A.M. Best Assigns "a+" to Clarica Life's Subordinated Debt Offering.

Business Editors

OLDWICK, N.J.--(BUISNESS WIRE)--Oct. 5, 2000

A.M. Best Co. has assigned a rating of "a+" to the C$300 million 6.65% subordinated debentures issued by Clarica Life Insurance Co., Waterloo, Ontario, Canada. The A+ (Superior) financial strength rating of Clarica and Clarica Life Insurance Company U.S., its primary United States insurance operating company, remains unchanged. The A (Excellent) rating of Clarica's other U.S. subsidiary, Milwaukee Life Insurance Co., also is unaffected.

Clarica plans to use proceeds from the debt issuance to strengthen and diversify its capital structure. The current offering is being issued by the lead operating company, qualifying it for full capital treatment under Canada's risk-based capital guidelines (MCCSR). Clarica's business lines generate steady earnings, which provide ample fixed charge coverage. Absent an acquisition, A.M. Best expects the company to maintain financial leverage--debt plus preferred shares to total capital--at approximately 25% in the near to medium-term.

The ratings reflect Clarica's strong position in the Canadian individual insurance and savings and retirement markets, sustainable earnings, strong debt service capabilities, effective asset-liability management and sound capital position.

Clarica is well established in the Canadian life insurance market in its three core business segments: retail insurance; wealth management; and group insurance. The company generates approximately 80% of its earnings from insurance and asset-accumulation business in Canada. The rest is derived from its U.S. life and annuity and reinsurance operations. A.M. Best believes the consistent earnings flow from Clarica's insurance business, coupled with fee income from its segregated fund and mutual fund businesses, strongly support the company's long-term debt service capabilities.

Clarica has prudently managed its asset-liability exposure by matching the cash-flow demands of its liabilities with its assets. About half of its general fund portfolio is invested in bonds and corporate loans, mostly of high quality. Although Clarica's exposure to commercial mortgages and real estate is high, relative to U.S. insurers, it is well managed and comparable to that of Canadian peers. Nearly half of Clarica's general fund liabilities consist of annuity reserves, containing mostly surrender protection that mitigates risk of withdrawals. Clarica also has significant segregated fund assets under management whereby the contract holder bears the investment risk.

A.M. Best believes Clarica may have difficulty increasing its market position in the asset-accumulation market segment given its high cost structure relative to other large players in the mutual fund and segregated fund arena. In addition, new capital requirements may be imposed for segregated fund business in Canada, which would result in greater price competition and reduced operating margins. Nevertheless, Clarica maintains a sound capital position supporting its core businesses, which is comparable to its Canadian peers.

Clarica's strengths are offset by its business concentration in Canada and the lack of diversified distribution channels in its Canadian retail insurance operations, which limit sales growth. Earnings growth is constrained by the lack of significant geographic diversification outside Canada, which is a mature and highly competitive market. Although Clarica's financial leverage is moderate, relative to its peers, the level is appropriate for its rating category.

Clarica is one of Canada's largest life insurance companies, with reported consolidated corporate assets of C$29.9 billion and shareholders' equity of C$2.7 billion, as of June 30, 2000.

The following new debt security rating was assigned: Clarica Life Insurance Co.--

-- "a+" rating on C$300 million 6.65% subordinated debentures, Series

3, due 2015.

The following existing debt ratings were affirmed: Clarica Life Insurance Co.--

-- "a+" rating on C$250 million 5.80% subordinated debentures, Series 1, due
2013;

-- "a+" rating on C$150 million 6.30% subordinated debentures, Series 2, due
2028;

-- "a" rating on C$150 million non-cumulative redeemable preferred shares,
Series 1. Clarica U.S. Inc.-

-- "a+" rating on(pound)125 million 7.25% subordinated guaranteed bonds, due
2004.

The following financial strength ratings were unaffected: -- Clarica Life Insurance Co. - A+

-- Clarica Life Insurance Company U.S. - A+

-- Milwaukee Life Insurance Co. - A

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.