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02 January 2003

Moody's Reports that Lloyd's Central Fund Financial Strength has improved in 2002.
The minimum security offered by the weakest Lloyd's of London syndicates via Lloyd's Central Fund has improved materially in 2002 but, going forward, will likely be dependent on Lloyd's ability to attract and retain businesses through the next downcycle, Moody's Investors Service says in a new Special Comment.

"The improvement is down to the fact that the exposure to further material losses on the risks written on weaker terms and conditions and with larger aggregates prior to 11 September 2001 has now run off," says Robert Smith, Vice-President / Senior Analyst and author of the report. The run-off of the 2001 aggregates had been Moody's main concern with regard to financial strength at Lloyd's in 2002, Smith adds.

This is despite Lloyd's having only passed solvency on an individual
member basis at 31 December 2001 by including both the Central Fund's
Stop Loss insurance cover and 3% callable levy that Lloyd's can impose without recourse to a General Meeting, Moody's note.

"Conditions for Lloyd's syndicates are currently exceptional and at a
level not seen since 1993 and 1994, thanks to an environment in which
investment returns are low and with Lloyd's competitors retrenching due to material adverse reserve developments," says Smith. This offers the prospect of good profits in the immediate future, and the potential for a sustained upturn given that investment returns are anticipated to remain low for some time.

The current conditions should help offset the not insignificant remaining exposures, which encompass potential bad debt on the substantial reinsurance recoverables amount of GBP15 billion, likely deterioration on the 2001 and prior years of account, and a possible reduction in Central Fund resources in future years, the report notes. In this regard, Moody's loss forecasts for the open years are currently GBP1.2 billion greater than those forecast by Lloyd's itself.

In the medium-term, the minimum security offered by the weakest Lloyd's syndicates is likely to be dependent on Lloyd's ability to attract and retain businesses through the next downcycle, at a time when many of the current entities will have attained a size where they will be able to transfer outside Lloyd's. The report - entitled "Lloyd's of London: Central Fund Financial Strength Has Improved Materially in 2002 But Medium-Term Issues Remain" - explains that, against a background of significant structural change at Lloyd's, Moody's considers that a prudent approach should be adopted with regard to the ongoing minimum security offered by Lloyd's Central Fund.