Best Upgrades London General to ‘A-‘

November 7, 2006

A.M. Best Co. has upgraded the financial strength rating to “A-” (Excellent) from “B++” (Very Good) of the U.K.-based London General Insurance Company Limited (LGI) and Combined Life Assurance Company Limited (CLAC). Best also assigned an issuer credit rating of “a-” to both companies. All ratings have a stable outlook.

“The rating actions reflect LGI and CLAC’s stable business position, strong and improving operating performance and strengthening capitalization,” Best stated.

Best noted: “LGI has a leading position in its specialist lines of extended warranty, technology insurance, creditor and contractors’ liability. A.M. Best believes that gross premiums written will remain stable during 2006 as the new deals gained replace the contracts not renewed by LGI and CLAC during 2004-2005. Longer term, the company’s expansion into the eastern European markets will provide strong growth opportunities. A.M. Best expects CLAC to develop its position in the creditor protection market, acting as a partner in deals written by LGI.”

The rating agency also explained that both LGI and CLAC “are to be acquired by Onex, a Canadian private equity group, with negotiations likely to be completed during the fourth quarter of 2006. The existing board of directors and management structure will remain post acquisition, retaining the specialist expertise.” Best added that in its opinion, “the sale provides the companies with opportunity to grow, especially in the brokered business.”

Best also said it “believes that both companies’ risk-adjusted capitalization is strengthening due to the significant reduction in counterparty risk arising from the high levels of reinsurance recoverables. This is driven both by the planned cancellation and run off of a large reinsurance agreement and the extensive and increasing use of collaterals used as backing for the remaining recoverables.

“A.M. Best believes that both companies are likely to continue their strong financial performance shown in 2005 when pre-tax profits grew by 86 percent and 15 percent for LGI and CLAC, respectively. LGI’s combined ratio of 77 percent is likely to remain stable with the main contributor being the high acquisition costs.”

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