Best Affirms Chevron’s Heddington ‘A’ Rating; Assigns ‘a+’ ICR

January 13, 2006

A.M. Best Co. announced that it has affirmed the financial strength rating of “A” (Excellent) of Heddington Insurance (U.K.) Limited (HUK), a captive company of Chevron Corporation, and has assigned an issuer credit rating of “a+”. The outlook on both ratings is stable.

“The ratings reflect HUK’s excellent prospective risk-adjusted capitalization and improving profitability,” said Best. “HUK benefits from substantial reinsurance support from its immediate parent, Heddington Insurance Ltd. (HIL), in the form of an 80 percent quota share of business written, reflecting HUK’s importance within the group. An offsetting factor is the company’s volatile business portfolio.”

Best said it “believes that HUK’s book of business is likely to significantly reduce in 2006, with net premium income likely to decline by approximately 50 percent-60 percent (compared to the anticipated level of $ 11 million in 2005), reflecting a volatile business profile. The expected decrease in premium income emanates from the likely change in business allocation within the group captives.”

Best also indicated that “the company’s prospective risk-adjusted capitalization is likely to remain excellent over the next two years, factoring full earnings retention and the lower risk-adjusted capital requirements to support both declining levels of net premium income and, consequently, net loss reserves. HUK’s net risk exposure is deemed to be low, given the excellent reinsurance program with HIL”.

In addition Best said that, in its opinion, “HUK’s profitability levels are likely to improve over the next two years as a result of modest anticipated underwriting profits driven by a forecasted benign claims experience. This is likely to lead to net reserves release within the range of $ 500,000-700,000 despite an expected increase to approximately 115 percent of the already high expense ratio (95.4 percent in 2004). Over the same period, net profits are expected to improve to approximately $ 2 million (compared to a loss of $ 1.1 million in 2004) and lead to an increase of the return on equity to approximately 3 percent (compared to -2.5 percent in 2004).”

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