S&P’s Affirms Nationwide Lloyds Rating

November 5, 2001

Standard & Poor’s affirmed its “BBpi” financial strength rating (FSR) on Nationwide Lloyds.

The affirmation is based on the accumulation of large underwriting losses as of year-end 2000, which is offset by strong capitalization and sound investments. The company’s operations are conducted through an attorney-in-fact appointed by 12 underwriters of Nationwide Mutual Insurance Co. (“A+” FSR).

Operating as a Lloyd’s association and administered by Nationwide Mutual Insurance Co., the Texas insurer commenced operations in 1981 providing homeowners coverage. Significant portions of the company’s premiums are ceded (75 percent) to Nationwide Mutual Insurance Co.

Cited as a major rating factor was the fact that capitalization remains strong, as indicated by S&P’s capital adequacy ratio, measuring 147 percent at year-end 2000. However, operating losses as of year-end 2000 contributed significantly to reducing policyholder surplus to $11.7 million in 2000 from prior year’s surplus of $15.5 million.

At year-end 2000, the company’s net losses amounted to $3.6 million. This weak performance is primarily attributable to underwriting losses of $7.3 million. S&P considers the investment portfolio to be a strong rating factor. Comprised primarily of U.S. securities, the company’s business benefits from the steady income and high liquidity derived from these investments.

Although the company is a member of the Nationwide Group, S&P does not believe that this is a significant rating factor.

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