Best Affirms FSR for Heddington

January 12, 2006

A.M. Best Co. has affirmed the financial strength rating of A (Excellent) of Heddington Insurance (U.K.) Limited (HUK) (United Kingdom), a captive company of Chevron Corporation, and assigned an issuer credit rating of “a+”. The outlook on both ratings is stable.

The ratings reflect HUK’s excellent prospective risk-adjusted capitalization and improving profitability. HUK benefits from substantial reinsurance support from its immediate parent, Heddington Insurance Ltd. (HIL), in the form of an 80% quota share of business written, reflecting HUK’s importance within the group. An offsetting factor is the company’s volatile business portfolio.

A.M. Best believes that HUK’s book of business is likely to significantly reduce in 2006, with net premium income likely to decline by approximately 50%-60% (compared to the anticipated level of USD 11 million in 2005), reflecting a volatile business profile. The expected decrease in premium income emanates from the likely change in business allocation within the group captives.

In A.M. Best’s opinion, the company’s prospective risk-adjusted capitalization is likely to remain excellent over the next two years, factoring full earnings retention and the lower risk-adjusted capital requirements to support both declining levels of net premium income and, consequently, net loss reserves. HUK’s net risk exposure is deemed to be low given the excellent reinsurance program with HIL.

A.M. Best believes that HUK’s profitability levels are likely to improve over the next two years as a result of modest anticipated underwriting profits driven by a forecasted benign claims experience. This is likely to lead to net reserves release within the range of USD 500,000-700,000 despite an expected increase to approximately 115% of the already high expense ratio (95.4% in 2004).

Over the same period, net profits are expected to improve to approximately USD 2 million (compared to a loss of USD 1.1 million in 2004) and lead to an increase of the return on equity to approximately 3% (compared to -2.5% in 2004).