Best Assigns FSR to Wellington Specialty

November 24, 2004

A.M. Best Co. has assigned an initial financial strength rating of A- (Excellent) and an issuer credit rating of “a-” to Wellington Specialty Insurance Company (Scottsdale, Ariz.) (Wellington Specialty), a newly formed U.S. insurer that is part of the Wellington Group.

At the same time, an ICR of “a-” has been assigned to Wellington Underwriting plc (United Kingdom) (WU plc), the ultimate parent of Wellington Specialty. The outlook for the Wellington Specialty financial strength rating and both issuer credit ratings is stable.

These initial ratings stem from Wellington Underwriting plc’s completed purchase of AXA Corporate Solutions’ Excess and Surplus Lines Insurance Company, a Delaware domiciled excess and surplus lines insurer and subsidiary of its ultimate parent company AXA Corporate Solutions, on Nov. 23, 2004.

The company was acquired from AXA Corporate Solutions as essentially a clean shell and was subsequently re-named Wellington Specialty Insurance Company. The purchase price for the acquisition is approximately $1.8 million for the cost of the shell’s licenses plus the capital and surplus of the company. Accordingly, the rating of the former AXA Corporate Solutions Excess & Surplus Insurance Company has been removed from under review and assigned a rating of NR-5 (Not Formerly Followed).

These initial ratings take into consideration the initial capitalization and business plans of Wellington Specialty, its experienced management team as well as the near-term earnings prospects to be derived from the recent price firming that has occurred within the surplus lines market. These ratings also consider management’s intention to prudently manage its capital in accordance with levels previously discussed with A.M. Best. The ratings also acknowledge Wellington Specialty’s quality balance sheet, which is unencumbered by debt and prior year reserve liabilities.

Wellington Specialty’s initial capital consists of approximately $30 million, established via the contribution of funds from its immediate parent WUHI. A.M. Best has analyzed the debt leverage and interest coverage at the parent company level in light of the capital raised and is satisfied that the debt leverage and interest coverage levels of the ultimate parent are adequate for the individual rating of Wellington Specialty.

In A.M. Best’s view, the company’s low investment risk and conservative leverage targets will enable it to maintain capitalization that will comfortably support its risk profile. The ratings also reflect the benefit of additional financial flexibility offered by the parent company and the strong operating fundamentals exhibited by Syndicate 2020.

The ratings also recognize the company’s business plans that include building a well-balanced book of business with a focus on smaller, low hazard surplus lines risks. In order to facilitate this, the company has initially aligned itself with approximately thirty, largely family-owned general agencies with which management has had previous long standing business relationships.

These positive rating factors are offset by the significant challenges and uncertainties associated with newly formed, start-up companies, including the successful execution of its business plans, the company’s acceptance among agents and brokers and management’s ability to grow its business profitably. As with any other newly-formed organization, A.M. Best will closely monitor Wellington Specialty to ensure that targeted results are attained. Moreover, A.M. Best will continue to evaluate the company’s capitalization to ensure capital and surplus are in compliance with A.M. Best’s standards relative to the ratings.

The Wellington Group includes the ultimate parent company, Wellington Underwriting plc, a United Kingdom domiciled holding company, Wellington Underwriting Holdings Inc. (WUHI), a newly established U.S. holding company and Wellington Underwriting Inc., a U.S.-based company that has essentially operated as a managing general agent, sourcing facultative and treaty reinsurance business to Wellington’s Lloyd’s Syndicate 2020.

Wellington Specialty was formed to allow the group to gain greater access to the U.S. excess and surplus lines market, providing business opportunities not formerly available to Wellington’s operations at Lloyd’s. The management team of Wellington Specialty has extensive surplus lines experience in the U.S.

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