A.M. Best Downgrades Ratings of The Steamship Mutual Underwriting Association (Bermuda) Limited.

OLDWICK, N.J. -- A.M. Best has downgraded the financial strength rating of The Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship Bermuda or the Club) to B++ (Good) from A- (Excellent) and the issuer credit rating to "bbb+" from "a-". The outlook for both ratings is stable.

These rating actions reflect potential volatility in the Club's risk-adjusted capitalisation, the continuing challenge the Club faces in achieving underwriting profitability and its reliance on investment income. A partially offsetting rating factor is the Club's position as an important member of the International Group of P&I Clubs (the International Group). A.M. Best's analysis is based on stand-alone analysis of Steamship Bermuda as well as combined analysis of Steamship Bermuda, The Steamship Mutual Underwriting Association Limited (Steamship London) and The Steamship Mutual Trust (the Trust).

A.M Best believes that there is a substantial risk that the Club's risk-adjusted capitalisation will deteriorate in the period to February 2009 because Steamship Bermuda is likely to be dependent on investment to achieve a surplus. The Club's risk-adjusted capitalisation is also likely to be affected by increased exposure to reserving risk following higher than anticipated underwriting losses for the 2006-07 financial year stemming from the International Group's pooling agreement. This factor is partially offset by the Club's retention reinsurance, which somewhat reduces the possible impact of reserve deterioration for the 2005 and 2006 years.

In the 2007-08 financial year, a continuation of Steamship Bermuda's weak underwriting performance, driven by strong competition within the protection and indemnity (P&I) market, is likely to prevent a significant strengthening in its risk-adjusted capitalisation. The Club is expected to make a substantial underwriting loss--after administration expenses--at year-end February 2007 of USD 50 million, and A.M. Best anticipates a further loss in 2007-08.

Steamship Bermuda remains an important member of the International Group with an estimated 62 million tonnes of owned and chartered gross entered tonnage at year-end February 2006 (55 million tonnes at year-end 2005). The Club ranks sixth (by free reserves) of the 13 members of the International Group, which provides cover for 90% of worldwide gross shipping tonnage.

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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.