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A.M. Best Affirms Ratings of Lloyd's Syndicates 2623 and 623

OLDWICK, N.J.-(Business Wire)-September 5, 2008 - A.M. Best Co. has affirmed the Best’s Syndicate Ratings of A (Excellent) and the issuer credit ratings of “a+” of Lloyd’s Syndicate 2623 and Lloyd’s Syndicate 623 (United Kingdom). At the same time, A.M. Best has affirmed the ICR of “bbb+” of Beazley Group plc (Beazley) (United Kingdom), the non-operating holding company of the Beazley group of companies, and the debt ratings of “bbb” on the GBP 150 million junior subordinated notes due 2026 and the USD 18 million junior subordinated notes due 2034 issued by Beazley. The outlook on all ratings has been revised to stable from positive, bringing the outlook in line with the outlook on the ratings of Lloyd’s of London.

The ratings reflect the syndicates’ excellent financial flexibility, good prospective operating performance and strong business profile in the London market. An offsetting factor is uncertainty relating to the performance of new, predominately long-tail business written in the local U.S. market, the profitability of which will only be proven over an extended period of time. This uncertainty has been heightened following two key changes to the senior management team, including the departure of the group’s head of specialty lines, and is reflected in the revision of the outlook to stable from positive.

Syndicates 2623 and 623 are managed on a combined syndicate basis by Beazley Furlonge Ltd and underwrite business at Lloyd’s in parallel. Syndicate 2623’s capacity is provided 100% by Beazley, while syndicate 623 is supported by third party capital. For the 2008 underwriting year, capacity for the combined syndicates was reduced to GBP 814 million (USD 1,497 million) from GBP 860 million (USD 1,582 million) in 2007.

In A.M. Best’s opinion, financial flexibility is enhanced by the support of Beazley, which is expected to maintain excellent consolidated risk-adjusted capitalisation in 2008, despite payment of a special dividend of GBP 14 million and completion of a GBP 28.3 million share buyback in the first half of the year. In addition, the syndicates benefit from the financial strength of the Lloyd’s market, which underpins the security of all Lloyd’s syndicates.

On an annually accounted basis, A.M. Best anticipates a solid combined ratio of approximately 90% in 2008, compared with 83% and 82% in 2007 for syndicate 2623 and syndicate 623, respectively. Technical performance is likely to be supported by positive prior year reserve development and Beazley’s focus on prudent cycle management. As market conditions deteriorate, the syndicates’ strong business profile in the London market, particularly within the specialty lines market, is likely to provide some protection against price-led competition. A fall in investment income is anticipated, owing to disruption in the credit and equity markets during the first half of the year.

In response to accelerating rate decreases, the syndicates are expected to cut back on large scale U.S. risks written in the London market in 2008. The reduction in premium income is likely to be offset by an increase in smaller, less volatile U.S. risks, written locally through Beazley’s managing agent, Beazley USA Services Inc (BUSA), and a quota share reinsurance agreement currently in place with the group’s admitted carrier, Beazley Insurance Company Inc (BICI). Although this business is expected to reduce the syndicates’ dependence upon large scale risks written at Lloyd’s, A.M. Best believes the profitability of new, predominately long-tail business and the effectiveness of the overall strategy will not be demonstrated for some time.

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

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