Best Affirms FSR for Jupiter Insurance

December 14, 2005

A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) of Jupiter Insurance Ltd. (Jupiter) (Guernsey) and has assigned an issuer credit rating (ICR) of “aa-“. The outlook on both ratings is stable.

The ratings reflect the company’s superior risk-adjusted capitalization and excellent liquidity. An offsetting factor is the company’s likely volatile operating performance over the next two years. Jupiter is the single parent captive of BP plc, which is an integrated oil and gas company.

A.M. Best believes that Jupiter’s operating performance is likely to significantly deteriorate at the year-end 2005 as a result of a series of large losses that impacted the company during the year, including the explosion in the BP Texas City refinery and Hurricane Katrina. The loss ratio is expected to sharply deteriorate to a range of 300-325%, compared to the excellent 19.5% in 2004, with underwriting losses of approximately GBP 500 million (USD 850 million).

However, providing there is a return to a normal loss experience in 2006, in A.M. Best’s view the company’s underwriting performance is likely to be restored to strong levels of approximately GBP 100 million (USD 170 million) in 2006.

A.M. Best believes that Jupiter’s prospective risk-adjusted capitalization is likely to remain superior over the next two years, despite a slight deterioration resulting from the anticipated losses in 2005. This deterioration is likely to be partially driven by the increase in the company’s risk-based capital requirements for loss reserves, as the company will retain all losses due to the absence of a reinsurance programme.

Furthermore, the absolute level of capital and surplus is projected to decrease by approximately 30% in 2005, from GBP 1.96 billion (USD 3.77 billion) in 2004. However, in A.M. Best’s view, capital and surplus will remain at a robust level.

A.M. Best believes that Jupiter has excellent liquidity provided by the short term maturity of its discount note within the group. Jupiter allocates a majority of its funds to this investment, and during 2005 the company partially reduced it as a result of capital requirements to cover large losses incurred.

In A.M. Best’s opinion, despite the risk concentration within the group, this instrument provides Jupiter with a very good level of financial flexibility.

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