Commercial Union's 'A-1+' CP Rtg Affmd by S&P.

LONDON--(BUSINESS WIRE)--Standard & Poor's CreditWire 8/13/97 -- Standard and Poor's today has affirmed its 'A-1'-plus commercial paper rating of Commercial Union PLC (CU), guaranteed by Commercial Union Assurance Co. PLC.

The rating reflects CU's strong business and earnings profile although a somewhat weaker capital position than peers. Standard and Poor's expects CU to produce relatively stable earnings going forward but that a comparatively aggressive financial stance may prevent any significant strengthening of the capital base.

CU has a UK1 billion (about US$1.6 billion) commercial paper program which is used for fluctuating corporate funding needs although a portion of this can be viewed as core debt relating to the purchase of Groupe Victoire at the end of 1994. The program is fully covered by committed bank support lines.

MAJOR RATING FACTORS:

-- Strong market positions in the mature markets of the U.K., U.S.A, France and Holland with expanding operations in growth markets such as Southern and Eastern Europe and Asia. Life operations in France have an excellent business position which has been boosted further by the recent acquisition of Societe d'Epargne Viagere (SEV) and Union Financiere de France.

-- Premiums are very well spread between life and non-life business, geographically and by class of business. This provides a strong degree of stability in the business profile as insurance cycles offset each other. CU is actively expanding the life side of the business as part of a strategy to increase the quality and stability of earnings. Life premiums will represent approximately 50% of the group total in 1997 following the acquisition of SEV.

-- CU demonstrates comparatively stable profitability for the U.K. composite sector with a combined ratio ranging between 103% and 106% over the past 4 years. The weakening of the U.K. insurance cycle is currently being largely offset by improvements in the continental European operations. CU has the lowest expense levels in the U.K. composite sector - generally supported by critical mass in each of the main operating areas.

-- Capitalization, on a risk adjusted basis, was probably the lowest in the U.K. composite sector at the end of 1996. This reflects the capital requirements of a large and growing life business, particularly in France because a large part of the portfolio (the AFER contract) is high volume, low margin business more akin to fund management but the underwriting risk lies fully with CU and incurs a standard capital requirement.

-- CU is more aggressive in its use of financial leverage than peers with debt to capital of 26% in 1996, unchanged on 1995. However, leverage is in line with a rating in the low double-'A' range.

EXPECTATIONS:

-- Generally stable earnings. Convergence of insurance cycles may pose a threat to the company at some stage in the future although strong and expanding life operations will continue to provide a quality earnings stream.

-- Capital is expected to remain stable on a risk adjusted basis in 1997 assuming a neutral investment environment in the second half of the year. Over the medium term, Standard & Poor's expects capital may be further stretched by the expansion of the life business. -- CreditWire

CONTACT: Corinne Cunningham, London (44) 171-826-3550