HIGHLANDS’ S&P RATING LOWERED

Standard & Poor’s has lowered its financial strength ratings on all members of the Highlands Insurance Group, to double-‘Bpi’ from triple-‘Bpi.’

Included in the downgrade are Highlands Insurance Co., Highlands Underwriters Insurance Co., Highlands Casualty Co., Aberdeen Insurance Co., Highlands Lloyds, and Northwestern National Casualty Co. The rating action reflects uncertainty regarding the adequacy of Highlands Insurance Group’s loss reserves, especially those on the group’s commercial multiple peril and workers’ compensation business. This uncertainty, though not reflected in the third-quarter capitalization and liquidity, will further pressure the ratings into weaker categories depending on the severity of reserve developments in the near term.

As of third-quarter 2000, Highlands Insurance Co.’s estimated capitalization and liquidity fell below the level considered secure. This drop in liquidity and capitalization can be attributed partially to a $12 million dividend to the holding company, Highlands Insurance Group, and also to the growth in liabilities proportionally outpacing the growth in assets.