance business has underperformed, with a year-end 2000 combined ratio of 116.6 percent; and at the time of the merger between CGU and Norwich Union in May 2000, capital adequacy was very strong. During 2000, financial leverage increased to nearly 20 percent, and capital reduced due to the large retained loss, lower unrealized gains, and increased goodwill with respect to acquisitions made in 2000.

S&P indicated the belief that CGNU will retain its leading U.K. market position, and acquisitions will help grow market share in Europe.