Moody’s Downgrades Lloyd’s Syndicate 1007; Revises Syndicate 2147 Outlook to Stable

March 15, 2004

Moody’s Investors Service announced that it has downgraded the A1 Insurance Financial Strength Rating (IFSR) of Lloyd’s syndicate 1007, SVB Syndicates Limited, to A2 and assigned a stable outlook. It also indicated that the outlook of the A3 IFSR of SVB Syndicate 2147 has been changed from negative to stable.

Moody’s stated that the downgrade of syndicate 1007’s rating “reflected continued reserve deterioration outside Moody’s expectations, the syndicate reporting a loss at 21.7 percent of capacity for 2001 as against Moody’s expectations of a loss of 15 percent of capacity notwithstanding that the loss compares favourably with other syndicates with a similar business profile.”

The rating agency added that it “believes that the syndicate is prudently reserved, in light of the liability account written, it cannot rule out further deterioration which would suppress future profits.” It also indicated that “the downgrade reflected the element of uncertainty associated with senior management changes at SVB and the risks associated with the group’s diversification strategy, together with the expectation that the syndicate will be merged with SVB syndicate 2147, rated A3, in the near to medium term if 100 percent of the syndicate’s capacity is acquired by SVB.”

Moody’s explained that the “A2 rating with a stable outlook assigned to syndicate 1007 reflects the expectation of profits in excess of 10 percent of capacity for the 2002 to 2004 years of account. Furthermore, Moody’s said that it also expects the capital position and overall financial profile of SVB Holdings plc (SVB), the main source of capital for syndicate 1007, to continue to improve beyond 2003.”

It also noted that SVB is due to report a 2003 operating profit (based on a long-term rate of return) of at least £30 million ($54 million) on an annually accounted basis, notwithstanding the prior year reserve deteriorations. Moody’s said the rating also “reflects the structural and operational benefits resulting from the syndicate’s affiliation with Lloyd’s.”

“The outlook for the A3 IFSR of syndicate 2147 has been changed from negative to stable, following confirmation of the group’s earnings position for 2003 and reflects the improved capital position of SVB, its sole backer,” said the announcement.

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