A.M. Best Upgrades Ratings of Hatherley Insurance Ltd.

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has upgraded the financial strength rating to A (Excellent) from A- (Excellent) and issuer credit rating to “a” from “a-” of Hatherley Insurance Ltd. (Hatherley) (Hamilton, Bermuda). The outlook for both ratings is stable.

The ratings reflect Hatherley’s strong risk-adjusted capitalization, excellent liquidity and conservative operating strategy. The ratings also consider the company’s important role within JPMorgan Chase & Co (JPMorgan Chase), a leading global financial services group, as a single parent captive for the group’s casualty insurance programs. As part of JPMorgan Chase, Hatherley also benefits from the group’s extensive risk management and business continuity programs, as well as its substantial financial flexibility. Partially offsetting these positive rating factors are Hatherley’s variable operating results in recent years.

Hatherley is well capitalized as reflected in its moderate underwriting leverage and excellent risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR). Hatherley’s exposure to large losses is manageable as its highest loss per occurrence is capped. The company also has excellent liquidity, with a large cash position and assets mostly invested in short-term fixed deposits. Hatherley’s surplus was boosted by exceptional retained earnings in 2006, related in part to a loss portfolio transfer (LPT) following JPMorgan Chase’s merger with the former Bank One. In 2005, Hatherley assumed a portfolio of risks from a former Bank One captive, and the reserves from the LPT have developed favorably since then, allowing Hatherley to benefit from reserve releases. Additionally, effective May 30, 2008, Bear Stearns’ companies were added to Hatherley’s programs.

Hatherley’s operating performance has been variable but favorable on a five-year average basis. The company’s losses in 2004 and 2005 were largely attributable to exceptional items. In those years, Hatherley significantly increased its incurred but not reported reserves due to conservatism associated with the Bank One merger and a large LPT. In 2004, the company also recognized a large asset impairment charge from an unquoted investment. Nevertheless, as reserve development has been more favorable than anticipated, Hatherley released some reserves in 2006 and recorded exceptional earnings. JPMorgan Chase has observed a significant improvement in loss patterns since the merger due to the better risk diversification and profile of exposures, as well as improved claims management by JPMorgan Chase and its third-party administrator. A.M. Best expects Hatherley to continue to register strong earnings.

A.M. Best remains the leading rating agency of captive insurers rating a wide variety of more than 200 captives in the United States and throughout the world.

For current Best’s Credit Ratings and independent data on the captive and alternative insurance market, please visit www.ambest.com/captive.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

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.

A.M. Best Co.
Analysts
Fred Eslami, 908-439-2200, ext. 5406
[email protected]
or
Steven Chirico, CPA, 908-439-2200, ext. 5087
[email protected]
or
Public Relations
Rachelle Morrow,908-439-2200, ext. 5378
[email protected]
or
Jim Peavy,908-439-2200, ext. 5644
[email protected]

Source: A.M. Best Co.