S&P Lowers Outlook on Mutual Steamship

May 23, 2005

Standard & Poor’s Ratings Services announced that it has revised its outlook on Bermuda-based insurer The United Kingdom Mutual Steamship Assurance Association (Bermuda) Ltd. (the U.K. Club or the club) to negative from stable. At the same time, S&P affirmed its “A” long-term counterparty credit and insurer financial strength ratings on the club.

“The outlook revision reflects a greater-than-expected deterioration in the club’s free reserves and, while underwriting performance has improved, it remains below our expectations,” stated S&P credit analyst Lucy Stupples.

S&P noted: “The ratings reflect the club’s very strong financial flexibility (defined as the ability to source capital relative to requirements), strong but weakened capitalization, and strong competitive position. These positive factors are partially offset by only satisfactory operating performance, the high industry risk associated with protection and indemnity business, and an investment policy considered aggressive in relation to that of the club’s peers and the non-life insurance sector generally.”

The rating agency said the negative outlook reflects its concerns that “any improvement in operating performance may not be sufficient to rebuild the club’s free reserves in the short term. The combined ratio is expected to improve to between 110 percent and 115 percent, but this will partially be dependent upon the size of the premium rate increase achieved at the February 2006 renewal.

“Although the club’s strategy is not to rely upon investment returns for the generation of surplus, this may be a factor in any improvement in operating performance in the short term. A moderate improvement in capitalization is expected in the year to February 2006. Failure to achieve this expectation may result in a downgrade. No significant improvement in capitalization is anticipated until 2007. Competitive position is expected to remain strong, with the club continuing to insure about 20 percent of the world’s oceangoing tonnage despite competition from other members of the International Group of Protection and Indemnity Clubs.”

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