Members of Premier Ins. Group on CreditWatch Neg

Standard & Poor's (S&P) placed its "A+" counterparty credit and financial strength ratings on American Excess Insurance Exchange RRG (AEIX), American Diversified Reinsurance Ltd., and Premier Insurance Exchange RRG (PRx)—which are the members of Premier Insurance Group—on CreditWatch with negative implications.

The rating action reflects the increase in severity of claims experience at AEIX, resulting in statutory underwriting losses of $16.6 million in 1999, $26.7 million in 2000, and $5.5 million in the first quarter of 2001. Statutory capital has declined 46 percent to $74.1 million as of March 31, 2001, from $138.4 million at year-end 1998.

Reported results are well below the earnings expectations for AEIX and well below benchmark performance levels at the existing ratings level.

Other rating factors include negative underwriting cash flow and increasingly higher claims experience in the high excess general and professional liability lines written by Premier Insurance Group companies. AEIX and PRx write low-frequency, high-severity covers. Although volatility in operating performance had been anticipated, the magnitude of the impact of recent losses is more than S&P's expectations and has reduced the companies' financial strength. S&P plans to meet with management to review the business plans, projected operating performance, and reserve adequacy information. Management believes loss experience will improve following changes in the risk profile of member companies, including the discontinuation of certain policies. The ratings could be lowered materially following this review.

Stockton Reinsurance Ltd. Downgraded

A.M. Best Co. downgraded the financial strength rating (FSR) of Stockton Reinsurance Limited to "BB++" from "A-" and removed the company from under review.

The rating decision reflects Stockton's poor underwriting results in finite reinsurance and in its investments in Lloyd's syndicates during fiscal years 2000 and 2001. A.M. Best assigned a negative outlook to the rating due to its concern over prospects for added production in Stockton's core finite business and the potential for ongoing earnings volatility.

Somewhat offsetting the negative rating factors is Stockton's aggressive actions to decrease costs and streamline managerial and functional operations. That was addressed through staff reductions in Bermuda and the U.K. and by implementation of a stronger management focus in the Crowe operation.

Western Mutual Insurance Co. Gets Upgrade

A.M. Best Co. upgraded the FSR of Western Mutual Insurance Co. from "B++" to "A-." In support of this rating upgrade, A.M. Best Co. cited the excellent capitalization, strong operating performance, improved leverage position and very good liquidity of the company. Western Mutual is expected to begin offering coverage to homeowners in Colorado and Nevada by the fourth quarter of 2001.

Conseco Inc.'s Notes Issued 'BB-'

S&P assigned its "BB-" senior unsecured debt rating to Conseco Inc's $400 million in senior notes, which are due in 2008. The outlook is stable. Operating earnings have started to improve after the significant restructuring in 2000 that had led to an operating loss. For the first quarter of 2001, operating earnings before goodwill and taxes were $266.8 million, compared with $221.1 million for the first quarter of 2000, reflecting improvement in Conseco's insurance and finance sectors.

S&P believes that Conseco's earnings will continue to improve. Its insurance operations are expected to continue to produce pretax operating earnings of at least $200 million per quarter, maintaining the pace established in the first quarter of 2001. Conseco Finance Corp., one of Conseco's subsidiaries, is expected to maintain controlled growth, which will continue to produce positive cash flow, according to S&P.

NRMA Given Rating

S&P assigned its "AA+" long-term rating to the guaranteed and unsubordinated series of wholesale notes to be issued under the NZ$300 million medium-term note program of NRMA (NZ) Holdings Ltd. NRMA Insurance Ltd. (NRMA, rated "AA+" for insurer financial strength) guarantees the unsubordinated and guaranteed obligations that will be issued under the program.

The program will further assist in the refinancing of a bank facility used in the February 2001 acquisition by NRMA (NZ) Holdings of State Insurance Ltd. (local currency rating "AA-"/Watch Pos/-), the largest general insurer in New Zealand. The overall debt outstanding for insurance purposes in the NRMA group is expected to remain within the tolerance of S&P's guidelines. Added debt currently funding building society operations, however, is expected to reduce in line with the anticipated sale of those operations.

