A.M. Best Affirms the A+ Rating of the St Paul Companies.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--June 27, 2000

A.M. Best Co. affirmed the A+ rating of the St. Paul Companies and upgraded the A rating of the USF&G group to A+, recognizing the successful integration of these operations into the St. Paul Companies. The rating applies to eight pool members, led by St. Paul Fire and Marine Insurance Company and its seven reinsured subsidiaries; United States Fidelity and Guaranty Company and its thirteen reinsured subsidiaries; St. Paul Insurance Company of Illinois and two international affiliates. A.M. Best considers these companies to be core operations of the group as they are integral to its overall strategy and critical to its ongoing success and viability, thus qualifying them for the group's A+ rating. The rating is based on the consolidation of the 30 domestic companies to which the rating applies and three other separately rated domestic affiliates. The rating reflects the group's strong capitalization, historically favorable operating trends and dominant position within select commercial lines markets. These strengths are derived from St. Paul's strong brand recognition, specialized underwriting expertise, disciplined operating focus and growing global market presence. The acquisition of USF&G, which was completed in April 1998, provided the group with expanded product capabilities, increased penetration in several key specialty lines markets and broader geographic diversification. In addition, significant expense savings were realized as a result of the successful integration of these operations into the St. Paul group, which was completed in 1999.

The rating also recognizes the strategic repositioning of the group as it divests itself of underperforming businesses where it lacks sufficient scale to effectively compete. This has enabled the group to redirect valuable capital resources towards its core middle-market commercial and specialty lines operations where it can leverage its underwriting skills and loss-control capabilities in pursuit of business with higher risk-adjusted returns.

These positive rating factors are partially offset by the group's weakened core earnings stemming from unfavorable market conditions, particularly within the middle market commercial lines and medical lines segments. Further impacting results was an elevated level of catastrophe losses as well as substantial merger-related costs, including reserve strengthening due to the assimilation of the USF&G operations. However, the merger has generated significant economies of scale, which will be further augmented by the group's efforts to streamline the organization and the divestiture of its non-core business segments. Furthermore, St. Paul has implemented aggressive repricing and other corrective underwriting measures in its weaker business segments to improve future profitability. A.M. Best views the rating outlook as stable, recognizing the sustainable competitive advantages the group maintains in terms of its specialized focus, high-quality balance sheet, well-established global platform and strong franchise value.

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.