Gulf Insurance Group Downgraded

A.M. Best Co. downgraded the financial strength rating to “A” (Excellent) from “A+” (Superior) of the Gulf Insurance Group. The rating outlook is stable. The action reflects the group’s underwriting deterioration, increased earnings volatility over the past several years and its diminished stand-alone capitalization. These factors largely stem from the magnitude of losses sustained by Gulf in its discontinued residual value insurance (RVI) business, which takes into consideration a recent settlement of a claims coverage dispute and the strengthening of reserves on all of the group’s RVI business. Gulf’s susceptibility to credit risk, as well as dispute risk as it relates to its substantial reinsurance dependence was also considered.

In 2002 and first quarter 2003, Gulf’s prior year loss reserves for RVI business were significantly strengthened, including an additional $239 million in first quarter 2003. In first quarter 2003, reserves for some of Gulf’s core businesses were also strengthened by $30 million. A.M. Best believes there is potential for further reserve development at Gulf, particularly as it relates to professional liability lines where litigation and loss cost trends have been rapidly rising.