A.M. Best Affirms Rating of Zurich Specialties London Limited.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Apr. 23, 2002

A.M. Best Co. has affirmed the A (Excellent) financial strength rating of Zurich Specialties London Limited (ZSL). The rating reflects the company's strategic importance to Zurich Financial Services (ZFS), which is rated A+ (Superior). It also factors ZSL's excellent capital position, good operating performance and excellent business profile in specialist insurance sectors. Offsetting these factors is ZSL's heavy reliance upon outwards reinsurance.

Strategic importance to ZFS--A.M. Best regards ZSL as strategically important to its ultimate parent (ZFS) and believes it plays a key role within the group. Further, the company benefits from a multi-year stop-loss arrangement provided by Zurich Insurance Company.

Excellent capitalisation--ZSL's capitalisation is excellent according to A.M. Best's risk-adjusted capital model with a capital adequacy level of 149% at year-end 2001. Prospectively, capital adequacy is likely to remain supportive of the company's current rating level. The company's current liquidity ratio is very low (45% at year-end 2001). However, this is somewhat offset by the high proportion (approximately 70%) of premium ceded to ZFS group companies, which are unlikely to delay claim payments.

Good operating performance--Despite the 93% deterioration in operating profits in 2001 to GBP 1.5 million--mainly attributed to its WTC net loss (GBP 9.4 million)--ZSL maintains a good operating performance. Traditionally, ZSL has relied on its investment returns (five-year average of 8.5%) to smooth its deteriorating underwriting performance (five-year average combined ratio of 121.3%). However, A.M. Best expects an improvement in ZSL's underwriting results, likely to lead to a 15%-20% reduction in the combined ratio in 2002 (the combined ratio in 2001 was 130.6%). The company's five-year average return on equity was excellent at 10.7%.

Excellent business profile--As part of the Zurich London trading platform, ZSL has developed its business position as an underwriter of specialist insurance risks in London. A.M. Best believes that the company benefits from the Zurich brand and from the recent market withdrawals. A.M. Best projects compound net written premium annual growth of 6.5% to 2004 (GBP 128.3 million in 2001).

Reliance on outwards reinsurance--ZSL operates with a low net retention with 65% of premium ceded in 2001, unlikely to be altered in the foreseeable future. Approximately 70% of this volume was ceded to companies within the group.

Expectations:

-- ZSL is likely to remain a strategically important affiliate in the ZFS group
and maintain its leading position as underwriter of specialist risks in the
London market.

-- The company is likely to maintain its risk-adjusted capitalisation at the
current level or above.

-- A.M. Best's forecast for retained earnings during 2002-2004 indicates
sufficient growth in capitalisation to support these business volumes.

-- A significant improvement in operating performance will be achieved through
stronger underwriting and continued solid investment returns.

-- A high proportion of outwards reinsurance protection will continue to be
provided by other companies within the group.

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.