S&P affirms Oil Insurance Ltd., ‘A+’ Ratings

August 13, 2003

Standard & Poor’s Ratings Services announced that it has affirmed its ‘A+’ counterparty credit and financial strength ratings on Oil Insurance Ltd. (OIL) with a negative outlook, and has removed them from CreditWatch where they were placed on April 29, 2003.

It also announced that it has given an ‘A-‘ rating to OIL’s $300 million issue of deferrable subordinated debentures due 2033, and has affirmed its ‘A-1’ short-term counterparty credit and commercial paper ratings on OIL that were not on CreditWatch.

“This rating action follows the analysis of management’s proposed capital initiatives, which are expected to include a subordinated debt issue that (along with strong five-month earnings of $224 million through May 31, 2003) will improve capital adequacy to about 115% as of May 31, 2003, pro forma for the new capital from 82.3% at year-end 2002 and 107.7% as of March 31, 2003,” stated S&P credit analyst Karole Dill Barkley.

“The capital adequacy ratio is expected to be 100%-125%, which is within the ‘BBB’ range. The subordinated debt will be treated as capital for purposes of capital adequacy modeling and as hybrid capital in calculations of financial leverage,” said the bulletin.

“With the significant growth in membership and in insured assets under management, OIL remains highly exposed to continued high indemnity losses in the short term. Financial market conditions also remain volatile, and the capital base remains exposed to continued investment losses. Management expects outstanding short-term debt to be $250 million-$300 million. Over the medium term, Standard & Poor’s expects premium growth to restore capital adequacy to the rating range,” it concluded.

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