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Announcement:

Moody's affirms Novae Lloyd's Syndicate 2007's A2 IFSR

03 Sep 2010

Outlook remains stable

London, 03 September 2010 -- Moody's Investors Service (Moody's) today affirmed the A2 Insurance Financial Strength Rating (IFSR) of Lloyd's Syndicate 2007 - Novae Syndicates Limited and the Ba1 Novae Group Plc subordinated debt rating, both with a stable outlook. The affirmation reflects both the ongoing stability of Novae's underlying business and the aggregate financial position of the Central Resources of the Lloyd's of London insurance market (Lloyd's).

Novae Syndicate 2007 operates in the Lloyd's of London insurance market and is (from 2010 onwards) entirely backed by Novae Group plc. Moody's stated that the A2 IFSR on Syndicate 2007 reflects its franchise as a leading syndicate within its core business areas in the Lloyd's market and its very good business diversification. This is offset by Novae's (including run-off entities) significant gross underwriting leverage (gross premiums written and gross loss reserves relative to shareholders' equity adjusted for high risk assets) and the impact of historical reserving adjustments on its ongoing business' profitability, albeit that these factors are mitigated by the decreasing level of adverse reserve adjustments and reinsurance recoverables in more recent years and the overall quality of the reinsurance recoverables.

Novae Group plc, whose main operating subsidiary is its Lloyd's operation has recently reported interim 2010 results of a post-tax profit of GBP10.8m (H1 2009: loss of GBP10.5m, although the improvement in 2010 was largely driven by a notional foreign exchange swing on non-monetary items of nearly GBP18m), and net assets of GBP319m (YE 2009: GBP314m). Novae also announced in late 2009 that Novae Insurance Company Limited's (NICL) business has been renewed into Syndicate 2007, effective 1 January 2010.

Novae also recently announced the creation of Novae Re, a reinsurance business to underwrite in both London and Zurich, a move which Moody's considers will further diversify the Group's underwriting risk as the business becomes more established.

As a business operating within Lloyd's, Novae Syndicate 2007 benefits from the Lloyd's franchise and the Central Resources underpinning the limited mutuality of the market. Moody's elaborated that its rating policy for individual syndicate ratings was to evaluate syndicates on a stand-alone basis and then consider the extent of Central Resources, including the Lloyd's Central Fund, to provide enhancement to individual syndicate ratings, with potential access to Central Resources being considered as a positive factor in the ratings.

Moody's stated that Lloyd's overall aggregate financial position had been steadily improving since 2001, with Central Resources also steadily improving. Lloyd's on an aggregate, proforma basis delivered an excellent return on average equity of 24% for 2009, on an annually accounted basis, with its 5 year average return on average equity being almost 20%, despite the inclusion of the 2005 hurricane season. Unencumbered Central Resources, net of losses from run-off members, are estimated at 13% of GPW at 31 December 2009 compared to circa 5% of GPW at 31 December 2003, a significant improvement in Moody's opinion.

In the same rating action, Moody's affirmed the Ba1 rating on Novae Group plc's GBP100m subordinated notes due 2017, although as at year end 2009 and following debt buybacks, the outstanding balance was GBP69.1m. Moody's said that the Ba1 subordinated debt rating had a stable outlook, reflecting Moody's view of the Group's stand-alone credit quality. Whilst the Lloyd's Central Fund potentially provides support to Lloyd's policyholders, it does not afford the same protection to bondholders and thus the Ba1 debt rating reflects Moody's standard practice for notching European insurance companies.

Commenting on what could lead to a future positive rating action, Moody's noted that this would likely be driven by some combination of improvements in Lloyd's overall financial aggregate position and improvements in Novae's underlying business. Specifically, positive rating action could occur if Novae consistently delivered cross-cycle returns on average capital of at least 7%, if reinsurance recoverables remained consistently below 125% of equity and if financial leverage was consistently below 25%.

Conversely, Moody's noted that negative rating action would be triggered by a meaningful deterioration in Lloyd's financial position and/or if Novae produced annual returns on capital below 5%, if Novae's leverage exceeded 35% or if gross underwriting leverage exceeded 6x.

The following ratings were affirmed with a stable outlook:

Lloyd's Syndicate 2007: A2 Insurance financial strength rating

Novae Group Plc: Ba1 subordinated debt rating

Moody's most recent rating action on Lloyd's Syndicate 2007, Novae Group plc's principal insurance operation, was on 17 September 2007, when the rating agency upgraded the syndicate's insurance financial strength rating to A2, stable outlook and affirmed the Ba1 subordinated debt rating.

Novae Syndicate 2007 is a leading Non-Marine orientated syndicate backed 100% by Novae Group plc for the 2010 Year of Account, which operates in the Lloyd's of London insurance market.

The principal methodology used in rating Novae was Moody's Global Rating Methodology for Property and Casualty Insurers, published in May 2010 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

London
David Masters
Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Simon Harris
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
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Moody's affirms Novae Lloyd's Syndicate 2007's A2 IFSR
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