A.M. Best Assigns Ratings to Hatherley Insurance Ltd.

OLDWICK, N.J. -- A.M. Best Co. has assigned a financial strength rating of A- (Excellent) and an issuer credit rating of "a-" to Hatherley Insurance Ltd (Hatherley) (Bermuda). The outlook for both ratings is stable.

These ratings reflect Hatherley's strong risk-adjusted capitalization, excellent liquidity and conservative operating strategy. The ratings also consider Hatherley's important role within JPMorgan Chase & Co. (NYSE: JPM), a leading global financial services group, as a single parent captive for the group's casualty insurance programs. Hatherley also benefits from JPMorgan Chase & Co.'s extensive risk management and business continuity programs, as well as its substantial financial flexibility. Partially offsetting these positive rating factors are Hatherley's variable operating results in recent years.

The company is well capitalized as reflected in its moderate underwriting leverage and excellent risk-adjusted capitalization as measured by Best's Capital Adequacy Ratio (BCAR). Hatherley's exposure to large losses is manageable as its highest loss per occurrence is capped. The company also has excellent liquidity with a large cash position and assets mostly invested in short-term fixed deposits. Hatherley's surplus was boosted by exceptional retained earnings in 2006, related in part to a loss portfolio transfer (LPT) following JPMorgan Chase & Co.'s merger with Bank One. Specifically, in 2005, Hatherley assumed a portfolio of risks from a former Bank One captive, and the reserves from the LPT have developed favorably since then, allowing Hatherley to benefit from reserve releases.

Hatherley's operating performance has been variable but is favorable on a five-year average basis. The company's losses in 2004 and 2005 are largely attributable to exceptional items. In those years, the company significantly increased its incurred but not reported (IBNR) loss reserves due to conservatism associated with the Bank One merger and the large LPT. In 2004, Hatherley also recognized a large asset impairment charge from an unquoted investment. Nevertheless, as reserve development has been more favorable than anticipated, the company released some reserves in 2006 and recorded exceptional earnings. JPMorgan Chase & Co. has observed a significant improvement in loss patterns since the merger due to the better risk diversification and profile of exposures, as well as improved claims management by JPMorgan Chase & Co. and its third party administrator. A.M. Best expects Hatherley to continue to register strong earnings in 2007.

For current Best's Ratings and independent data on the captive and alternative insurance market, please visit www.ambest.com/captive.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and healthcare service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.