S&P Announces: Midwest Medical Insurance Co. Ratings Lowered to 'BBpi' From 'BBBpi'.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 5, 2004

On March 5, 2004, Standard & Poor's Ratings Services lowered its counterparty credit and financial strength ratings on Midwest Medical Insurance Co. (MMIC) to 'BBpi' from 'BBBpi'. The downgrade reflects the company's weak operating performance and high geographic and product line concentration, which are partially offset by its extremely strong capitalization.

Major Rating Factors

-- Operating performance is weak, with an earnings adequacy ratio

of 35.3% at year-end 2002 as measured by Standard & Poor's

model. In addition, the company incurred losses in 2002 and

2001 ($2.2 million in 2002, an increase of about 69% from

2001). The company did manage to post a gain for the nine

months ended Sept. 30, 2003, of $1.5 million, but the

substantial historical profits have been dropping off the

time-weighted five-year earnings model and placing the overall

results below 100%.

-- The company has an extremely high product line concentration

with the medical malpractice segment accounting for about 97%

of direct business. Moreover, the company's business is

geographically concentrated with Minnesota, Iowa, North

Dakota, South Dakoka, and Nebraska accounting for 99% of

premium income. High concentration exposes the company to

economic, regulatory, and competitive risks.

-- At year-end 2002, capital adequacy, as measured by Standard &

Poor's model, was extremely strong. However, surplus declined

13% to $102.7 million in 2002, primarily due to unrealized

capital losses due to the downgrade of corporate bonds.

Based in Minneapolis, Minn., MMIC specializes in medical professional liability insurance, with the vast majority of policies issued on a claims-made basis. Its products are distributed primarily through direct marketing strategies, although some are placed by independent general agents. The company, which began business in 1980, is licensed in 10 states. It is a wholly owned subsidiary of Midwest Medical Insurance Holding Co. (MMIHC), an insurance holding company organized under the laws of Minnesota. The insured physicians of MMIC own 100% of MMIHC.

The company is rated on a stand-alone basis.

Ratings with a 'pi' subscript are insurer financial strength ratings based on an analysis of an insurer's published financial information and additional information in the public domain. They do not reflect in-depth meetings with an insurer's management and are therefore based on less comprehensive information than ratings without a 'pi' subscript. Ratings with a 'pi' subscript are reviewed annually based on a new year's financial statements, but may be reviewed on an interim basis if a major event that may affect the insurer's financial security occurs. Ratings with a 'pi' subscript are not subject to potential CreditWatch listings.

Ratings List
Midwest Medical Insurance Co.                 TO             FROM
Counterparty credit rating                 BBpi/--/--     BBBpi/--/--
Financial strength rating                  BBpi           BBBpi