A.M. Best Affirms Financial Strength Ratings of Argonaut Group Incorporated; Assigns Issuer Credit and Debt Ratings.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength ratings (FSR) of A (Excellent) and assigned issuer credit ratings (ICR) of "a" to Colony Insurance Group (Colony) (Richmond, VA), Argonaut Insurance Group (Argonaut Insurance) (San Antonio, TX) and Rockwood Casualty Group (Rockwood Casualty) (Rockwood, PA). Additionally, A.M. Best has affirmed the FSR of A- (Excellent) and assigned an ICR of "a-" to Argonaut Great Central Insurance Company (AGC) (Peoria, IL). A.M. Best has also assigned an ICR of "bbb" to Argonaut Group Incorporated (Argonaut Group) (NASDAQ: AGII) (San Antonio, TX). All of the above companies are subsidiaries of Argonaut Group. All ratings have a stable outlook, except for Argonaut Insurance and Argonaut Group, which have a negative outlook.

Concurrently, A.M. Best has assigned a debt rating of "bb+" to Argonaut Group's $35.4 million 7.0% Series A mandatory convertible preferred stock and debt ratings of "bbb" on senior debt, "bbb-" on subordinated debt and "bb+" on preferred stock, which may be issued under Argonaut Group's $150 million universal shelf registration. Including the preferred stock, Argonaut Group's debt-to-capital ratio is 21% with interest coverage of roughly six times. These ratings have a negative outlook.

The affirmation of Colony's financial strength rating reflects its consistently favorable operating profitability and improved market profile. With its focus on underwriting profit and consistency, Colony maintains a significant loss ratio advantage over its peer surplus lines writers. In light of its significant growth, Argonaut Group has infused capital into Colony in each of the last three years. A.M. Best expects management to ensure Colony is adequately capitalized going forward.

The affirmation of Argonaut Insurance's rating recognizes its strong capitalization and the improved operating performance of its continuing business segments. Management has refocused its ongoing risk management segment in more profitable markets, reduced investment leverage, improved claim management operations and produced good accident year operating results over the last few years. Adverse loss reserve development related to asbestos and environmental (A&E) and older workers' compensation reserves had dampened earnings over the prior few years. While the group's results were strong in 2004, the negative outlook contemplates the pre-tax operating losses in earlier years and will remain until the recent improvement is sustained.

The affirmation of Rockwood Casualty's rating reflects its consistently profitable operating performance and good market profile as the leading workers' compensation writer in the Pennsylvania coal mining industry.

The affirmation of AGC's rating acknowledges its improved profitability and considers the rating of Argonaut Insurance Company (California), AGC's immediate parent.

For a complete list of Argonaut Group Incorporated's financial strength, issuer credit and debt ratings, please visit http://www.ambest.com/press/062907argonaut.pdf.

For Best's Debt Ratings, all other Best's Ratings, an overview of the rating process and rating methodologies, please visit http://www.ambest.com/ratings.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com.