Best Affirms Lloyd’s Syndicate 2003 Ratings; Withdraws Syndicate 2020

April 2, 2007

Concurrent with its rating announcements concerning the Catlin Group (See related article), A.M. Best Co. affirmed its Syndicate Rating of “A” (Excellent) and the issuer credit rating (ICR) of “a” of Lloyd’s Syndicate 2003, which is managed by Catlin Underwriting Agencies Ltd. (CUAL). The MGA “forms an integral part of Catlin Group Limited (CGL), a Bermudan holding company.”

“The outlook on Best’s Syndicate Rating remains stable, in line with the outlook on Lloyd’s FSR, and the outlook on the ICR has been revised to positive from stable to reflect the outlook change on the Lloyd’s ICR,” said the bulletin (See IJ web site March 30).

Best also announced that it has withdrawn its Syndicate Rating of “A” (Excellent) and issuer credit rating of “a” of Lloyd’s Syndicate 2020, which is managed by Wellington Underwriting Agencies Ltd. (WUAL), and has assigned an NR-3 (Rating Procedure Inapplicable) to the syndicate. “The withdrawal of syndicate 2020’s ratings follows the acquisition of Wellington Underwriting plc (Wellington), the ultimate parent of WUAL, by CGL and the subsequent cessation of trading at the syndicate,” Best explained.

“The ratings of syndicate 2003 reflect its capital flexibility, strong prospective earnings and strengthened profile in Lloyd’s,” Best continued. “A partially offsetting factor is the syndicate’s exposure to integration risks following CGL’s acquisition of Wellington. Additionally, the syndicate benefits from the financial strength of the Lloyd’s market, which underpins the security of all Lloyd’s syndicates. The ratings are based on A.M. Best’s specific syndicate criteria.”

Best stated that in its opinion “support from within CGL enhances the syndicate’s capital flexibility. CGL has been able to support the expansion in the syndicate’s capacity to £1.094 billion ($2.133 billion) in 2007 from £480 million ($936 million) the previous year through its principal trading subsidiary in Bermuda, Catlin Insurance Company Limited (CICL).

“In 2007, CICL will provide most of the collateral for a letter of credit (LOC) with a value of £225 million ($439 million), issued by a syndicate of banks to support the syndicate’s funds at Lloyd’s (FAL). In addition to the LOC, by the end of 2007, CICL is expected to support the syndicate through assets held in trust of approximately £180 million ($351 million).”

Best also indicated that it believes the Syndicate “is likely to produce a strong return for the 2007 underwriting year despite softening in rates,” and Best anticipates that the Syndicate “will produce a return close to 20 percent of capacity (after personal expenses) when the 2006 underwriting year of account is closed. However, this is likely to follow a pure year loss in the region of 10 percent of capacity (after personal expenses) in 2005, reflecting substantial losses from hurricanes Katrina, Rita and Wilma.”

Best said ithat while it “believes that syndicate 2003’s profile in Lloyd’s was enhanced by CGL’s acquisition of Wellington, the syndicate remains exposed to integration risks. Following the purchase, Lloyd’s Syndicate 2020 ceased to trade for the 2007 year of account, and its staff have moved to syndicate 2003.”

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