A.M. BEST RATES LLOYD'S "A" -EXCELLENT-.

OLDWICK, N.J.--(BUSINESS WIRE)--Oct. 1, 1997--Effective immediately, A.M. Best Company has assigned an initial rating of "A" (Excellent) to Lloyd's. The rating is based on the financial strength and operating performance of Lloyd's and applies to the business written by the more than 160 active underwriting syndicates, that have common policyholder security.

Lloyd's is a society of corporate and individual members that provide capital to back the underwriting liabilities of its syndicates. If a syndicate gets into financial difficulty, a chain of security provides the capital required to meet the underwriting liabilities of all policies issued by the syndicate. This chain includes four links of security: the premium trust funds, the members' funds at Lloyd's, individual members' other personal wealth and the Central Fund. The Central Fund underpins and mutualizes the security provided to all of the syndicates. This unique chain of security has allowed Lloyd's to maintain an outstanding record of claims payment for 310 years.

The mutualization of Lloyd's policyholders' security across all syndicates, combined with its common set of licenses and trust funds around the world, enables Lloyd's and its brokers to conduct business in over 100 countries.

The rating reflects Lloyd's outstanding market position, its strong return to profitability in recent years, culminating with the successful execution of the restructuring and renewal (R&R) plan, its strong capitalization and liquidity, and substantial mitigation of its catastrophe risk. It also reflects Lloyd's underwriting expertise and innovation, which make it a leading underwriter on more than two-thirds of its business.

Since 1993, Lloyd's has made a strong recovery in its underwriting profitability following a five-year period of disastrous losses resulting from sharply emerging asbestos, pollution and health liability (APH) claims; and a series of catastrophe losses exacerbated by the existence of a London Market Excess-of-Loss (LMX) spiral. Other contributing factors included poor underwriting discipline and internal regulatory oversight. The huge losses disproportionately impacted a few poorly managed syndicates. By contrast, the strong syndicates and managing agents maintained relatively good underwriting results during this disastrous period.

Over the past five years, Lloyd's has been radically reformed through the introduction of corporate capital and strengthened internal regulatory controls and oversight, which has created a more disciplined environment. In addition, the more profitable and better-managed syndicates and managing agents have consolidated their market positions.

The rating also reflects Lloyd's international name recognition and broker network, with the ability to write business in over 100 countries; its diversification in terms of geography and classes of risk; diversified capital base; flexible cost structure; and access to capacity and underwriting resources as a result of its location in the heart of the London insurance market. These attributes provide Lloyd's with a sustainable competitive market advantage.

Lloyd's excellent financial performance also is a major rating factor. For the five-year period of 1993 to 1997, Lloyd's has averaged an estimated total return on written premium of 12%, which compares favorably to highly rated U.S., U.K. and European peers. In addition, the beneficial effects of the radical restructuring of Lloyd's greatly enhanced its solvency and liquidity, due in large part to the formation of the Equitas Group, an independent and licensed reinsurance group in the U.K, which reinsured the 1992 and prior liabilities of Lloyd's.

Lloyd's solvency ratios also strengthened to levels comparable to its highly rated peers, with an estimated net writings to surplus percentage (measuring underwriting leverage) and a net asset to technical reserves percentage (measuring loss reserve leverage) projected to be approximately 76% and 81%, respectively, for year-end 1997.

Partially offsetting these positive factors is the loss of policyholder confidence and credibility Lloyd's experienced from 1988 to 1992. This led to the loss of business and diminished its capital base as thousands of members left Lloyd's due to their losses. This difficult period was marked by litigation that was virtually resolved through the R&R plan and the formation of the Equitas Group in 1996. Lloyd's has restored much of its policyholder confidence, but some concerns remain due to the potential negative financial and marketing exposure emanating from Equitas.

Although legally separated from Equitas, the rating recognizes that Lloyd's has potentially adverse marketing and financial implications from Equitas, in the event it is not able to adequately run off its liabilities. Equitas was established with an unprecedented level of actuarial and regulatory scrutiny; however, due to data limitations and the lack of sufficient claims development for APH-related liability claims, it will take several more years for Equitas to confidently demonstrate its ability to adequately run off its reserves. While A.M. Best believes Equitas maintains a reasonable degree of financial flexibility, Lloyd's could elect to gift funds to Equitas if a capital shortfall develops.

Another minor competitive disadvantage of Lloyd's is its relatively high variable cost structure and exclusive broker distribution system, which hinders its competitiveness in certain markets. The rating also reflects the competitive environment Lloyd's operates in and its declining profit margins; however, the margins remain strong relative to Lloyd's peers and its rating level.

Overall, Lloyd's is well positioned in the international insurance and reinsurance marketplace to remain a competitive and profitable market leader.

A.M. Best Co., established in 1899, is America's oldest and most widely recognized insurance rating and information source.

CONTACT: A.M. Best

Jeffrey Dunsavage (USA)

[phone], ext 5618

[e-mail]

or

Greg Carter or

Chris Waterman (London)

0171-264-2260