A.M. Best Downgrades Ratings of Allied World Assurance and Its Subsidiaries; All Ratings Under Review With Negative Implications.

OLDWICK, N.J. -- A.M. Best Co. has downgraded the financial strength rating (FSR) to A (Excellent) from A+ (Superior) of Allied World Assurance Company, Ltd (AWAC) (Hamilton, Bermuda) and its affiliated subsidiaries. A.M. Best has also downgraded the issuer credit ratings (ICR) to "a" from "aa-" of AWAC and its subsidiary, Allied World Assurance Company (Reinsurance) Limited. Concurrently, A.M. Best has assigned ICRs of "a" to AWAC's remaining affiliated subsidiaries. All ratings are under review with negative implications.

These rating actions are attributable to several factors affecting AWAC including the reduced level of strategic benefits provided from its original sponsor, American International Group (AIG) (New York, NY). These strategic benefits, which originally provided access to underwriting expertise, U.S. distribution channels and certain support functions, resulted in AWAC's enhanced entry into the market and were significant considerations in providing AWAC with a rating lift into the Superior range.

AWAC is finalizing its transition away from AIG and developing its own independent support systems and U.S. distribution platforms. This process also includes termination of business agreements with AIG and its affiliates, which originally provided access to U.S. distribution and other services. While A.M. Best believes that AWAC's transition will be successful, it does present a level of execution risk until fully completed.

These rating actions also reflect AWAC's anticipated capital action plan, which is expected to be completed in early 2006. The capital plan is projected to return AWAC to its pre 2005 hurricane season risk-based capital level and is also expected to include additional forms of capital not currently held by the company or its parent, Allied World Assurance Holdings Ltd. This change in capital structure will require additional levels of future earnings to be allocated to the capital costs.

A.M. Best believes that AWAC will continue to produce excellent operating results through its prudent underwriting strategy. Following the completion of its capital action plan, risk-based capital is expected to be fully supportive of its new rating status. However, the ratings will remain under review with negative implications pending the successful completion of AWAC's capital plan.

The FSR and ICRs have been downgraded to A (Excellent) from of A+ (Superior) and to "a" from "aa-", respectively, for Allied World Assurance Company, Ltd and its subsidiary, Allied World Assurance Company (Reinsurance) Limited.

The FSR has been downgraded to A (Excellent) from of A+ (Superior) and ICRs of "a" have been assigned to the following operating subsidiaries of Allied World Assurance Company, Ltd:

--Allied World Assurance (US) Inc.

--Newmarket Underwriters Insurance Company

--Allied World Assurance Company (Europe) Limited

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