A.M. Best Affirms Rating of Ecclesiastical Insurance Office plc

December 12, 2003

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) of Ecclesiastical Insurance Office plc (EIO) (Gloucester, United Kingdom). The outlook remains stable.

The rating reflects the company’s excellent capitalization, continued improvement in underwriting performance and excellent market profile. Offsetting these factors is the potential volatility in results due to the company’s high exposure to equities.

Excellent capitalization – EIO will continue to maintain capital at a level supportive of its A- (Excellent) rating, according to A.M. Best’s risk-adjusted capital model. Risk-adjusted capitalization is expected to improve at year end 2003, reversing the declining trend in 2001 and 2002 caused by unrealized capital losses.

Improving underwriting performance – A.M. Best expects the recent trend of improving underwriting performance to continue in 2003. EIO has focused its efforts on correcting rates and bringing the technical account to profitability. Improvements have been recorded in the technical account since 2001, and A.M. Best expects further improvements in 2004 as rate increases continue to feed through to next year.

Excellent market profile – A.M. Best believes EIO benefits from an excellent franchise, which helps it to maintain high client retention levels (99 percent for 2003) in its core portfolios. EIO provides a high proportion of the insurance cover purchased by the Anglican church in the United Kingdom and also enjoys high market penetration in other specialist sectors, such as independent schools, charitable institutions and care homes for the elderly.

Potential volatility in earnings – A.M. Best does not expect the proportion of equity investments to change markedly in the near future (expected 28 percent of invested assets at year-end 2003). The current proportion is at the lower end of EIO’s preferred range. There is less reliance on gains from the stock market as the company’s focus is now on underwriting profitability, but potential remains for volatility in earnings.


— Underwriting performance will continue to improve, subject to normal loss experience.

— Risk-adjusted capitalization will be maintained at an excellent level in 2003 and 2004.

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