Landmark Awarded 'A' Rating

A.M. Best Co. assigned a financial strength rating of "A" (excellent) to Oklahoma-based Landmark American Insurance Co. The rating outlook is stable. This rating action follows the close of the Sept. 2 transaction in which Delaware-based Alleghany Corp. acquired Landmark American Insurance Co. from Royal & Sun Alliance Group for approximately $34 million. This action also follows the July 1 transaction in which Alleghany Corp. acquired Georgia-based Resurgens Specialty Underwriting Inc., (RSUI Inc.)—formerly known as Royal Specialty Underwriting Inc.—a managing underwriting agency; renewal rights to the ongoing business underwritten by RSUI; and the related unearned premium reserve portfolio for $115 million.

On June 30, Alleghany acquired RSUI Indemnity Co. (formerly Underwriters Reinsurance Co.) to support future admitted business to be underwritten by RSUI Inc. and capitalized at more than $500 million. It is expected that Alleghany will utilize Landmark as its surplus lines carrier to write the non-admitted business of RSUI Inc.

The assigned rating reflects the approval of a 90/10 quota share reinsurance agreement between RSUI Indemnity Co. and its new wholly-owned reinsured subsidiary, Landmark American Insurance Co. Furthermore, the new rating recognizes that 90 percent of Landmark's losses are reinsured with its parent, as well as its excellent capitalization, the historical underwriting profitability of RSUI Inc.'s various books of business, Alleghany's vital role in supporting and enhancing its business plan, Alleghany's financial flexibility and its historical track record of profitably operating well-capitalized insurance subsidiaries. RSUI Inc. has an established infrastructure and experienced book of business that will be moved to Landmark's paper. A.M. Best anticipates that the historical profitability will continue under Alleghany's ownership.

As part of the initial transaction, Alleghany did not acquire any loss reserves associated with business previously produced and earned by RSUI Inc. or Landmark. To support future business to be underwritten, Alleghany capitalized Landmark at approximately $65 million. The source of funds for the transaction consists principally of invested assets at Alleghany, Alleghany Insurance Holdings LLC and RSUI Indemnity Co.

FEIC Gets an 'A-'

Fremont Employers Insurance Co. (FEIC) received an "A-" (excellent) rating from A.M. Best. FEIC is a wholly-owned subsidiary of Employers Insurance Co. of Nevada (EICN). FEIC's rating was part of a pooling agreement wherein EICN and FEIC received the same "A-" (excellent) rating by A.M. Best. EICN was assigned its "A-" (excellent) rating in June 2003.

The companies operating under the trade name Employers Insurance Group provide workers' compensation insurance, claims management, loss prevention consulting, underwriting and care management services.

Lincoln General Affirmed

A.M. Best affirmed the financial strength rating of "A-" (excellent) of York, Pa.-based Lincoln General Insurance Co., a subsidiary of Kingsway Financial Services Inc. (Ontario). The rating has been removed from under review and assigned a negative outlook. Lincoln General's rating action is a result of its strengthened capital position, following Kingsway's successful capital raising initiatives and infusion of new capital into Lincoln General in the second quarter of 2003. Additionally, Lincoln General's underwriting results have shown significant improvement and are expected to produce an underwriting profit for the year. A.M. Best remains concerned about Lincoln General's underwriting leverage position as well as its ability to effectively manage the additional volume of business.

Lincoln General's capital position has been greatly improved and is supportive of the company's financial strength rating. Furthermore, Kingsway has successfully completed several capital raising initiatives and added $50 million to Lincoln General's surplus. In addition, Lincoln General's underwriting results through June 2003 have shown a marked improvement over the prior year.

The negative outlook reflects Best's concern that Lincoln General may need additional capital by year-end if the company continues to strain surplus through premium growth or if loss reserves continue to adversely develop.

Outlook Stable for Markel

Moody's Investors Service affirmed Glen Allen, Va.-based Markel Corp.'s "Baa3" senior debt rating and "A3" insurance financial strength ratings at its U.S. insurance entities. The outlook for the ratings remains stable.

Moody's noted that the affirmation reflects Markel's strong position in U.S. specialty and excess and surplus (E&S) property/casualty segments, its historical focus on underwriting results and reserve stability in its North American E&S segment. Moody's noted that the company is reporting solid underwriting profit margins in current accident year results and the rating agency believes that Markel is well positioned to take advantage of improved market conditions in the commercial lines sector.

Markel has dedicated considerable amounts of capital and management focus to improve the balance sheet and operating platforms of its acquired businesses. Improved operating results from Markel's international segment are expected, though execution risks will likely persist considering the segment's historical patterns of earnings volatility. It is believed that recent restructuring efforts may take time to materially improve the underwriting profitability of Markel's international businesses.

Offsetting factors include the increasing degree of stress or risk being supported by Markel's capital base. The company's financial and double leverage are high relative to peers and the holding company's financial flexibility is somewhat constrained relative to peers due to its lower unencumbered dividend capacity coverage of annual interest expense.

Moody's current ratings are based upon the expectation that Markel's primary focus will continue to be on organic growth and sustaining earnings improvements over the near-term. Moody's believes that Markel presently has sufficient liquidity and capital resources to meet its ongoing requirements, though the company's likely dependence on bank borrowings to meet its near-term holding company liquidity and other working capital needs remains a concern.

The outlook for the ratings is stable and reflects the rating agency's expectations that the company will continue to report earnings and capital growth without material disruption.

Goshawk Lloyd's Downgraded

Moody's downgraded the performance rating of Lloyd's syndicate 102—Goshawk Syndicate Management Limited—to "C+" (below average) from "B+" (above average) and kept it on review for further possible downgrade.

This follows the release of Goshawk Insurance Holdings trading statement Sept. 19 indicating further adverse development on certain lines of syndicate 102's business and the need for additional reinsurance provisions.

Goshawk has announced that the Group's results for the six months to June 30 are expected to be materially below market expectations. Furthermore, depending on the extent of the additional reserving required, the Group may be in breach of its banking covenants.

This announcement follows revisions to the syndicate's forecasts for the 2001 account to negative 20 percent to negative 30 percent from negative five percent to negative 10 percent.

Moody's expects there could be severe pressure on the funds at Lloyd's available to syndicate 102 for underwriting in 2004. Without any obvious source of additional external funds, and with the expectation that funds, if any, diverted from Goshawk's Bermudan operation Goshawk Re are likely to be limited, the syndicate has been downgraded to "C+" (below average) and kept under review for further possible downgrade.