S&P Reports Cumberland Casualty & Surety Co. Ratings Revised to 'R'

March 10, 2004

Standard & Poor's has revised its counterparty credit and financial strength ratings on Florida-based Cumberland Casualty & Surety Co. (CCS) to 'R' from 'Bpi'.

This rating action was taken after CCS filed a voluntary petition for rehabilitation with the Florida Department of Financial Services. On Feb. 26, 2004, Florida-based Cumberland Technologies Inc., the parent of CCS, announced that CCS will record a substantial net loss for the fourth quarter of 2003 and for the fiscal year of 2003. A portion of the loss is a charge of no less than $2.5 million stemming from adverse loss developments and adjustments to reinsurance recoverables related to claims incurred in the last three years, some exceeding CCS's reinsurance treaty limits. CCS has a capital deficiency as a result of this charge and is currently unable to issue insurance contracts. Established in 1988, CCS specializes in the provision of a full line of surety bonds, from contractors' performance and payment bonds to license and permit and court bonds.

Earlier this year, Standard & Poor's lowered its ratings on CCS to 'Bpi' from 'BBpi', citing the company's weak and volatile operating performance, marginal capitalization, and high product-line concentration.

CCS's earnings adequacy ratio, as measured by Standard & Poor's model, was negative, and surety insurance accounted for 84 percent of the company's direct business. In the past three years, there has also been significant deterioration in the company's combined ratio and surplus.

An insurer rated 'R' is under regulatory supervision owing to its financial condition. During the pendency of the regulatory supervision, the regulators may have the power to favor one class of obligations over others or pay some obligations and not others. The rating does not apply to insurers subject only to non-financial actions such as market conduct violations.Ratings List TO FROMCumberland Casualty & Surety Co.Counterparty credit rating R BpiFinancial strength rating R Bpi