GE P/C Ratings Raised, Outlook Stable

Standard & Poor's Ratings Services raised its financial strength ratings on GE Property & Casualty Insurance Co., GE Casualty Insurance Co., GE Auto & Home Assurance Co., and GE Indemnity Insurance Co. to "AAA" and removed the ratings from credit watch, where they were placed on June 26, 2003.

In addition, the counterparty credit ratings on these companies were withdrawn because the ratings are based on a guaranty of policyholder obligations. The outlook on the financial strength ratings is stable. The action was based on a guaranty from AIG-owned Lexington Insurance Co., S&P analyst Grace Osborne said.

The direct-marketing focus of the GE property/casualty personal lines is expected to fit smoothly into AIG's personal lines operations, and duplicative costs will be eliminated in the short-term. The senior citizen segment, nurtured by a long-term association with Colonial Penn Life Insurance Co., is expected to add a profitable niche to AIG's personal lines strategy. The funding for these acquisitions is internally sourced, resulting in no material increase in AIG's financial leverage.

R&SA USA Downgraded

S&P and Fitch Ratings both announced that they have downgraded their respective financial strength and counterparty credit ratings on the members of the Royal & SunAlliance USA Group. A.M. Best Co. said it has placed the ratings "under review with negative implications."

S&P lowered its ratings two notches to "BBB-" from "BBB+" on all of R&SA's U.S. Units. Fitch downgraded its ratings a precipitous five notches from "BBB+" all the way to "BB-." Both rating agencies indicated that they would also keep them on their watch lists "with negative implications."

S&P specifically indicated its actions resulted from the company's announcement "that it intends to strengthen its U.S. reserve position by approximately $600 million (pre-tax) or more in third-quarter 2003, and that it has entered into a definitive agreement to sell the renewal rights of R&SA USA's standard personal lines and a majority of its commercial lines business to Travelers Property Casualty Corp."

Fitch stressed that from R&SA's announcement that it has sold the renewal rights for its commercial and standard personal lines businesses, it is "effectively placing a majority of the R&SA USA book of business into run-off. Additionally, R&SA has indicated that it will infuse capital into R&SA USA only to the extent needed to maintain minimum statutory requirements from the proceeds of a fully underwritten rights offering of $1.5 billion."

Best's announcement indicated that, "while the proposed restructuring in the U.S. will reduce R&SA's global consolidated risk capital requirements, A.M. Best remains concerned that the restructuring will negatively impact the business profile of R&SA USA operations and may significantly erode the capital position of the U.S. insurance entities." It added that it is "currently assessing the impact of this restructuring on the U.S. companies' pro forma operating performance, capitalization and reserve adequacy and expects to conclude on the U.S. ratings by the time R&SA announces its third quarter results in November."

Travelers Unchanged

A.M. Best Co. commented that the financial strength ratings of "A++" (superior) of Travelers Property Casualty Pool, the "aa-" senior debt and "a+" subordinated debt ratings of Travelers Property Casualty Corp. will not be affected by Travelers Property Casualty Group's recently announced plans to purchase the renewal rights up to approximately $1.5 billion in net written premium from Royal & SunAlliance USA. These ratings apply to the 20-member pool, led by Travelers Indemnity Co., and its two reinsured affiliates. These ratings also apply to Travelers Casualty and Surety Co. of America and Travelers Casualty and Surety Company of Canada, which A.M. Best considers to be core and integral members of the Travelers Property Casualty Group. The outlook for all the ratings is stable.

Under the terms of the agreement, Travelers will purchase the renewal rights up to approximately $1.5 billion in personal, standard middle market commercial and national accounts premiums for a minimum of $25 million. The acquisition will increase Travelers access to distribution in its core business segments and is expected to be accretive to earnings in 2004, as the group re-underwrites the book of business and selectively renews accounts.

All in-force premium and existing loss reserves will remain the responsibility of R&SA USA, with no exposure to Travelers. Despite the size of this transaction, A.M. Best believes Travelers' pro-forma capitalization (post-transaction) will remain commensurate with its current ratings and believes the strength of Travelers' balance sheet and earnings will enable it to absorb this additional premium. However, this transaction increases Travelers' operating leverage, which ultimately reduces Travelers' overall capital flexibility.

Munich Re Downgraded

A.M. Best Co. has downgraded the financial strength ratings to "A+" (superior) from "A++" (superior) of Muenchener Rueckversicherungs (Munich Re), and its core subsidiaries. This rating action follows Munich Re's release of earnings for the first six months of 2003. Munich Re has reported an improvement of its non-life underwriting performance, but A.M. Best believes that earnings for the full-year 2003 will be below expectations. Munich Re has reported a half-year loss of $663 million after a $1.54 billion tax provision.

Munich Re still holds a superior business position as the world's largest reinsurer benefiting from its outstanding global network and underwriting capacity, A.M. Best said.