Lloyd's Syndicate 0260 -- Moody's Analytics places the B- (Below Average) Continuity Opinion of Lloyd's Syndicate 0260 under review for possible downgrade

London (1) London New York Robert S. Smith Allerton G. Smith Director Senior Director Moody's Analytics UK - Insurance Capital Markets Research Group Moody's Analytics Moody's Analytics JOURNALISTS: 44 20 7772 5456 JOURNALISTS: 212-553-0376 SUBSCRIBERS: 44 20 7772 5454 SUBSCRIBERS: 212-553-1653 Moody’s Analytics places the B- (Below Average) Continuity Opinion of Lloyd’s Syndicate 0260 under review for possible downgrade. LONDON, 3rd October 2013 – Moody's Analytics (Moody’s) today placed the B- (Below Average), stable outlook, Continuity Opinion of Lloyd's syndicate 0260 (Canopius Managing Agents Limited) under review for possible downgrade in light of the announcement that there is potential uncertainty over the syndicate trading forward for 2014. The syndicate, 92% backed by Canopius Group Ltd and with a 2013 capacity of £70m, writes a specialist Motor account. In a recently released auction announcement, Canopius stated that Lloyd’s had indicated that its decision concerning the syndicate’s trading for the 2014 year of account, the approval of its Syndicate Business Forecast (SBF) and any conditions with regard to that, would not be advised until later in October 2013. Canopius acquired the operation in June 2010 and have been re- underwriting the account, although the open year, 3-year account forecasts for the 2011 and 2012 accounts are currently forecast to be loss-making, with mid-point losses of respectively 7% and 5% of capacity currently forecast. The current 2014 proposed SBF, which has yet to be approved by Lloyd’s, is for a loss of 5% of capacity. Canopius had sought to acquire the remaining capacity on the syndicate earlier this year and had intended to merge syndicate 260’s business into Canopius managed syndicates 958 and 4444, which write business in parallel, subject to Lloyd’s approval. However, with the offer not being accepted by some of the remaining third party members, the syndicate was due to trade forward as a stand-alone syndicate for 2014. The latest auction announcement has now raised some uncertainty over the syndicate trading forward for 2014. However, with Canopius having confirmed its commitment to syndicate 260’s business, Moody’s commented that in terms of continuity of business relationships, it considered the likelihood of the business being placed into run-off at the end of 2013 as limited, with it more likely that the syndicate would eventually be merged into syndicates 958 and 4444. With regard to potential future returns for investors participating on syndicate 260, Moody’s stated that, should the syndicate be merged into syndicates 958 and 4444, it expected that a risk premium in terms of syndicate 260’s RITC was likely to apply, with the potential for returns for investors to be more in line with benchmarks for the C+ (Below Average) peer group, albeit that any such risk premium was likely to be significantly less than might apply were the syndicate’s business be placed into run-off. In terms of reported annual results since the Canopius acquisition, the syndicate recorded a loss of 7% NPE on an annually accounted basis for 2012 on a combined ratio of 112% (including forex) at 31.12.12, having recorded a loss of 23% NPE for 2011 on a combined ratio of 123%, with 2-year average results currently being in line with C+ / B- continuity opinion benchmark returns in terms of indicative average annual returns on capital. With Canopius having confirmed its commitment to syndicate 260’s business, improvement in the syndicate’s returns since the Canopius acquisition and with more recent results more in line with B- (Below Average) benchmarks, but with some uncertainty over the syndicate trading forward for 2014 and whether constraints might apply to its business plan for 2014, Moody’s has therefore placed syndicate 260’s B+^ (Above Average) Continuity Opinion under review for possible downgrade, reflecting Moody’s view of relative performance and continuity prospects for the syndicate over the insurance cycle. Moody’s stated that the review for possible downgrade would primarily focus on any additional developments concerning Canopius’ commitment to the syndicate’s business and any revisions and conditions related to the business’ revised SBF, with the ultimate focus of the review related to Moody’s view of relative continuity prospects for policyholders in respect of syndicate 260’s business, whether on a stand-alone basis or within syndicates 958 and 4444. The last action was in December 2010 when the syndicate’s C+ (Below Average), under review direction uncertain, Continuity Opinion was revised to B- (Below Average), stable outlook. Canopius Syndicate 260 is a Motor syndicate, backed 92% by Canopius Group Ltd, which operates within the Lloyds of London insurance market. * * * © Copyright 2013 Moody’s Analytics, Inc. and/or its licensors and affiliates (collectively, “MOODY’S”). All rights reserved. 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