S&P Places OIL Ratings on Watch/Neg

April 25, 2007

Standard & Poor’s Ratings Services has placed its “A-” counterparty credit and financial strength ratings on Oil Insurance Ltd. (OIL) on CreditWatch with negative implications.

“The CreditWatch placement follows OIL’s recent announcement that 12 of its shareholders will be withdrawing from OIL and that one member has become ineligible for continued membership, effective June 1, 2007,” explained S&P credit analyst Laline Carvalho.

On an aggregate basis, these shareholders constitute about 7 percent of total weighted gross assets insured by OIL as of Dec. 31, 2006. This announcement follows the Jan. 1, 2007 departure of nine shareholders from OIL, which at the time constituted about 12 percent of the company’s weighted gross insured assets. In Standard & Poor’s opinion, the number of shareholders who have exited OIL in the past six months is significant. This raises concerns about the stability of the company’s membership base and the strength of its competitive position in its chosen niches.

S&P said it “believes the recent exits partially reflect OIL’s challenge to meet the different needs of its diverse membership base, which after a period of expansion in the past five years includes members with high severity/low frequency-type risks such as oil and gas companies, and members from sectors with higher frequency/lower severity-type exposures such as utilities. Several of the recent exits include regulated utilities, which are more restricted in their ability to raise their prices, and thus have been particularly affected by OIL’s increased premium rates following significant hurricane losses in 2005.

“In the past year, OIL has made significant efforts to address the different needs of its membership base, which contributed to the company announcing an amended rating and premium plan that was approved by the shareholders in March 2007. The combination of the recent exits and the amended rating and premium plan could lead to changes in the prospective volatility of OIL’s insured portfolio that need to be evaluated by Standard & Poor’s.”

S&P also indicated that it expects to resolve the CreditWatch in the next three months, following discussions with OIL’s management team about its competitive position, portfolio volatility, and capitalization. In the event that following its review S&P decides to lower the ratings on OIL, such a downgrade is not expected to exceed one notch.

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