Best Assigns ‘B++’ Rating to Rutland Insurance

April 19, 2005

A.M. Best Co. has assigned a financial strength rating of B++ (Very Good) and an issuer credit rating of “bbb” to Rutland Insurance Ltd (Rutland) (Guernsey, UK), which is a single parent captive of AWG Plc. The outlook on both ratings is stable.

AWG Plc consists of two main businesses: Anglian Water Services Limited (Anglian Water), which is geographically the largest water company in England & Wales, and Morrison plc, a UK-based infrastructure construction and support services company. Rutland provides insurance to Morrison and has run-off exposure to Anglian Water policies written in prior years.

Rutland’s rating reflects likely improvement in the company’s prospective risk-adjusted capitalisation at year-end March 2005 as a result of a reduction in gross premiums to approximately GBP 2.5 million (USD 4.7 million), down from GBP 7.9 million (USD 14.9 million) the previous year. The anticipated reduction relates to the company’s withdrawal from underwriting Anglian Water business.

This factor is partially offset by the absolute level of capital and reserves, which was low at GBP 10.2 million (USD 19.3 million) at year-end March 2004. A.M. Best does not anticipate any material increase in capital at year-end March 2005 as a result of the company’s policy of paying approximately 90% of its after tax profits to its parent as dividends. However, in addition to the net assets on its balance sheet, Rutland can call on its parent for a further GBP 8 million (USD 15.2 million) of issued but as yet, uncalled share capital.

The rating also factors improvement in Rutland’s financial performance. At year-end March 2005, A.M. Best anticipates the company’s earnings will exceed GBP 500,000 (USD 945,000), largely as a result of a positive contribution from net investment income of over GBP 1 million (USD 1.9 million).

It is anticipated the company’s loss ratio will be comparable to the previous year at approximately 115% due to prior year reserve increases arising from late claims advice from a fronting insurer under one of its principal liability policies. However, at year-end March 2006, A.M. Best does not anticipate a need for further reserve strengthening, which is likely to lead to a reduction in the company’s loss ratio to below 80%.

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