A.M. Best Downgrades General Agents Group.

Business Editors & Insurance Writers

OLDWICK, N.J.--(BUSINESS WIRE)--Nov. 14, 2000

A.M. Best Co. has downgraded the financial strength ratings of the General Agents Group to A- (Excellent) from A (Excellent). This action follows the release of third quarter earnings, which included a $10 million charge for adverse loss reserve development. The downgrade reflects the decrease in capitalization to the A- range, the erosion of historical earnings and A.M. Best's view that it may be difficult in the near-term to restore earnings and improve capital to levels that support an A rating.

The group has recorded substantial underwriting losses in two of the last three years due to significant reserve strengthening actions taken in 1998 and 2000. The bulk of the reserve strengthening--amounting to $26 million and $10 million in 1998 and 2000, respectively--related to the commercial automobile line, with particular emphasis on its long-haul trucking segment. Combined with significant growth in 1999 and 2000 associated with the expansion and diversification of operations, the decline in surplus since year-end 1997 caused underwriting leverage to increase. Annual dividend payments to the parent, GAINSCO, Inc., have further impacted the group's internal surplus generation.

Despite the downgrade, the current rating reflects the group's excellent capitalization, long-term operating performance and management's commitment to establishing a strong balance sheet and improving operating results. In an effort to stabilize and restore earnings growth, the group discontinued the majority of its poorly performing commercial trucking business and over the past year has implemented double digit rate increases on all of its continuing books of business. Ongoing operations will focus on business segments which have generated accident year combined ratios of less than 100% in 1999 and 2000. A.M. Best anticipates that premium leverage will not exceed two times over the near-term due to the discontinuation of its commercial trucking business and expanded use of quota share reinsurance to improve margins and moderate premium growth. Additionally, the investment portfolio has been reinvested to enhance long-term yields. While this action has caused a current year pre-tax realized loss of approximately $1.9 million, it has resulted in yield improvements of over 150 basis points, which will benefit future results.

Nevertheless, A.M. Best believes the group's operating results over the near-term may continue to be impacted by highly competitive market conditions, increasing loss costs in its non-standard personal automobile businesses and a more conservative reserving philosophy. Coupled with the demands on the insurance subsidiaries to service holding company obligations, these moderated earnings may slow improvements in capitalization.

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.