A.M. Best Affirms Ratings of Lloyd's of London.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit rating (ICR) of 'a' of Lloyd's of London (Lloyd's). At the same time, A.M. Best has affirmed the 'a-' ICR of the Society of Lloyd's and the 'bbb+' rating of subordinated loan notes issued in two tranches in November 2004 as follows: 6.875% subordinated notes of GBP 300 million maturing 17 November 2025 and 5.625% subordinated notes of EUR 300 million maturing 17 November 2024. The outlook for all ratings remains stable.

The ratings reflect Lloyd's strong prospective capitalisation both with respect to Funds at Lloyd's and central solvency capital (including the net assets of the Corporation of Lloyd's, the Central Fund, Lloyd's subordinated debt issue and the callable layer). The ratings also reflect excellent anticipated operating performance and Lloyd's strong business profile. A partially offsetting factor continues to be Lloyd's exposure to long-term uncertainty relating to the adequacy of Equitas' reserves.

Strong prospective capitalisation--A.M. Best believes the absolute level of central solvency capital is likely to remain strong, increasing to approximately GBP 1.7 billion (USD 3 billion) by year-end 2008 (although below A.M. Best's earlier estimate of GBP 2 billion (USD 3.5 billion)). The increase is likely to be achieved despite the March 2005 settlement with the

Central Fund insurers, which reduced the net assets of the Central Fund by GBP 324 million (USD 566 million), offset by a related tax credit of GBP 97 million (USD 169 million). In addition, A.M. Best believes that implementation of the Individual Capital Adequacy Standards (ICAS) regime by the UK regulator, the Financial Services Authority (FSA), is likely to lead to capital requirements for members that more closely match the risks to which the members are exposed, effectively reducing the exposure of Lloyd's central assets. Over the next two years, A.M. Best anticipates further reductions in Lloyd's capacity to reflect reduced underwriting opportunities in a softening market, following an 8.7% decrease to GBP 13.7 billion (USD 23.9 billion) in 2005.

Excellent operating performance--A.M. Best believes that Lloyd's open year performance is likely to be excellent, with a pure year result after personal expenses of above GBP 2 billion (USD 3.5 billion) anticipated for 2003 and of approximately GBP 1 billion (USD 1.7 billion) for 2004. In 2005, on an annually accounted basis, A.M. Best believes the offsetting impact of softening in rates for Lloyd's specialist classes of business and a return to normal catastrophe experience are likely to lead to a comparable combined ratio to the 2004 level of 96.8% and a profit before tax of approximately GBP 1.4 billion (USD 2.4 billion). A.M. Best believes a combined ratio of approximately 100% is likely in 2006, reflecting further deterioration in loss ratios as rates reduce further.

Strong business profile--Lloyd's continues to benefit from its global network of licenses and a high level of recognition of its brand. In 2005, A.M. Best anticipates that Lloyd's will consolidate its position in continental European markets following a period of rapid growth between 2001 and 2003, facilitated by the restricted availability of capacity in domestic markets.

Lloyd's is expected to maintain its strong market position in the United States, particularly the surplus lines market, which remains its leading underwriting territory.

Equitas--Uncertainty as to the adequacy of Equitas' reserves continues to be a long term factor in the Lloyd's rating. In the absence of a major legislative change that effectively crystallises Equitas' losses early, A.M. Best believes it is likely to be some years before it is possible to determine whether Equitas can run-off its liabilities. Asbestos and pollution issues affecting Equitas are monitored carefully.

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 http://www.ambest.com.