A.M. Best Upgrades Rating of Folksamerica Reinsurance Co.

June 19, 2003

A.M. Best Co. has upgraded the financial strength rating to A (Excellent) from A- (Excellent) of Folksamerica Reinsurance Company (New York). The rating outlook is stable.

The rating reflects Folksamerica’s increased and significantly improved level of stand-alone risk-adjusted capitalization (which exceeds the current rating level), recently improved earnings trend and the benefits to be derived from Folksamerica’s enhanced position in a markedly improved reinsurance environment. This upgrade also takes into consideration the explicit support of Folksamerica’s immediate parent, OneBeacon Insurance Company (Pennsylvania), which is ultimately owned by White Mountains Insurance Group, Ltd. (Bermuda).

While recognizing these benefits, Folksamerica has recorded adverse loss reserve development in recent years related to previously acquired books of business and management’s underestimation of the effects of the soft market conditions, which ended in 2001. An adverse development cover, purchased in 2000, has partially mitigated the impact of the development on acquired portfolios. As this cover is now nearly exhausted, A.M. Best remains somewhat concerned regarding the potential for continued, albeit modest, adverse reserve development.

Nonetheless, A.M. Best’s stable outlook reflects the company’s superior capitalization and anticipates stronger underwriting and operating results over the medium term due to improved pricing and tightened terms and conditions, as well as the beneficial impact expected from the remedial actions taken by management.

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