Best Downgrades West of England Ship Owners Mutual Rating; Under Review

May 17, 2006

A.M. Best Co. announced that it has downgraded the financial strength rating of Luxembourg-based West of England Ship Owners Mutual Insurance Association (WOE or the Club) to “A-” (Excellent) from “A” (Excellent) and assigned an issuer credit rating of “a-“. At the same time Best placed all of the ratings under review with negative implications.

“The downgrade reflects the impact of poor performance, including anticipated performance at year-end February 2006, on the Club’s risk adjusted capitalization,” said Best. “The rating has been placed under review while A.M. Best assesses the impact of actions that the Club is expected to take to address its weakened risk-adjusted capitalization. However, if the Club fails to take any action, its rating could be downgraded further.”

Best said it “believes that WOE’s risk-adjusted capitalization will weaken at year-end February 2006, with an anticipated decline in retained surplus for the second year running to approximately $130 million (down from $134 million at year-end February 2005). This represents a $15 million reduction since year-end February 2004. Over the same period, premium risk is likely to increase as a result of anticipated growth in net premiums to over $200 million from $168 million.”

The rating agency also indicated that it “anticipates a further underwriting loss for the year ending February 2006, with the combined ratio likely to be approximately 115 percent. While this represents an improvement from the previous year’s combined ratio of 118 percent, it is still expected to produce a technical loss close to $30 million ($34 million loss in 2004-05).” Although Best also forecast “solid investment returns for year-ending February 2006 of approximately $29 million,” it said that this would “prove insufficient to produce a profit after tax.”

In conclusion Best stated that it its opinion, “WOE holds a strong position within the International Group (IG) of Protection & Indemnity (P&I) Clubs as the fourth largest by gross owned tonnage (59.1 million for the policy year 2005). Additionally, the Club’s profile benefits from the claims and loss prevention services offered to members from its offices based in London, Hong Kong and Greece.”

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