Swiss Re Downgraded

A.M. Best Co. has downgraded the financial strength ratings to "A+" (superior) from "A++" (superior) of Swiss Re and its core subsidiaries. At the same time, Best has accordingly downgraded the ratings on all debt instruments issued by Swiss Re's group entities. Best has also affirmed Swiss Re's commercial paper program at "AMB-1+." The outlook on all ratings has been changed to stable from negative.

These rating actions reflect Best's view that Swiss Re's prospective consolidated earnings are unlikely to be supportive of an "A++" consolidated risk-based capital level throughout the cycle, especially after the reduction suffered from historic levels. Current capital could be viewed as being at an "A++" level; however, the degree of "soft" capital mitigates this in part. This fact, combined with the earnings outlook for Swiss Re and the industry, leads Best to conclude that capital levels that are more consistent with an "A+" financial strength rating will be maintained prospectively.

These ratings also factor Swiss Re's superior business position in the worldwide reinsurance markets as well as the very stable and experienced management team.

Outlook Stable for LUBA Workers' Comp

Best has assigned an initial financial strength rating of "A-" (excellent) to Louisiana United Businesses Self Insurers Fund, also known as LUBA Workers' Comp, based in Baton Rouge, La.. The rating outlook is stable.

Best said the rating reflects LUBA Workers' Comp's strong risk-adjusted capitalization, its profitable underwriting and excellent operating performance, as well as its strong business profile in the Louisiana workers' comp market. These positive rating factors are somewhat mitigated by the Fund's business concentration in a single line and state, which magnifies its exposure to competition and potentially adverse economic and regulatory changes. With disciplined underwriting and a focus on risk management, LUBA Workers' Comp has produced excellent underwriting and operating results, building a solid surplus position through retained earnings and generating strong operating cash flows and good liquidity.

The Fund's surplus consists of earnings from prior years, which have not been returned to the members. The Fund accumulates these earnings in a reserve for member distributions payable, which effectively represents the equity of the members. LUBA Workers' Comp maintains moderate leverage measures and its balance sheet strength is supported by a low-risk investment portfolio, conservative reserving practices and a prudent reinsurance program. While controlling its growth, the Fund retains a very high percentage of its members and has become Louisiana's second-largest writer of workers' comp business in premium volume.

'A' FSR to Commerce Group Mass. Subs

Standard & Poor's (S&P) Ratings Services assigned its "A" counterparty credit and financial strength ratings with a "stable" outlook to Commerce Insurance Co. (CIC) and Citation Insurance Co. Both companies are Mass.-based subsidiaries of The Commerce Group Inc. (CGI), a publicly traded holding company.

S&P said the ratings reflect the Commerce group's excellent franchise in the Massachusetts private passenger auto market, extremely strong capitalization, and historically strong earnings. Partially offsetting these strengths is the group's high concentration in the highly regulated Massachusetts market and limited product breadth. Concentration is expected to improve over the long term as the organization's subsidiaries expand their presence in various states to achieve a greater balance of risk, and the Commerce Group should continue to make progress in expanding its presence outside Massachusetts through American Commerce Insurance Co. (not rated) and Commerce West Insurance Co. (not rated), diversifying its revenue stream by way of product and geography. It is expected the non-rated insurance companies will become an integral part of the over all organization under CGI. Operating performance of these companies have been weaker than the performance of the two rated companies and is expected to add a few points to the consolidated organization's combined ratio. Massachusetts is expected to remain the group's core market over the long term.

The Commerce Group, along with its nonrated subsidiaries, should produce year-end 2003 underwriting and earnings measured in line with its historical five-year averages with a combined ratio at or less than 100 percent, ROR of 12.5 percent, and ROA of 6.5 percent. Major rating factors are strong operating history, sound business position, extremely strong capitalization, geographical concentration and high dividend payout.

In the past 15-year period, Commerce Group has never experienced an unprofitable year, and has consistently produced a combined ratio each year of less than 100 percent. The company is at or near the top of S&P's interactively rated peer group for the past five-year period producing RORs and ROAs averaging 12.5 percent and 6.5 percent, respectively. Strong control of loss costs and expense continues to be the company's major advantage in producing solid underwriting and earnings measures.

A low-cost structure and strong affinity alliances through the American Automobile Association (AAA) aid the company in marketing to clientele with favorable risk profiles in Massachusetts as well as in other states. As the No. 1 private passenger carrier in Massachusetts with a 27 percent market share, the company should continue to be a significant player in that market. As of year-end 2002, consolidated capitalization is a cornerstone of the company's strength. Capital adequacy is considered extremely strong at about 230 percent.

CIC and Citation have historically paid out a significant dividend to their ultimate parent company, CGI, averaging about 40 percent of net income. The historically strong earnings have allowed such large payouts and it is expected that the companies will continue to pay comparably high dividends.

Austin Mutual Affirmed

Best affirmed the financial strength rating of "A-" (excellent) of Minneapolis-based Austin Mutual Insurance Co. The rating outlook is stable and reflects the company's excellent capitalization, conservative balance sheet and local market knowledge. These factors are derived from management's conservative operating strategy, effective use of automation for internal processing and long-standing agency relationships. Effective Oct. 1, 2003, Northern Mutual Insurance Co.'s assets and liabilities were transferred to Austin Mutual, and Northern Mutual was dissolved, leaving Austin Mutual with the stand-alone financial strength rating of "A-."

Commercial Risk Re Downgraded

A.M. Best has downgraded the financial strength ratings to "B+" (very good) from "B++" (very good) of Commercial Risk Reinsurance Co. Ltd., based in Bermuda, and its U.S. subsidiary in Vermont, Commercial Risk ReInsurance Co. Both ratings have been removed from under review and assigned a negative outlook. The companies are the operating subsidiaries of the Bermudian holding company, Commercial Risk Partners Ltd., which is owned by Paris-based SCOR.

These rating actions reflect Best's view of the companies' consolidated risk-adjusted capitalization. They also consider large operating losses in 2002 and continued losses in the first half of 2003 on a consolidated basis, as well as inter-company balances with SCOR, whose financial strength rating was recently downgraded to "B++" (very good). The negative outlook reflects the uncertainty arising from the run-off of liabilities and commutations of the companies' business following the adverse development of reserves registered in 2002. In Jan. 2003, SCOR announced that it was placing the companies in runoff and seeking to sell them during the course of 2003. However, a sale does not appear imminent, as negotiations have become protracted. Nevertheless, the ratings recognize the significant actions taken by SCOR to minimize the companies' reserving risks. These include a large commutation, which has helped reduce the companies' consolidated risk capital requirements by reducing loss reserves by nearly 20 percent.