Chartis US’ risk-adjusted capitalization declined slightly in 2012, primarily as a result of losses related to Superstorm Sandy. These losses were partially offset by a $1 billion capital contribution and lower net written premiums and loss reserves. The resulting level of risk-adjusted capitalization is well-supportive of the ratings.The group has remained a leading provider of global commercial lines insurance products, with an operating scope that remains a key differentiator in its ability to provide products and services that meet the needs of global and local insurers. Net written premiums continued to decline in 2012, primarily as a result of underwriting actions. Premium and customer retentions improved and favorable pricing actions begun in 2011 continued at an accelerated pace. Further increases in rate levels are expected in 2013, although rate changes may be of a lesser magnitude. However, despite these actions, underwriting results remain under pressure, primarily as a result of losses due to catastrophe and weather events. Loss reserve movements have been more modest in recent years, following a $5.2 billion increase in loss reserves recorded in 2010. The transfer of Chartis US’ outstanding asbestos reserves to National Indemnity Company (Omaha, NE) in 2011 has further stabilized reserves. A.M. Best’s estimated deficiency of the group’s reserves has declined as a result of these actions, but it is A.M. Best’s expectation that reserves will continue to develop adversely over the near-to-mid term. The ratings for the members of Lexington (the pool) recognize its supportive level of risk-adjusted capitalization, favorable development of prior years’ loss reserves over a number of years, consistent generation of positive pre-tax operating and net income (even in years with significant catastrophe losses) and its position as the largest excess and surplus writer in the U.S. market. Offsetting factors include the effects of soft market conditions and catastrophe and weather-related events on recent underwriting results and the long-tailed nature of its excess casualty writings. The stable outlook is based on A.M. Best’s expectation that favorable operating results will continue to drive supportive levels of risk-adjusted capitalization despite variability of underwriting results.