A.M. Best Affirms Rating of Hiscox Insurance Company Limited.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A- (Excellent) of Hiscox Insurance Company Limited (Hiscox) (United Kingdom), and has assigned an issuer credit rating (ICR) of "a-" to the company. A.M. Best has also assigned an ICR of "bbb-" to Hiscox plc, the ultimate parent of Hiscox. The outlook for all ratings is stable.

The ICR of Hiscox reflects A.M. Best's opinion, expressed in the credit market scale, as to the overall ability of this entity to meet its senior most obligations which are insurance policies; hence, both the ICR and FSR ratings are at the same level. Hiscox plc is a non-operating holding company, and the level of its ICR illustrates the principal of standard notching from the operating company's (Hiscox) rating. (See A.M. Best's Ratings and Treatment of Debt at http://www.ambest.com/debt/debtmethod.pdf.)

Hiscox has a strong business profile in its specialist underwriting fields, which comprise high value householders and professional indemnity business. A.M. Best believes that business retention in 2004 will remain at a similar high level to the 80% by premium volume achieved in 2003. Gross premium income is likely to increase by approximately 10% in 2004 as business is developed through the company's regional offices located in Birmingham, Leeds, Glasgow and Maidenhead. A.M. Best believes strong financial performance is likely in 2004 and 2005 based on a combined ratio in the range 95%-98% and stable investment returns of approximately 4%. At the half-year 2004, Hiscox's combined ratio was 91.1%, compared to the half-year 2003 of 91.8%. The company's risk-adjusted capitalisation is excellent and is likely to remain sufficient to support anticipated of growth of 20% in net premium income between 2003-2005 through retained earnings.

An offsetting factor is the company's persistently high operating expense ratio (five year average of 42.6%), which is partly due to the high overhead costs of employing specialist staff and partly due to high commission rates. A.M. Best is mindful that this ratio improved by 3.5 percentage points to 39.4% in 2003 and believes it is likely to be maintained just below 40% in 2004 and 2005.

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