S&P Raises Southern Rock Ratings To ‘BB’; Outlook Stable

January 26, 2007

Standard & Poor’s Ratings Services has raised its long-term counterparty credit and insurer financial strength ratings on Gibraltar-based non-life insurer Southern Rock Insurance Co. Ltd. to “BB” from “BB-” and assigned a stable outlook.

“The upgrade reflects the company’s improved competitive position through successful development of Internet-based direct distribution channels,” stated S&P credit analyst Nigel Bond.

S&P said: “The ratings on Southern Rock Insurance Co. Ltd. reflect its very short existence, marginal but improving competitive position, and its strategic dependence on reinsurance. These negative factors are partly offset by the company’s good capitalization and good operating performance.

“Southern Rock commenced trading in early 2005, and its very short existence to some extent restrains Standard & Poor’s view of its financial strength. In particular, the ability to manage its planned very fast growth has yet to be tested.”

The rating agency added that the “Company’s competitive position is viewed as marginal, but improving. Southern Rock is relatively new, very small, and has very limited product and geographic diversification. However, its rapid and successful growth to date indicates that it is developing a sophisticated, highly flexible business model centered on the Internet that may over time yield significant cross-cycle outperformance.

“The company is significantly reliant on reinsurance, as it uses a 50 percent quota share to supply it with capacity. Although this capacity is provided by only one company, the support of a highly-rated reinsurer (SCOR S.A.; A-/Stable/A-2) is, nevertheless, a positive factor.”

“The stable outlook reflects Standard & Poor’s expectation that Southern Rock will deliver a net profit for 2006 on net premiums written in excess of £13 million, and an underwriting profit (before allowing for other technical income), while doubling both its gross and net premiums written in 2007,” Bond explained. “Its capital adequacy ratio is expected to diminish but to remain at least strong. Standard & Poor’s does not expect any significant change to the company’s operating and investment strategies.”

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