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November 14, 2008

Standard & Poors lowers UK Club ratings

On November 12, Standard & Poor's Ratings Services said that it had lowered its ratings on the UK P&I Club--The United Kingdom Mutual Steamship Assurance Association (Bermuda) Ltd.

The news followed a November 10 announcement by rating agency A.M. Best Co. that it had placed the financial strength rating of A- (Excellent) and issuer credit rating of "a-" of another International Group member, The West of England Ship Owners Mutual Insurance Association (Luxembourg) (WOE), under review with negative implications.

Standard & Poors said it had lowered to 'A-' from 'A' its long-term counterparty credit and insurer financial strength ratings on the U.K. Club, noting that the outlook is stable.

Standard & Poor's said the downgrade reflects the deterioration in the U.K. Club's prospective financial flexibility and competitive position, which have historically underpinned its ratings. This follows the club's announcement on Nov. 4, 2008, that it will levy unbudgeted supplementary calls on its members as a result of weak underwriting performance.

The agency said its revised ratings "reflect the club's weakened, but strong competitive position and strong prospective capitalization. These factors are partly offset by the club's poor operating performance which, to some extent, is caused by its concentration on an insurance class where claims size and frequency are unpredictable."

The stable outlook reflects Standard & Poor's view that the club will maintain its competitive position and capital adequacy at a strong level. In addition, the club's financial flexibility is expected to remain in line with its current ratings.

"A material deterioration in the club's competitive position through the loss of a significant number of high-quality members or further deterioration in the club's financial flexibility, should it need to make further unbudgeted calls when similarly rated peers do not, will place downward pressure on its ratings," said Standard & Poor's. "Equally, a further deterioration in the club's operating performance to a level that reduces its capital adequacy to a level below its current ratings will also place pressure on the ratings."

Standard & Poor's said that "a positive rating action is regarded as unlikely over the rating horizon."


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