The "AA+" ratings on the guarantor reflect NRMA's excellent business position, with clear market leadership in general insurance in Australia, its associated benefits of economics of scale and expense advantage, along with extremely strong capital position and soundly and conservatively based claims reserves. Its operating performance, while having recently improved, has not historically been supportive of the rating.

The outlook on NRMA is negative, reflecting the potential for further deterioration in capitalization in the medium term as part of the group's capital management strategy to maximize returns and fund its growth targets.

Fitch Rates XL's Convertible Debentures

Fitch has assigned an "A+" rating to XL Capital Ltd.'s (XL) offering of $250 million of zero coupon convertible debentures due 2021. The convertible debentures rank equal in right of payment to all other senior debt outstanding of XL.

Proceeds from the offering will be used to repay outstanding debt and for general corporate purposes including funding potential acquisitions and share repurchases. The rating reflects XL's position within the global insurance and reinsurance markets, history of favorable underwriting and earnings performance, good interest coverage and operating cash flow, and strong capital position.

XL's financial leverage has increased significantly in 2001 due to previous financing activity, and will increase further with the debt offering and an additional proposed $500 million senior debt offering that will be completed shortly. The debt-to-total capital ration will increase to approximately 27 percent following the completion of the two offerings, but should decline to between 20-22 percent in the near term due to repayment of existing debt and growth in retained earnings. The company has strong debt servicing capability.

Operating cash flow and dividend capacity of insurance subsidiaries is sufficient to meet interest and principal obligations on outstanding debt obligations. Interest coverage remains favorable, with a coverage ratio of 12.5 times (x) for the first half of 2001 and 11x for the full-year 2000.

Trenwick Group Under Review

A.M. Best Co. has placed the FSR of "A" for the Trenwick Group, Bermuda, under review with negative implications. Additionally, A.M. Best has placed all related debt ratings under review with negative implications.

These actions follow the group's second-quarter earnings release which reported additional reserve strengthening—the third such action since 1999. The under review status reflects A.M. Best's concern with regard to the adequacy of Trenwick's current loss reserve position and the uncertainty in its ability to restore profitability to levels commensurate with an "A" rating over the near-term.

As a result of recent poor performance, Trenwick's ability to service its fixed obligations has been further weakened. Moreover, the financial leverage of the group, as measured by debt-plus-preferred to total adjusted capital has risen to 35 percent due to losses reported in the second quarter. This will continue to place pressure on the capitalization levels at the operating companies and potentially restrict capital formation due to the parent's dependence on dividends to service debt obligations.

The ratings will remain under review pending further due diligence by A.M. Best on the group's loss reserve position and discussions with management regarding its operating and capital strategies.

Associated Physicians Ins. Co. Gets 'R'

S&P assigned its "R" FSR to Associated Physicians Insurance Co. (APIC).

APIC was declared insolvent and placed into liquidation on Aug. 16 by the Circuit Court of Cook County, Ill. The agreed order was granted in response to a petition filed by Illinois Director of Insurance, Nathaniel Shapo, based on the insurance department's finding that APIC's policyholders' surplus was impaired by more than $1 million.

APIC began operations in 1987 and is a wholly owned subsidiary of Associated Physicians Capital Inc., an Illinois holding company that is also based in Oak Brook. The company is licensed in nine states, and at year-end 1999, it had policyholders' surplus of $403,064 and assets exceeding $5 million.

The Illinois Property and Casualty Guaranty Fund will protect the covered claims of Illinois residents.

Lehman Re Awarded Superior Mark

A.M. Best Co. assigned an "A+" FSR to Lehman Re Limited, Hamilton, Bermuda, a wholly owned subsidiary of Lehman Brothers Holdings Inc.

The rating reflects Lehman Re's substantial capitalization, limited liabilities, advanced risk management capabilities and operating and strategic benefits, as an integral part of Lehman Brothers. Additionally, its financial obligations are guaranteed by Lehman Brothers. As part of Lehman Brothers' Insurance Products Group, Lehman Re's ratings are also based on depth, experience and management competence.