S&P Rates Liberty Mutual (U.K.) ‘A+’

May 31, 2002

Standard & Poor’s announced that it has assigned its single-‘A’-plus financial strength rating to Liberty Mutual Insurance Co. (UK) Ltd. (LMUK) “based on an explicit guarantee of LMUK’s insurance, reinsurance, and surety obligations provided by its U.S. parent, Liberty Mutual Insurance Co.”

S&P noted that “In 2002, LMUK is expected to achieve a capital adequacy ratio in excess of 350% and the loss ratio is expected to be about 85%, with the run-off from old business exerting a negative effect.”

Credit analyst Fred Sklow observed that “In order to provide sufficient capacity and improve its ability to take leadership positions, LMUK will strategically utilize significant amounts of high-quality reinsurance to control net exposure. Although this strategy increases credit risk owing to the attendant counterparty credit exposure, LMUK complies with Liberty Mutual Group ‘s (LMG) security criteria on reinsurance which require high credit quality carriers and which limit concentration of risk.”

LMUK is in the process of restructuring under the direction of Liberty International Underwriters (LIU), LMG’s global specialty lines operation, and S&P noted that “only professional indemnity, marine, and aviation risks remain from the original LMUK operation. Consequently, LMUK is unproven, however, the experienced underwriting team in the continuing lines of business, key underwriting hires and credible LIU management, coupled with the company’s access to LMG global resources and an established support infrastructure compensate for this weakness”

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