S&P Keeps Lloyd’s on Watch Negative

February 21, 2002

Standard & Poor’s announced that its single-‘A’ insurer financial strength rating on the Lloyd’s insurance market will remain on CreditWatch with negative implications, but said it “expected that the CreditWatch placement will be resolved by the end of April 2002.”

” Following a review of the revised estimates for losses arising from the terrorist attacks on Sept. 11, 2001, (referred to as ‘WTC3’), along with cash calls and the preliminary estimates for Central Fund drawdowns, Standard & Poor’s considers that there remains considerable uncertainty as to the ultimate impact of open-year losses on Lloyd’s. The extent to which Lloyd’s business position has been impaired by losses over recent years and by the creation of significant new capacity in Bermuda is also unclear,” said the rating agencies announcement.

S&P is particularly concerned with the effects the “drawdowns”, i.e.

payments, from Lloyd’s Central Fund, which assures claims payments when an individual underwriting syndicate is unable to do so, will have on Lloyd’s overall financial condition. It stressed that there were presently too many unknown factors to remove Lloyd’s from CreditWatch, which can lead to a ratings change.

“In Standard & Poor’s opinion, sufficient clarity will not be available until April 2002, when final results for the 1999 underwriting year, updated forecasts for the 2000 and 2001 underwriting years, and year-end solvency results will be available,” said the announcement. It also noted the potential impact of the “requirement to achieve 100% funding of the credit for reinsurance trust funds,” which it said “Lloyd’s as a whole is expected to comfortably meet,” saying the effects were presently unclear.

Finally S&P stated that it expected to have an assessment by April “of the impact of the events of Sept. 11, 2001, on business volumes through the fourth-quarter and projections for 2002.”|”sp, keeps, lloyd’s, on, watch, negative

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