S&P Affirms White Mountains Ratings

December 9, 2003

Standard & Poor’s has affirmed its ‘BBB-‘ counterparty credit and senior debt ratings on White Mountains Insurance Group Ltd., and its ‘A-‘ counterparty credit and financial strength ratings on Folksamerica Reinsurance Co. (Folksamerica) following WTM’s announcement that it plans to acquire Sirius International Insurance Corp. (Sirius International).

In addition, Standard & Poor’s also affirmed its ‘A-‘ counterparty credit and financial strength ratings on Sirius International.

The outlook on all these entities is stable.

“The ratings are based on the acquisition of Sirius potentially being a long-term benefit to WTM, in terms of both its business position (international scale) and earnings diversification,” said Standard & Poor’s credit analyst Damien Magarelli. “However, due to the near-term integration risks and the runoff operations of Scandinavian Reinsurance Co. Ltd. (Scandinavian Re), this acquisition is neutral for the ratings at this time.” WTM’s very strong financial flexibility, strong capitalization, and improving earnings also support the ratings.

Sirius is a global reinsurance company based in Sweden. It is currently a wholly owned subsidiary of the Swiss/Swedish industrial engineering group ABB Ltd. (BB+/Positive/B). Sirius consists of three operating entities – Sirius International, a global reinsurer writing predominantly short-tail lines of business, Sirius America Insurance Co. (Sirius America), a U.S.-based writer of program business, and Scandinavian Re, a Bermuda-based finite reinsurer, which was placed into run-off in January 2002.

WTM uses acquisitions in addition to organic growth to increase its intrinsic value and build its scale and market presence. Standard & Poor’s has traditionally viewed this acquisition strategy negatively, and the current ratings and outlook already incorporate this risk. Standard & Poor’s fully expects that WTM will continue to increase its scale both organically and through acquisitions. The acquisition of Sirius is WTM’s first major foray outside the North American market, which increases the execution risk surrounding the transaction. In addition, uncertainty in the short-term, surrounding the role that the various Sirius entities will fulfill within the enlarged WTM and the implications that this could have for Sirius’ own business position will need time to develop.

The stable outlook reflects the potential long-term benefits of the Sirius acquisition, while near-term integration risks and the runoff operations of Scandinavian Re lead Standard & Poor’s to conclude that this acquisition is neutral on the ratings of the affected entities at this time. WTM’s business position will now be expanded to include further international breadth, before represented only by the operations of Fund American Re and White Mountains Underwriting Ltd.

Separately, WTM has realized substantial improvements in its operating performance, and the company is expected to maintain its very strong financial flexibility and liquidity in 2004.

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