A.M. Best Affirms Rating for Heddington Insurance – UK- Ltd.

December 18, 2003

A.M. Best Co. has affirmed the financial strength rating of A (Excellent) of Heddington Insurance (UK) Ltd. (HUK) (London, United Kingdom). The outlook remains stable.

The rating reflects the company’s status as a core subsidiary of its parent, Heddington Insurance Limited – currently rated A (Excellent) -and its excellent stand-alone risk-adjusted capitalization and operating performance. The main offsetting factor is HUK’s lack of diversification due to its status as a single parent captive of ChevronTexaco Corporation, an energy company.

Excellent capitalization – A.M. Best believes that HUK will maintain risk-based capitalization at the current excellent level (according to AM Best’s capital model). Year-end 2002 capital and surplus of USD 38 million is expected to increase to over USD 40 million at year-end 2003 through profit retention. Exposure to large losses has been reduced due to ChevronTexaco’s decision to focus HUK on medium-sized risks and the consequent transfer of large risks to its ultimate parent.

Excellent prospective operating performance – HUK’s pre-tax profits for 2002 were an excellent USD 5.3 million. Result volatility is diminished, and the company’s loss ratio is forecast to be reduced from the five-year average level of 92 percent to 40 percent in 2003. HUK’s expenses are forecast to decrease in line with ChevronTexaco’s decision to pay directly a larger share of the insurance expenses, following a reduction in insurance activity in HUK.

Limited diversification – HUK’s sole source of premiums is ChevronTexaco, and the company is not expected to extend coverage to third-party risks. Premium growth in 2004 is expected to be moderate as a result of ChevronTexaco’s revised strategy regarding utilization of HUK.

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