A.M. Best Affirms Rating of Steamship Mutual.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Oct. 15, 2001

A.M. Best Co. has affirmed the A (Excellent) financial strength rating of Steamship Mutual Underwriting Association Limited, Bermuda, and assigned it a negative outlook.

The negative outlook follows the deterioration in the Club's free reserves in the year to 20 February 2001, and A.M. Best's forecasts for further reductions in the near term. The maintenance of an investment strategy with a relatively high exposure to equities and continued competitive market conditions also merit consideration. Despite these concerns, A.M. Best recognises the Club's position as one of the leading global providers of P&I cover within the International Group, the associated comprehensive reinsurance protection and the benefits associated with its mutual structure.

Poor investment result leads to deterioration in free reserves -- At the end of financial year 2000, the Club's free reserves deteriorated by 26.6% to USD 83.5 million, which equated to a change in the solvency level from 1.5 times to 1.7 times. This was primarily a consequence of unrealised investment losses over the period. More specifically, the Club's results were materially affected by the equity weighting in the portfolio -- 38% -- which contributed an unrealised loss of USD 58.9 million during this time. In response to this, the Club replaced one of its three investment managers. A.M. Best recognises that poor investment performances and the subsequent deterioration in free reserves were features experienced elsewhere in the P&I market during 2000 and further recognises the Club's ability to raise additional capital through off-balance sheet finance and hence, the use of additional calls. However, A.M. Best believes that the continued poor performance of equity markets during 2001 indicates that the bottom line results and financial strength will be once more significantly affected in the current year. A.M. Best forecasts a further deterioration in the Club's free reserves position at the end of 2001 and believes that the Club will be required to increase these reserves in the short-term.

Competitive market conditions persist -- The threat of market share loss and price pressures as a consequence of the entrance of fixed premium providers have been reduced in recent years. However, speculation surrounding further consolidation and demutualisation persists, and the number of Clubs establishing joint ventures in a bid to enter new markets continues to rise. Long-term retention of business is a key focus, and recent competitive conditions have required a number of Clubs, including Steamship, to increase release calls on open years of account. A.M. Best believes the forecast improvement in the rating environment may attract new entrants -- and thus increase competition -- but does not anticipate significant business loss at Steamship after consideration of historical business retention rates and management's focus on high service levels.

Leading market position maintained -- Notwithstanding the pressures arising from investment markets, the Club has maintained its strong position within the International Group. At the end of financial year 2000, the tonnage level was increased, and diversification on both a geographic and vessel-type basis was maintained. Support for the rating was also provided through the extensive reinsurance protection effected by the members of the International Group of P&I Clubs and an additional 10-year aggregate stop loss policy effected by Steamship.

A.M. Best will to continue to have regular discussions with management with a specific focus on plans for growth in free reserves.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.