A.M. Best Conference Call re Changes to Catastrophe Stress Test 04/13/06

Jan 10, 2007

On April 12, 2006, a conference call was held by A.M. Best regarding changes that have been made to its Catastrophe Stress Test (the “Test”). The Test allows A.M. Best to evaluate insurers’ financial strength to reflect their ability to manage potential catastrophic losses.

Matthew Mosher, A.M. Best’s Vice President in Property & Casualty Ratings, led the call and described some of the changes as follows:

A reduction in the level of reinsurance recoverables included in Best’s Capital Adequacy Ratio (“BCAR”) from 100% to 80%;

A reduction in the net loss reserves included in BCAR from 100% to 80%;

Regarding companies with terrorism exposure, A.M. Best will now apply a stress test based on modeled loss output or 50% of the largest aggregate exposure based on Best’s Supplemental Rating Questionnaire or other similar requests for information. Previously, A.M. Best utilized a 75% loss exposure factor. Note, however, that the percentage assumed may vary dependent upon the composition of risks insured – i.e., a high rise building is subject to greater risks as opposed to a campus layout.

Mr. Mosher indicated that these benchmarks are subject to each individual company’s circumstances.

There was also discussion that the application of modifications to the Stress Test would result in lower capital requirements. As a result of the modifications, a company’s stressed BCAR score can now be 30 points below the score normally required to support the standalone group / company rating as compared to the 15-point allowance which previously applied.

A.M. Best has also revised its criteria relating to the characteristics of strong management to include the following:

Proper coding of loss exposure

Monitoring of aggregate loss exposure

Use of other modeling tools

Establishing specific aggregate limits

Consideration of potential loss scenarios beyond simple modeling output

Use of catastrophe management tools as part of the overall risk management program

Integration of catastrophe management controls into the underwriting process

Clear articulation of the controls management has implemented.

For further information regarding A.M. Best’s methodology for catastrophe analysis, please see the attached article here or visit www.ambest.com/ratings/methodology.asp.Should you have any questions or concerns, please do not hesitate to contact Colodny Fass.