A.M. Best Downgrades Rating of Independent Insurance Company.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--June 13, 2001

A.M. Best Co. has downgraded the rating of Independent Insurance Company Limited to B++ (Very Good) with developing implications from A- (Excellent) with developing implications.

The action follows the announcement made on June 8 by Independent Insurance Group plc that it is reviewing a number of strategic alternatives following the announcement earlier this year of its 2000 results. These include confirmation that the company is either seeking a buyer or is raising additional capital. A.M. Best believes Independent has been adversely affected by reduced financial flexibility and business profile in recent months. These factors, combined with the weaker operating performance, deterioration of reserves and uncertainty over management strategy and future leadership at group level have resulted in the downgrade.

A.M. Best has met several times with management in recent months with regard to these issues. While acknowledging that Independent has been making efforts to find solutions, a material degree of uncertainty remains. A specific concern is that reserve levels set by management for 2000 were below the mid-range of the distribution recommended in the annual independent actuarial report commissioned by the group. A.M. Best believes the potential need to address this difference will be an integral factor in the outcome of either a successful equity placing or trade sale. Should neither option be achieved, Independent's contingency plans will leave the company significantly weaker. A.M. Best will continue to monitor the progress of Independent's management on resolving these issues.

A.M. Best acknowledges that Independent is operating in an increasingly hardening marketplace and that future operating performance may be improved; however, the uncertainty over prior year reserving and the potential for future deterioration somewhat tempers this positive factor. There is also continuing uncertainty over the structure of the group with regard to the need to strengthen the balance sheet and the prospect that the group might be acquired. Once the full details of the capital raising or ownership change are made available, an assessment of the implications will be made.

In the near term, the company will remain under review. Going forward, key considerations for the rating include the timely raising of adequate levels of new capital, consistent management of the business which includes the successful recruitment of a CEO and tangible evidence of stability in the company's liability reserves.

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.