Best Affirms All Hiscox Ratings

January 11, 2007

A.M. Best Co. announced that it has affirmed all of its applicable ratings on Hiscox and its separate operating entities, following the move of its corporate domicile to Bermuda from the UK. Best gave the following information on the ratings in three separate bulletins:

Hiscox Insurance Company (Bermuda) Limited and Hiscox Insurance Co. (Guernsey) Limited:
Best affirmed the financial strength rating (FSR) of “A-” (Excellent) and issuer credit rating (ICR) of “a-“. It also affirmed the financial strength rating (FSR) of “A-” (Excellent) and the issuer credit rating (ICR) of “a-” of Hiscox Insurance Company (Guernsey) Limited, which is substantially reinsured by Hiscox Bermuda and other Hiscox group insurers. The outlook for all ratings remains stable.

“Hiscox Bermuda is likely to maintain excellent risk-adjusted capitalization, based on conservative performance forecasts,” said Best. The rating agency also indicated that it “anticipates that shareholders funds will increase, through the retention of earnings, to over $700 million by year-end 2007. This will be sufficient to support anticipated growth in the business over the period.”

Best said it “believes that Hiscox Bermuda will achieve a combined ratio of between 60 percent and 70 percent at year-end 2006 and 2007, subject to catastrophe experience. Performance is likely to be supported by strong rates and the company’s portfolio of internal Hiscox group reinsurance of accounts with a proven track record of profitability. Internal reinsurance business is likely to comprise approximately 40 percent of Hiscox Bermuda’s gross premium in 2007.

“For the classes of business written by Hiscox Bermuda, A.M. Best believes the company benefits from the Hiscox group’s strong business profile. Hiscox Bermuda underwrites a portfolio of catastrophe reinsurance and internal group reinsurance ceded from Hiscox Insurance Company, Hiscox Insurance Company (Guernsey) and Hiscox Dedicated Corporate Member Limited (a capital provider to Lloyd’s Syndicate 33, which is managed by Hiscox Syndicates Ltd.).”

Hiscox Insurance Company Limited (Hisco):
Best affirmed the financial strength rating (FSR) of “A”- (Excellent) and the issuer credit rating (ICR) of “a-” of the UK-based Hiscox Insurance Company Limited, with a stable outlook.

“Hisco’s prospective risk-adjusted capitalization is expected to remain excellent,” said Best. “Growth in capital & surplus, through the retention of earnings, to year-end 2007 is expected to be sufficient to support the company’s anticipated risk exposure during the period.”

Best also indicated that it “believes that Hisco’s strong financial performance is likely to continue in 2006 and 2007, with the company’s combined ratio expected to be in the 95 percent to 98 percent range in both years. This is supported by the company’s position as a specialist underwriter, partially insulating it from softening market conditions for mainstream lines of business. An offsetting factor is Hisco’s high operating expense ratio resulting from the high costs of employing specialist staff.

“Hisco has a strong business profile in its niche underwriting markets of high value householders and professional indemnity insurance, as a result of which the company maintains a high level of business retention. Approximately 70 percent of premium volume in 2006 is likely to derive from renewal business. Gross premium income in 2007 is expected to increase to approximately £300 million ($585 million), up from £233 million ($454 million) at year-end 2005, supported by the continuation of a marketing campaign begun in 2006 and further expansion of the company’s regional office network.”

Lloyd’s Syndicate 33:
Best affirmed the its Syndicate Rating of “A” (Excellent) and upgraded the issuer credit rating (ICR) to “a+” from “a” of Lloyd’s Syndicate 33 which is managed by Hiscox Syndicates Limited. Best also upgraded the ICR to “bbb+” from bbb-” of UK-based Hiscox plc and subsequently withdrew the rating in light of the changes in the Group’s corporate structure, assigning an ICR of “bbb+” to Hiscox Limited (Bermuda), the group’s new ultimate parent holding company. The outlook for all ratings is stable.

“The upgrade to the ICR of syndicate 33 reflects A.M. Best’s expectation that the syndicate’s earnings will improve and there will be a likely return to reserve stability following a period of reserve strengthening for the 2000-2003 closed underwriting years,” said the bulletin. “These factors are also reflected in the upgrade in the Hiscox plc ICR because syndicate 33 is its principal source of earnings. The Hiscox plc ICR has been withdrawn and a new rating assigned to Hiscox Limited due to the re-structuring of the group under which Hiscox Limited has become the group’s new ultimate holding company in Bermuda.”

Best said it “anticipates that syndicate 33 will produce a strong profit of between 15 percent and 20 percent on capacity (after personal expenses) when the 2006 year of account closes. This is expected to follow a relatively modest anticipated loss for 2005 despite the syndicate’s substantial exposure to hurricanes Katrina, Rita and Wilma.

“It is also anticipated that the syndicate will return to its historical long-term pattern of reserve stability, following a period of reserve strengthening for U.S. errors and omissions affecting the 2000-2003 underwriting years. A.M. Best believes that corrective action taken by the syndicate has, most likely, successfully addressed this historic reserving issue.”

The rating agency stressed that in its opinion “Syndicate 33 has an excellent profile in the Lloyd’s market. The syndicate is one of the largest in Lloyd’s with allocated capacity of £875 million ($1.706 billion) in 2007. The syndicate underwrites a well diversified account both by business class and territory and leads a significant proportion of the business written (approximately 50 percent in 2005).”

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