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 ICR of "a-" of the Society of Lloyd's and the debt rating of "bbb+" 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.

A.M. Best believes that Lloyd's central solvency capital is likely to stay strong through 2006, remaining at a comparable level to year-end 2005 (GBP 1,850 million (USD 3,183 million)), despite an anticipated increase in Central Fund drawdowns from existing insolvent members. A stable overall position is likely to incorporate a significant increase in Central Fund net assets (approximately 25% increase anticipated) as a result of the increase in the contribution rate to 1%, up from 0.5% in 2005. A.M. Best believes there is sufficient tolerance within central assets to withstand a significant stress scenario without threatening the market's solvency. The major catastrophe losses of 2005 have had an impact on earnings and member level capital, driving an increase in Lloyd's balance sheet liabilities in 2005 of 26%, which in turn led to a decline in net resources of nearly 10%. However, the catastrophe losses have not had an impact on central assets, other than a modest impact from members already in run off.

Although Lloyd's is likely to continue to be affected by catastrophe experience, A.M. Best believes that the more extreme performance downside from which Lloyd's suffered in previous cycles has been curtailed as a result of enhanced management of risk and performance. A.M. Best believes that Lloyd's performance in the period 2006 to 2008 is likely to be good, although deterioration is anticipated across this period as a result of weakening in market conditions. A combined ratio of approximately 98% is anticipated in 2006 (subject to full year catastrophe experience), a modest deterioration from 97% in 2004 and considerably better than 112% in 2005. Further ahead, A.M. Best believes that Lloyd's is likely to achieve a combined ratio close to 100% in 2007 and 2008, with performance affected by increasingly competitive market conditions. A.M. Best's forecasts incorporate a substantial allowance for catastrophe losses and some modest prior year deterioration is also assumed, despite the near neutral position for prior years reported at year-end 2005 (release of GBP 14 million (USD 24 million)).

Lloyd's continues to benefit from excellent market access worldwide and a high level of brand recognition. A.M. Best anticipates that for the immediate future, Lloyd's will focus on improving its access to certain key developing markets. It is likely Lloyd's will establish a representative office in India in 2006 and a licensed reinsurance company in China early in 2007. A.M. Best believes that Lloyd's will maintain its strong market position in the United States, particularly the surplus lines market, which remains its leading underwriting territory.

Inherent uncertainty over Equitas' reserve development remains a long-term offsetting factor in A.M. Best's rating analysis, albeit a diminishing one. The importance of the risk of a failure at Equitas has reduced as the level of Equitas' net technical reserves decreases and the potential impact of a severe adverse development becomes less significant, taking into account the relative size of the current Lloyd's trading market.

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.