S&P Raises Hiscox (UK) Ratings to ‘A’; Assigns Stable Outlook

December 2, 2008

Standard & Poor’s Ratings Services has raised its long-term counterparty credit and insurer financial strength ratings on U.K.-based non-life insurer Hiscox Insurance Co. Ltd. (HISCO) to ‘A’ from ‘A-‘ with a stable outlook. HISCO is a core operating entity of the Bermuda-based Hiscox Group.

“The upgrade is based on Hiscox’ strong recent operating performance, and expectations for continued underwriting discipline and robust earnings going forward,” explained credit analyst Matthew Day.

S&P also noted that “in recent years Hiscox, and HISCO in particular, has differentiated itself from peers, and, in our view, has enhanced its competitive position through continued brand development and product innovation. The ratings also reflect the group’s strong capitalization.”

However, Day noted that, “the recent decline in the group’s financial flexibility related to the challenging economic environment, which is expected to persist for the next 12-24 months” should be considered as offsetting these positive factors.

“Hiscox’ strong competitive position reflects the superior strategic flexibility afforded it by the diversity of the group’s operating platforms,” S&P continued. “Hiscox has a long-established track record at Lloyd’s (A+/Stable), where it manages one of the largest syndicates (Syndicate 0033; not assessed).”

S&P also noted that Hiscox’ capital adequacy at year-end 2008, measured using S&P’s risk-based model, “is forecast to be in the ‘A’ range, similar to the level at year-end 2007. This demonstrates the resilience of the group’s capital position to the extreme turbulence seen in global financial markets during 2008. The quality of capital is high, reserves are satisfactory, and reinsurance is prudently managed.”

However, S&P stated that the “group’s financial flexibility is considered to be a weakness for the rating at its current level. Hiscox does not hold as much excess capital as a number of its similarly rated peers. In our view, this makes it somewhat more exposed than peers to the systemic decline seen in the level of access to capital markets over the past 15 months. This could place downward pressure on the ratings were Hiscox to experience a shock loss, on either side of the balance sheet, over the next 12-18 months.”

“We expect that Hiscox’ enhanced competitive position will be maintained, particularly in respect of the high-net-worth segment of the retail portfolio,” Day added.

Further upward movement in the rating is not expected over the rating horizon. Failure to control volatility in the underwriting performance leading to material underwriting losses, or the emergence of a shortfall in capitalization relative to expectations, could prompt a review of the rating with negative implications.

Source: Standard & Poor’s – www.standardandpoors.com

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