GE ERC Affirmed

A.M. Best affirmed the "A" (excellent) rating of GE's Employers Reinsurance Corporation (GE ERC) and three of its U.S. entities, including Westport Insurance Corporation, First Specialty Insurance Corporation and GE Reinsurance. The outlook for all remains stable.

Despite concerns about capital availability in reinsurance and insurance markets, Best cited ERC's excellent risk-adjusted capitalization, improving operating performance and its dominant market presence and distribution capabilities.

The rating agency also applauded the company's successful re-engineering of its risk portfolio, exiting unprofitable lines of business in favor of lines generating more favorable returns.

Despite an incrementally lower rating, Medical Protective, ERC Group's medical liability carrier also distinguished itself, earning a stable outlook for its capitalization efforts, underwriting discipline and investment portfolio. Best took note of Medical Protective's portfolio growth in support of its customers, together with additional reserves taken to pay obligations from recent accident years in revising its financial strength rating to "A-" from "A", still an "excellent" rating.

Coregis Downgraded; Outlook Stable

A.M. Best Co. downgraded the financial strength rating to "B+" (very good) from "A-" (excellent) of Coregis Insurance Company of South Bend, Ind. The outlook is being revised to stable from negative.

This rating action was taken following the execution of an intercompany loan from Coregis to its parent, GE Global Insurance Holding Corp. based in Overland Park, Kan., which has weakened the company's risk-adjusted capitalization.

Coregis sold the renewal rights of its public entity business lines to Argonaut Group in San Antonio, Texas, in November 2003, placing all remaining liabilities into run off. With minimal new business activity forecast for 2004, the company is in the process of executing a new business plan. Coregis historically has experienced poor underwriting and operating performance despite previous remedial underwriting actions, which caused its current management by ERC to undertake a new strategy.

Thus, with its risk-adjusted capital declining below the threshold for an "A-" (excellent) rating, compounded by an uncertain future and historically weak underwriting and operating performance, these factors together precipitated the rating downgrade. The rating outlook is stable based on Coregis' relative size and the stop loss protection afforded it through ERC.

Progressive Affirmed

A.M. Best Co. affirmed the financial strength ratings of "A+" (superior) for Progressive Agency Pool, Progressive Direct Pool and United Financial Casualty Co., all based in Mayfield Village, Ohio.

These entities previously comprised the Progressive Casualty Pool. The financial strength rating of "A" (excellent) for National Continental Insurance Co. was also affirmed. The "a" senior debt rating for Progressive Corp.'s existing debt securities was affirmed along with the indicative rating of "a" for senior debt under the company's $650 million shelf registration, of which $250 million remains. The outlooks are stable.

Best said the ratings reflect Progressive's solid capitalization, strong operating performance and sustainable competitive advantages, which have enabled it to become a market leader in the private passenger automobile insurance sector. The strong operating performance is derived from steady net investment income growth and underwriting earnings, which have resulted in significant annual surplus growth.

Also, Best said, Progressive benefits from its extensive data mining capabilities and technology advantages that enable detailed pricing of various risk classes and distribution sources. These positive rating factors are partially offset by Progressive's high underwriting leverage and inherent risk associated with aggressive growth in net premiums written and associated liabilities, Best said. Rate adequacy, improved customer retention and new business growth have driven the increase in premium volume.

Although surplus increases have generally mirrored premium growth, Progressive has historically maintained underwriting leverage that is higher than industry composite norms.

General Re Group Affirmed

A.M. Best Co. affirmed the financial strength ratings of "A++" (superior) of the General Re Group. The rating applies to General Reinsurance Corporation of Delaware and its core property/casualty and life reinsurance and insurance subsidiaries operating both in the United States and internationally. In addition, Best affirmed the senior debt rating of "aa+" and a commercial paper rating of "AMB-1+" of General Re Corporation, the group's direct parent, and the "aa" senior debt rating to National Re Corporation, an intermediate holding company also located in Delaware. The outlook for all is stable.

The "A++" (superior) rating on the core members of the General Re Group reflects both the implicit and explicit financial support provided by the group's ultimate parent, Berkshire Hathaway Inc. The rating also recognizes the group's strengthening balance sheet and respected leadership position in the global reinsurance marketplace. These attributes support the company's strong prospective earnings capability, enhanced by an underwriting discipline that focuses on adequate pricing and appropriate structures, terms and conditions.

General Re Group's consolidated risk-adjusted GAAP and U.S. statutory balance sheets' strength have been sustained over the past two years by significant reinsurance support provided by affiliates, National Indemnity Company and Columbia Insurance Company (Berkshire Hathaway subsidiaries). The calendar year stop-loss reinsurance, which attaches at a 104 percent combined ratio and expires on Dec. 31, 2005, provides $4 billion of total coverage, of which approximately $3.2 billion of limit currently remains. Additionally, Berkshire Hathaway has committed to forego stockholder dividends from General Re Corporation until the group has adequately replenished its stand-alone capital position.

Notwithstanding a conservative reserving posture, the group remains exposed to the potential for further adverse reserve development, given material loss emergence in the primary insurance sector for long-tail casualty classes of business and increased litigation activity relative to asbestos claims.

Old Republic Mercantile Affirmed

S&P affirmed its "AA" counterparty credit and financial strength ratings on Old Republic Mercantile Insurance Co., and has subsequently withdrawn the ratings at the company's request. The ratings withdrawal does not affect the ratings on Mercantile's parent company, Old Republic International Corp. (ORI; A+/Stable/A-1), or any of Mercantile's rated affiliates, according to S&P.

Mercantile is a very small internal reinsurer, which assumes business from its affiliate Old Republic Insurance Co. (ORINSCO). Mercantile's plans are to commute all outstanding reserves and obligations back to ORINSCO July 1, 2004, and cease operations at that point. Subsequent to the commutation, company management plans to merge Mercantile with another ORI affiliate, sell the shell to an outside third party, or completely dissolve the company.