A.M. Best Affirms Ratings of Catlin Group Ltd; Outlook is Negative.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength ratings of A (Excellent) and the issuer credit ratings of "a" of Catlin Insurance Company Ltd (CICL) (Bermuda) and Catlin Insurance Company (UK) Ltd (Catlin UK). Concurrently, A.M. Best has affirmed the debt rating of "bbb" of CICL's USD 600 million preferred stock. A.M. Best has also affirmed the issuer credit rating of "bbb" of Catlin Group Limited (CGL) (Bermuda), the ultimate parent company of CICL and Catlin UK. These rating actions remove the under review status of the ratings of CICL, Catlin UK and CGL originally applied in October 2006 as a result of concerns relating to the level of CGL's consolidated catastrophe exposure and the likely future impact of major events on risk-adjusted capitalisation. The outlook for all these ratings is negative.

At the same time, A.M. Best has affirmed the issuer credit rating of "bbb" of Wellington Underwriting plc (Wellington) (United Kingdom)--a subsidiary of CGL--and the debt ratings of "bbb-" of Wellington's USD 27 million and EUR 7 million subordinated notes. The outlook for these ratings has been revised to negative from stable.

The ratings of CICL reflect the company's excellent risk-adjusted capitalisation, excellent financial performance and strengthened profile. As a result of its analysis, A.M. Best is satisfied that CGL's consolidated risk-adjusted capitalisation following its acquisition of Wellington is sufficiently strong to absorb the impact of likely future major catastrophe events. However, the negative outlook reflects CGL's continued exposure to integration risks following CGL's acquisition of Wellington. The ratings of Catlin UK reflect explicit support from its parent, CICL.

In A.M. Best's opinion, CICL's risk-adjusted capitalisation remains excellent following CGL's acquisition of Wellington. CICL is the repository for the greater part of the Catlin group's capital as well as its underwriting risk, largely through intra-group quota share agreements. As such, CICL will assume the majority of the group's increased exposure following the Wellington acquisition. However, A.M. Best believes that an anticipated increase in CICL's capital and the addition in January 2007 of USD 600 million from CICL's preferred stock issue is sufficient--in A.M. Best's risk-adjusted analysis--to offset this increase. CICL provides funds for Lloyd's Syndicate 2003's funds at Lloyd's through the corporate members of the syndicate.

CICL is expected to continue to produce excellent technical results in 2007 with a combined ratio of approximately 80%-85%. This is an increase over its combined ratio in 2006 of 72%, reflecting softening in rates and a higher allowance for catastrophe losses than actually experienced in 2006. The company's low combined ratios are partly due to low underwriting expenses, achieved because much of its business derives from reinsuring Catlin UK and Lloyd's Syndicate 2003, which is managed by Catlin Underwriting Agencies Ltd.

While A.M. Best believes that CICL's business profile was enhanced by the purchase of Wellington by CGL, there is nevertheless substantive integration risk arising from the purchase, which may make it difficult for CGL to fully realise the value of its investment. After the purchase of Wellington, intangible assets (including goodwill) on CGL's balance sheet increased to USD 868 million at year-end 2006 from USD 64 million the previous year, partly due to recognition of the value of Lloyd's Syndicate 2020's capacity at Lloyd's purchased from individual Names. Lloyd's Syndicate 2020 is managed by Wellington Underwriting Agencies Ltd.

CICL provides explicit support to Catlin UK in the form of a 60% quota share treaty. An implicit supporting factor also reflected in Catlin UK's rating is the integral part that it plays in the Catlin group's strategy, with the company accounting for approximately 15% of CGL's anticipated gross premium income in 2007 (up from 11% in 2006). Additionally, Catlin UK shares common management and systems with CICL.

Founded in 1899, A.M. Best Company is a full-service credit rating organization dedicated to serving the financial services industries, including the banking and insurance sectors. For more information, visit www.ambest.com.