S&P Rates Catlin Pref. Shares ‘BBB’

January 22, 2007

Standard & Poor’s Ratings Services has affirmed its “BBB” long-term subordinated debt rating on the $600 million 7.249 percent perpetual, subordinated, callable, fixed-/floating-rate, noncumulative preferred shares issued by Bermuda-based Catlin Insurance Co. Ltd. (rated A-/Stable/–), following receipt of final documentation.

S&P classified the shares as “strong,” at the upper level of its Category 2 (intermediate equity content) classification, “being undated, subordinated, and with optional and mandatory interest-deferability features. The shares are expected to qualify as statutory capital under the Bermuda Monetary Authority’s regulatory regime and as Innovative Tier 1 capital for group regulatory capital purposes in the U.K.,” said the announcement.

“If, as expected, the shares are redeemed at the first call date on Jan. 19, 2017, Catlin shall replace the retired security with hybrid capital of equivalent strength if necessary,” S&P continued. “If not redeemed at the first or any subsequent call date falling on every dividend payment date thereafter, the dividends will be payable at a floating rate equal to 2.975 percent plus the three-month LIBOR rate.

“Early redemption is permissible if the shares fail to qualify as regulatory capital, or if there is a change in tax law resulting in the securities being subject to tax. In addition, early redemption is possible should voting rights be enacted on the shares.

“Dividends on the shares are subject to a dividend and capital-stopper mechanism, such that if Catlin does not declare a dividend on the shares, no cash dividend shall be paid to common stockholders and Catlin will not be permitted to purchase or redeem any junior-ranking stock. Mandatory payment deferral on the shares is only invoked in the event that Catlin does not have sufficient distributable reserves with which to fund the dividend or is unable to satisfy its local solvency requirements under Bermudan law.

“The proceeds will principally be used to repay the $500 million bridging loan facility initiated to finance the acquisition of Wellington Underwriting PLC (not rated), while also enabling Catlin to refinance its senior debt.

“Being classified as Category 2, the shares are eligible for inclusion as part of Catlin’s total adjusted capital up to Standard & Poor’s normal tolerance for Bermudan issuers of up to 15 percent, with the excess treated as debt for the purposes of leverage calculations.

“The ‘A-‘ long-term counterparty credit rating on Catlin reflects its status as a core subsidiary and primary risk carrier of Catlin Group Ltd. (not rated). The rating is underpinned by the group’s diversified business franchise and risk profile relative to many of its Lloyd’s and Bermudan peers. The rating also reflects the group’s above-average long-term earnings and strong capitalization. These strengths are partially offset, however, by the group’s earnings volatility and high dependence on Lloyd’s (A/Positive) for business.”

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