Fitch Dwgr Combined Insurance Company Of America To 'A+'.

Business Editors

CHICAGO--(BUSINESS WIRE)--May 30, 2002

Fitch Ratings has downgraded the insurer financial strength (IFS) rating of Combined Insurance Company of America (CICA) to 'A+' from 'AA'. Additionally, Fitch downgraded CICA's short-term financial strength (STIFS) rating from 'F-1+' to 'F-1'. Both the IFS and STIFS ratings were removed from Rating Watch Negative. The Rating Outlook is Stable.

CICA's strong ratings continue to be supported by its profitable operations, niche position in the supplemental accident and health market, and conservative operating leverage profile. Additionally, Fitch expects CICA will be able to grow policyholders' surplus in the future given that CICA will no longer be committed to dividend a large portion of earnings to Aon Corporation (Aon).

CICA represents the primary life, accident and health insurance underwriter of current parent, Aon. As announced on April 20, 2001, Aon plans to spin-off all of its insurance operations and is on target to do so in the summer of 2002.

Today's rating action on CICA reflects higher than anticipated financial leverage at the new parent company, Combined Specialty Group (CSG), and the loss of affiliation with Aon, an organization that provided business diversification and a history of strong and unregulated cash flow. The rating action also reflects declining statutory earnings and profitability trends, and deterioration in CICA's statutory capital position.

Given an anticipated equity infusion by Aon at the time of the spin-off, CSG's (GAAP) debt-to-total capital ratio will be below 30%.

Statutory earnings at CICA, as measured by statutory net operating gain after taxes, have declined from over $244 million in 1997 to approximately $83 million in 2001. Statutory profitability, as measured by return on average surplus and pre-tax return on assets, has fallen from 31% and 11% in 1997 to 15% and 4% in 2001, respectively. While these trends are negative, and below expectations at the previous rating level, they compare very favorably to industry averages. Much of this deterioration can be attributed to an aggressive investment strategy that Aon had employed at CICA in the past. In the later half of the 1990's, this investment strategy produced large returns that have fallen in recent years.

Prospectively, Fitch anticipates that CSG management will take a more conservative investment strategy at CICA, which should mitigate investment and operating result volatility in the future. Future operating results are expected to grow from 2001 levels.

CICA's policyholders' surplus position has declined from $872 million in 1997 to $490 million in 2001. This deterioration can be attributed to the large dividends upstreamed to parent Aon and large unrealized losses associated with the volatility of limited partnership investments. Post spin-off, Fitch anticipates that CICA's dividend commitment to CSG will be much lower than previous dividends to Aon. In December 2001, CICA securitized $225 million of limited partnership investments, which will reduce volatility in its capital profile going forward. Fitch expects that the combination of these actions will result in CICA's ability to replenish its capital position over time. As part of a new public company, CICA's capitalization will be closely monitored by Fitch.

Entity/Issue/Type/Action/Rating/Outlook

Combined Insurance Company of America

-- Insurer Financial Strength   Downgrade   'A+'/Stable;

-- Short-term Insurer Financial Strength   Downgrade   'F-1'.