S&P's Cuts Liberty Mutual

Standard & Poor's lowered its counterparty credit and financial strength ratings on Boston-based Liberty Mutual Insurance Co. and related entities to "A" from "A+" and removed them from credit watch.

In addition, the rating on Liberty Mutual's surplus notes was lowered to "BBB+" from "A" and the "A-1" commercial paper rating was affirmed. The outlook is negative.

The company's deteriorating capital position, weak operating results and reserve adequacy concerns accounted for the cut, according to S&P's analyst John Iten.

Liberty Mutual's capital adequacy is expected to improve in 2003. Underwriting results should benefit from the improved pricing environment in virtually all lines in 2003, and into 2004. S&P's expects that the statutory combined ratio will fall well below last year's ratio of 108 percent.

Improved earnings should bring capitalization back to a level more supportive of the ratings; however, if earnings expectations are not met and surplus does not improve as expected, the company would be vulnerable to another downgrade.

AMERCO Subs Downgraded

A.M. Best Co. downgraded the financial strength ratings to "C" (weak) from "B" (fair) of Arizona-based Republic Western Insurance Co. and Louisiana-based North American Fire & Casualty Insurance Co. The outlook is negative. The companies are all subsidiaries of Reno, Nev.-based AMERCO, which is the

parent of U-Haul International Inc. The companies were under review with negative implications largely based on the financial distress of AMERCO.

The downgrade of Republic Western takes into consideration the company's first quarter accounting charges of approximately $96 million, continued adverse loss reserve development and its adverse impact on policyholders' surplus. Republic Western's surplus fell 58 percent from $166 million to roughly $70 million at the end of the first quarter 2003. In the quarter, Republic Western also reported approximately $8.5 million of unfavorable loss reserve development.

Over the past several years, Republic Western has become increasingly dependent on its parent for capital support. However, given its current status, AMERCO's ability to support its insurance subsidiaries is practically non-existent. Furthermore, Republic Western consented to a supervision order by the Arizona Department of Insurance under which the department will closely monitor the situation while Republic Western and its affiliates engage in self-corrective efforts.

Ace Affirmed, Outlook Neg.

S&P's assigned its "BBB-" preferred stock rating to Ace Ltd.'s $500 million, 7.80 percent cumulative redeemable preferred shares, Series C offering. Ace may redeem these shares any time after May 30, 2008. S&P's also affirmed its "BBB+" counterparty credit and senior debt ratings on Ace. In addition, S&P's affirmed its "A+" counterparty credit and financial strength ratings on the insurance operations that make up the Ace Group.

The outlook on all these companies is negative, reflecting S&P's belief that Ace's financial leverage will remain at about 20 percent and its capital adequacy ratio will remain at least 145 percent. Conversely, Ace's near-term earnings potential and financial strength will continue to be burdened by capital-management pressures, sizeable goodwill, and material exposure to credit risk.