Affirms Lexington Ins 'AAA' Rtgs; Outlk Stable.

NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire--

Nov. 4, 1999--Standard & Poor's today affirmed its triple-'A' counterparty party and financial strength ratings on Lexington Insurance Co. (Lexington).

The rating reflects the company's consistently superior operating results, conservative capitalization, and its dominant position as the largest U.S. excess-and-surplus (E&S) lines insurer. Lexington also benefits from being a member company of the triple-'A' rated American International Group Inc. (AIG), one of the largest insurance and financial services companies in the U.S.

Major Rating Factors:

-- Excellent business position: Lexington is the largest E&S writer

in the U.S., with surplus exceeding $1 billion at year-end 1998.

-- Innovative product development capabilities: Management

anticipates changes in market cycles and identifies opportunities

to create new products that serve the unique risk characteristics

of its mainly large corporate commercial clientele.

-- Superior capitalization: Standard & Poor's capital model shows

capital adequacy to be extremely strong and consistent with the

rating level. Strong earnings, combined with a modest dividend

policy, ensure that this level of capitalization will be

maintained, even as the premium level declines.

-- Strong distribution network: Lexington's strategy revolves around

reaching the client through the most efficient and effective

method of distribution. As a result, Lexington maintains a

multitiered distribution strategy that uses E&S brokers, AIG's

risk-specialty companies, wholesale managing general agencies,

and London-based intermediaries. Standard & Poor's believes

Lexington is well diversified and, therefore, not dependent on

any one production source.

-- Challenging premium growth: Lexington's declining premium growth

in the last few years is evidence of its commitment to

participate opportunistically in different market segments.

Direct written premium declined 4% in 1998. The company's 37%

decrease in net premiums written is distorted by the pooling

agreement effective Dec. 31, 1999. The expense ratio has

increased about three points from the 10% area that characterized 

earlier years.

-- Exposure to reinsurance recoverables: Lexington's reinsurance

utilization was in excess of 75% in 1998. Of this, Lexington's

unaffiliated portion was a significant 60%. Standard & Poor's

believes close monitoring of reinsurance security, combined with

the financial flexibility of AIG, protects Lexington from

nonperforming recoverables and from significant changes in the

reinsurance environment that could affect pricing and/or

capacity.

Lexington Insurance Co. is a Security Circle insurer, which means it voluntarily underwent Standard & Poor's most comprehensive analysis and was assigned a rating in one of the top four categories for financial security.

OUTLOOK: STABLE

At Dec. 31, 1998, certain AIG companies formed a surplus lines pool. Pool members include Lexington (80%), Starr Excess Liability Insurance Co. Ltd. (18%), and Landmark Insurance Co. (2%). Landmark will focus on the middle market accounts, while Starr Excess will target the Fortune 5000. The capital adequacy of the pool is expected to continue to be extremely strong and well above the triple-'A' level of 175%. Premium growth for 1999 is expected to be flat to negative. In 2000, new product initiatives, combined with a potential for some price hardening in the casualty sector, is expected to drive modest premium growth.

The expense ratio should stay in the low teens (this reflects modest premium growth expectations). The loss ratio should be relatively stable in the high 80% area, given the stability of the current book of business combined with heavy use of reinsurance to manage underwriting results. Overall, the combined ratio should stay at, or close to, the 100% area, Standard & Poor's said. -- CreditWire