Moody's reviews Atrium for downgrade after acquisition

Moody's has placed the A Very Good performance rating of syndicate 609 Atrium Underwriters under review for possible downgrade.

This is in light of Moody's view of the potential execution risks involved with the proposed merger of the agency's holding company, Atrium Underwriting with Ariel and the announcement that syndicate 609's underwriter will be retiring at the end of this year.

Atrium announced an agreement to the terms of a recommended offer on July 20, whereby Ariel will acquire Atrium subject to regulatory approval. As part of the deal, Atrium management will subscribe for £4.5m of the combined company.

At the same time, Atrium also announced that Christine Dandridge, underwriter of syndicate 609, had decided to take early retirement at the end of 2007 and that Richard Harries, previously energy underwriter, would become the named underwriter of syndicate 609.

Atrium syndicate 609 is a composite syndicate with a capacity of £216m that is backed 26% by Atrium Underwriting with the balance of the syndicate's capacity supported by third party capital for 2007.

Moody's believes that the proposed acquisition of Atrium by Ariel is likely to be positive in terms of additional resource for the Atrium operations and the strategic development of the group, although considers that in line with all mergers and acquisitions there is an element of execution risk.

Furthermore, although Moody's believes that there is strength in depth within syndicate 609's underwriting team, Moody's considers that the change of underwriter has brought an element of uncertainty into the development of the syndicate's operations.

It has therefore placed the syndicate performance rating, reflecting Moody's view of relative performance and continuity prospects for the syndicate over the insurance cycle, of syndicate 609 under review for possible downgrade.

Although the syndicate has a good track record with an average profit over the last nine years to 2004 of 12% of capacity.