A.M. Best Affirms Rating of Affirmative Insurance Group and Assigns Issuer Credit Ratings; Revises Outlook to Positive.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of B+ (Very Good) of Affirmative Insurance Group (Affirmative) and has assigned issuer credit ratings (ICR) of "bbb-" to its property/casualty insurance operating companies. Concurrently, A.M. Best has assigned an ICR of "bb-" to Affirmative's parent, Affirmative Insurance Holdings, Inc. (NASDAQ: AFFM). All companies are located in Addison, Texas. A positive outlook has been assigned for the ICRs; the outlook for the FSR has been revised to positive from stable.

The ratings recognize Affirmative's continued favorable capital position following the initial public offering (IPO) in July 2004 of its parent company, subsequent trust preferred securities offerings, improved operating trends and conservative investment portfolio. Proceeds from the IPO and trust preferred securities offering have been utilized to support Affirmative's current and future growth plans. Recent premium expansion is the result of the elimination and reduction of various quota share reinsurance cessions, rate increases and moving business into the insurance companies produced by its affiliated underwriting and retail agencies. Strategically located agency acquisitions have provided a controlled geographical spread of risk for Affirmative. Although there is inherent risk associated with the significant increase in net premiums written, it is somewhat mitigated as a majority of this business was produced by affiliates who have considerable experience in the non-standard auto market.

Partially offsetting these positive rating factors are Affirmative's concentration in the non-standard automobile insurance market and its operating profitability susceptibility to fluctuations in market conditions. This risk has been manifested in the first half of 2005, as competition in Affirmative's market niche has intensified, adversely affecting planned premium growth. Although profitable, a reduction in statutory pre-tax operating income was noted in comparison to the prior year's results due principally to accelerated statutory acquisition costs associated with the reduction of various quota share reinsurance agreements. In addition, there is modest execution risk with regards to the transfer of business to the statutory entities as additional agencies are acquired. Despite the increased competition and moderate statutory operating income results for year-to-date June 2005, the positive outlook reflects A.M. Best's expectation of continued favorable risk-adjusted capitalization, as well as favorable operating performance over the intermediate term.

The financial strength rating of B+ (Very Good) has been affirmed and issuer credit ratings of "bbb-" have been assigned to Affirmative and its following property/casualty affiliates:

--Affirmative Insurance Company

--Insura Property and Casualty Insurance Company, Inc.

For Best's Ratings, an overview of the rating process and rating methodologies, please visit 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 www.ambest.com.