A.M. Best Upgrades 21st Century to A+.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--June 22, 2000

A.M. Best Co. upgraded the financial strength rating of 21st Century Insurance Company and its reinsured affiliate 21st Century Casualty Company -- collectively known as the 21st Century Insurance Group -- to A+ (Superior) from A (Excellent).

This rating action reflects 21st Century's consistently strong operating trends, superior capitalization and leadership position in the California automobile market. These strengths are derived from the group's strong brand recognition, direct response marketing approach, emphasis on customer satisfaction and increasing use of technology. As a result, 21st Century maintains a significant competitive expense advantage and an exceptional level of customer persistency relative to its peers. Despite continued claims emergence relating to the 1994 Northridge earthquake and significant dividends to its parent, the group has achieved strong growth in its capital position over the last five years, driven by its exceptional financial performance. In addition, the group's strong risk mitigation practices, high-quality investment portfolio and conservative reserving philosophy, with favorable development in most accident years, insulate the balance sheet from severe volatility. Lastly, the rating recognizes 21st Century's strategic importance to, and the financial and operating benefits it derives from, American International Group Inc., whose current ownership of its parent approximates 62%.

Offsetting these strengths are the group's California business concentration and the intensely competitive private passenger automobile markets in which it is operating. As a result, 21st Century's near term underwriting margins and profitability are likely to come under increasing pressure. In addition, in late 1999 21st Century re-entered the historically problematic homeowners market in California to support its growth strategies by providing complementary products to its existing policyholders. However, the group is not writing earthquake business, and its current net exposure to fire losses following a significant earthquake is relatively modest. Lastly, there remains potential uncertainty with respect to a bill recently approved by the California Senate (SB 1899). This bill would allow California residents another year to file claims related to the Northridge earthquake.

Despite these concerns, A.M. Best views 21st Century's rating outlook as stable because of its sustainable competitive advantages, expectation of continued above average operating performance and the considerable financial and operating resources of AIG.

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.