A.M. Best Assigns A+ Rating to the Re-Established Gulf Insurance Group and Removes From Under Review the Rating of its Group Members.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Aug. 2, 2002

A.M. Best Co. has assigned a financial strength rating of A+ (Superior) to the re-established Gulf Insurance Group (New York), and removed from under review the rating of six companies, which were previously part of the Travelers Property/Casualty Pool.

This rating action follows the $139 million capital investment in Gulf's immediate parent, Commercial Insurance Resources, Inc. (CIRI), by outside investors and approximately 75 senior employees of Gulf Insurance Company, as well as the re-establishment of the Gulf Insurance Group pool, which will be retroactive to January 1, 2002. The rating also takes into account Gulf's ceding of more than $230 million of non-core businesses along with $183 million of loss reserves, both via 100% quota share to Travelers Indemnity Company. Capital investments made by investors include $86 million of mandatory convertible preferred stock, $50 million of convertible notes and $3 million of common equity. If these securities were converted, Travelers Indemnity would maintain 76% majority ownership of CIRI while 21% would be held by Trident II, L.P.--a venture capital investment fund managed by MMC Capital--and 3% by management. Net capital proceeds are to be contributed to the surplus of the pooled companies. Members of the re-established Gulf Insurance Group include Gulf Insurance Company (Hartford, CT) and its affiliates, Select Insurance Company, Atlantic Insurance Company and Gulf Group Lloyds (all of Irving, TX), and Gulf Underwriters Insurance Company (Hartford, CT). As part of this transaction, Gulf Insurance Holdings UK Ltd. will be dividended to Travelers Indemnity. The financial strength rating of A++ (Superior) of Gulf Insurance Company UK Ltd. was lowered to A+ (Superior) and also removed from under review as it now cedes all of its specialty business via 100% quota share to Gulf. All remaining business written by Gulf UK will continue to be 100% reinsured by Superior-rated Travelers Casualty and Surety of America.

Prior to joining Travelers Property & Casualty Pool on October 1, 2001, (retroactive to January 1, 2001), Gulf was assigned an A.M. Best financial strength rating of A+ (Superior). Although ownership has changed somewhat, A.M. Best believes Gulf remains well managed and is strongly positioned in its markets. Other positive factors include Gulf's strong capitalization, highly specialized and diversified product offerings, proven track record and benefits derived from its affiliation with Travelers. Over the years, Gulf has benefited from its opportunistic approach to its chosen business segments, management's highly focused underwriting culture, effective use of reinsurance and experienced management team. This is furthered by Gulf's generally small to middle market orientation and the interplay among underwriting, claims and actuarial. Gulf's leadership reputation in specialty markets helps sustain strong broker relationships. Gulf continues to limit its exposure to shock losses through the use of reinsurance. Although managed autonomously, the rating acknowledges Gulf's affiliation with Travelers, the strategic role it plays within this well-respected franchise and the implicit financial and operating support of its parent.

Partially offsetting these factors is the underwriting deterioration and greater earnings volatility over the past few years, continued broker concentration and reinsurance dependence. Gulf produced an uncharacteristically high combined ratio of 121.4% in 2001, primarily due to the events of September 11. Excluding September 11, Gulf's normalized combined ratio of 102.7% was higher than Gulf's historical results. Rising loss costs have necessitated some aggressive re-underwriting and increased pricing in an effort to restore underwriting profitability. Hardened property/casualty markets are proving exceedingly beneficial to Gulf, although 2002 could prove to be a transitional year as underwriting initiatives have just begun to manifest themselves.

Finally, over the years, Gulf's business strategy has remained significantly dependent on its reinsurers, which are an integral part of Gulf's success. Therefore, Gulf is susceptible to changes in reinsurance participants, pricing and capacity, particularly in certain product lines that require large limit capacity.

CIRI, Gulf's immediate parent holding company, will maintain low financial leverage. Modest cash needs at the holding company should allow for further accumulation of capital at the insurance companies. A.M. Best views the rating outlook of Gulf as stable.

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.