Fitch Ratings Affirms R.V.I.'s 'A+' IFS Ratings.

Business Editors

CHICAGO--(BUSINESS WIRE)--Oct. 16, 2003

Fitch Ratings has affirmed the 'A+' insurer financial strength ratings of R.V.I. Guaranty Co., Ltd. (R.V.I. Guaranty) and its subsidiary, R.V.I. America Insurance Co. (R.V.I. America). The Rating Outlook is Stable.

Fitch's strong IFS rating on R.V.I. reflects the company's dominant market position in the residual value insurance industry, conservative underwriting approach, strong capitalization and quality management team. Partially offsetting these positives are recent underwriting performance below Fitch's expectations, concentration among key insureds and stability of capital.

R.V.I. is recognized as a leading provider of residual value coverage worldwide for clients that include major financial institutions, leasing companies and equipment manufacturers. The company focuses on three main asset classes for residual value insurance - passenger vehicles, commercial equipment and commercial real estate. Current ownership of R.V.I. Guaranty is split evenly between wholly owned subsidiaries of Quantum Industrial Partners, LDC and CNA Financial Corp (CNA).

Capitalization of R.V.I. is strong, especially when taking into consideration the company's significant unearned premium reserve (UPR) balance, a portion of which Fitch includes when measuring R.V.I.'s true capital position. R.V.I. also added $15 million to capital in December 2002 through the issuance of trust preferred securities.

R.V.I. reported disappointing profitability in 2002, posting an underwriting loss of $8.9 million compared to an underwriting gain of $2.2 million in 2001. Through the first 6 months of 2003, R.V.I. reported an underwriting loss of $0.4 million compared to a gain of $3.1 million in the comparable prior year period. These losses were driven by strengthening of passenger vehicle reserves, beginning in the fourth quarter of 2002, related to a claim received early in 2003.

The driving factor behind the exposure to R.V.I. has been an unusual drop in used vehicle residual values in recent years. Starting in 2001, U.S. vehicle manufacturers' desire to keep new car sales high by offering generous financial incentives, including cash back and zero-percent loans, created an artificial demand for new cars at the expense of used cars, a substitute good. This lower demand for used cars coupled with an increased supply of used cars, as new vehicle buyers traded in a record number of used vehicles, resulted in higher than normal deprecation rates and a prolonged depression of used car values beyond that projected as part of the cyclical market lows.

R.V.I. has responded by re-underwriting the book of business, increasing prices and tightening terms and conditions to reduce the amount of risk retained by the company going forward. In addition, used car depreciation rates are showing improvement in the second half of 2003 and are at levels more favorable than those conservatively projected by management.

Fitch also considers R.V.I. to have a high level of concentration risk, in that the top five clients accounted for 72.6% of total gross premiums written in 2002, up from 48.8% in 2001, with the top client accounting for 35.6% and 19.2% in 2002 and 2001, respectively. This risk is somewhat mitigated by the fact that most key relationships are long-standing and the clients that make up the top five in any given year may vary, although two of the top five clients were the same in 2002 and 2001.

R.V.I. also has some capital concentration in that $50.7 million (43%) of total stockholders' equity of $117.3 million at Dec. 31, 2002 is in the form of a promissory non-interest bearing demand note from Continental Casualty Company (CCC), a wholly owned subsidiary of CNA. This capital contribution was made as part of CNA's purchase of 50% of R.V.I. in 1997.

Entity/Issue/Type/Action/Rating/Outlook

R.V.I. Guaranty Co., Ltd.

--Insurer financial strength  Affirm   'A+'/Stable.

R.V.I. America Insurance Co.

--Insurer financial strength  Affirm   'A+'/Stable.