Markel Outlook Positive

S&P's revised its outlook on Markel Corp., Markel International Insurance Co. Ltd., and Markel's U.S. insurance subsidiaries to positive from stable because of the historically strong underwriting results of Markel's U.S. insurance operations, the company's position as a leading writer in the U.S. surplus lines market, and adequate operating company capitalization.

Also affirmed were the "BBB-" counterparty credit rating on Markel, the "A-" counterparty credit and financial strength ratings on Markel's U.S. insurance subsidiaries, and the "BBB-" counterparty credit and financial strength ratings on Markel International Insurance Co. Ltd.

Offsetting Markel's strengths, according to credit analyst John Iten, were the parent companys' relatively low fixed charge coverage ratio, and the lingering impact of the 2000 purchase of Terra Nova Holdings Ltd. on the performance of the London operations of Markel International.

Earnings, fixed charge coverage and capitalization measures are expected to improve during 2003, as Markel benefits from the continued strong pricing environment in the property/casualty market and the reunderwriting of its London book of business. The combined ratio for the U.S. operations is expected to improve to about 90 percent in 2003 and remain strong into 2004.

Fireman's Fund Affirmed

A.M. Best Co. affirmed "A" (Excellent) the financial strength ratings of the pool members of the Fireman's Fund Insurance Companies (FFIC). The ratings are being removed from under review and the outlook remains negative. FFIC is a wholly-owned subsidiary of Allianz AG, which has a financial strength rating of "A+" (Superior).

FFIC's ratings reflect its strategic importance within Allianz's global insurance operations, demonstrated through Allianz's historical tangible support and commitment to FFIC. Allianz has recently provided FFIC with Keep Well Agreements affording its surplus substantial protection against loss emergence from 2002 and prior accident years, as well as any slippage in FFIC's planned combined ratios for 2003. The agreements are effective through Dec. 31, 2005. Allianz has the option of extending them further after that date.

In 2002, Allianz contributed almost $1.8 billion of capital to FFIC and provided inter-company reinsurance for the company's asbestos and environmental exposures. Allianz charged FFIC almost $1.3 billion for this cover.

The ratings also consider the underlying improvement in more recent accident year underwriting trends and FFIC's prospective earnings capability. FFIC has taken steps to improve underwriting results and maintain its leadership position within the specialty commercial and upscale personal lines markets. It continues to maintain strong brand name recognition, well-established agency relationships and substantial service capabilities.

Offsetting factors include FFIC's protracted record of reporting poor operating results that culminated in 2002 with the emergence of approximately $1 billion in prior year losses, $750 million of which related to strengthening of A&E liabilities with the remainder driven by discontinued lines of business. The company's 2002 GAAP combined ratio was 141.4 percent and included 33.3 points relating to adverse reserve development and discontinued lines. The company's ongoing books of business generated a GAAP combined ratio for the 2002 accident year of 108.1 percent reflecting the improved underwriting trends cited above.

FFIC's risk adjusted surplus position, excluding the support provided by the aforementioned agreements, has deteriorated in recent years to a level below A.M. Best's expectations for an Excellent rated company. The negative outlook assignment indicates that despite Allianz's support, FFIC's sustainability of the ratings is contingent upon its ability to take full advantage of improved market conditions and to execute its business strategy in accordance with expectations.

CNA Financial Corp. Affirmed

S&P's affirmed its "BBB-/A-3" counterparty credit rating on CNA Financial Corp. and its "A-" counterparty credit and financial strength ratings on CAN's insurance subsidiaries after the senior debt rating on Loews Corp., which owns 90 percent of CNA, was placed on CreditWatch with negative implications in April. The outlook on these companies is stable.

The ratings on CNA and the members of CNA Financial Property/Casualty Group benefit from Loews' strong commitment to its insurance subsidiary. Loews has injected $1.7 billion of capital into CNA in the past two years, and S&P's expects that additional support would be provided if a material capital deficiency emerges at the property/casualty group.

If the rating on Loews is lowered by one notch, no revision of the ratings on CNA is expected. In the highly unlikely event that the rating on Loews is lowered by two notches, the ratings on CNA would be placed under review, and a one-notch downgrade of the company would be likely because S&P's believes the financial flexibility CNA derives from Loews would be materially lower.

ALPS Cut to 'BBB'

Standard & Poor's Ratings Services lowered its counterparty credit and financial strength ratings on Attorneys Liability Protection Society Inc. (ALPS), a Risk Retention Group, to "BBB" from "A-" and removed the company from CreditWatch, where it was placed in mid-March. The outlook is negative.

The action reflects the company's decision to strengthen its reserves by $7.3 million at the end of 2002, according to S&P's credit analyst Donovan Fraser. The reserve strengthening was targeted to the accident years 1998 through 2001. Even further reserve strengthening should follow ALPS' analysis of the 2002 accident year, Faser said.

The reserve increases follow an extensive claims, rate, and reserve review process undertaken by the company in the past 15 months. The statutory combined ratios of 108.2 percent and 104.3 percent for calendar years 2002 and 2001, respectively, marked the first consecutive years of underwriting losses for the company since its inception in 1987. After reflection of the aforementioned reserve increases, the company would have operated at an underwriting loss in four of the past five years on an accident year basis.

The "BBB" rating reflects the company's demonstrated ability to increase rates in the current environment, strong but diminished capitalization as measured by a S&P's capital adequacy ratio of 166 percent, and a good niche servicing small to midsize law practices.

The negative outlook reflects the challenges faced by the company.