S&P Revises Highlands Ratings After Bankruptcy Filing

November 5, 2002

Standard & Poor’s Ratings Services revised the financial strength ratings of Highlands Insurance Co. and its subsidiairies from triple-“Cpi” to “R” after the firm’s holding company, Highlands Insurance Group Inc., announced it had filed for Chapter 11 bankruptcy protection.

The company has filed a reorganization plan and has cancelled its common stock with no consideration paid to shareholders. Prior to filing for bankruptcy protection, Highlands Insurance Group Inc. was already in the process of a plan, adopted in December 2001, to run-off its insurance business and cease issuing new or renewal policies except as otherwise required by law.

Highlands Insurance Co. and affiliated companies are currently under regulatory supervision by the various state departments of insurance.

The previous triple-“Cpi” financial strength ratings on the Highlands companies reflected S&P’s concerns that adverse reserve developments and deteriorating capital adequacy would seriously impair and limit the companies’ ongoing viability. 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 nonfinancial actions such as market conduct violations.

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