A.M. Best Announces Rating Actions

September 25, 2001

A.M. Best announced a series of rating decisions affecting companies in the U.S., Europe and Canada. On a positive note it affirmed the A+ (Superior) rating of the Swiss Group Winterthur and the A-(Excellent ) ratings for London’s BRIT Insurance Ltd. However, Best lowered the financial strength ratings on Lloyd’s, Trenwick Group and QBE from A (Excellent) to A-(Excellent) and on Copenhagen Re from A-(Excellent) to B++ (Very Good).

The decisions considered the effects on the financial positions of the insurers following the terrorist attacks in the U.S. and the levels of exposure the companies may have. Winterthur, the insurance subsidiary of the Credit Suisse Group, is the largest insurer in Switzerland and the 7th largest in Europe Best noted. It has relatively minimal exposure in the U.S., and is backed with very strong capitalization.

Although BRIT is likely to have some exposure to the U.S. catastrophes, its conservative underwriting strategy, strong capitalization and experienced management team have positioned it well to” withstand its projected losses,” Best indicated.

Best also assigned an initial rating of A- (Excellent) to Old Republic Insurance Company of Canada, a subsidiary of the U.S. Old Republic International Corp.

The downgrades largely reflected Best’s view that the U.S. disasters will have a substantive impact on the financial condition of the companies affected. In Lloyd’s case Best cited five factors as influencing its decision:

1) Even if Lloyd’s estimates are accurate, it will require significant voluntary contributions to restore the financial strength to the market from investors who may also have significant exposures.

2)Net losses may increase as there will in all likelihood be a higher percentage of non-recoverable reinsurance than would normally be the case.

3)The estimates of the losses involved greatly exceed the public estimates insurers and reinsurers have made, making it highly likely that those estimates are significantly below the ultimate loss figures. In addition Lloyd’s as a market specialist in some of the lines most severely impacted, such as business interruption coverage, has a higher loss potential.

4) A substantial percentage of those companies providing capital to Lloyd’s also have large loss exposures, leading to reductions in their own capital strength, which would need to be replaced.

5)Finally, due to the above factors Best concluded that further provisioning of Lloyd’s Central Fund might be affected.

Best noted that its actions on Trenwick, QBE and Copenhagen Re reflected the significant losses these insurers faced as a result of the attacks of September 11. Copenhagen Re has temporarily suspended underwriting pending analysis of its exposure and ultimate losses.

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