A.M. Best Downgrades Providence Washington

March 31, 2004

A.M. Best Co. has downgraded the financial strength rating to B+ (Very Good) from A- (Excellent) of Providence Washington Insurance Companies (Providence, RI) and placed the rating under review with negative implications. The rating applies to the four inter-company pool members led by Providence Washington Insurance Company.

The rating reflects the group’s weak capitalization and poor underwriting results driven by significant reserve charges relating primarily to accident years 1999-2001. The group recorded a reserve charge of $43.9 million in the fourth quarter of 2003, which decreased its policyholders’ surplus by 35%. Providence Washington has reported considerable unfavorable loss reserve development in recent years.

Other negative factors include Providence Washington’s modest earnings history and the continuation of stockholder dividends. While dividends from Providence Washington are necessary to service the debt at PW Acquisition Company, this is tempered by the fact that the debt held is predominantly long term and payable in kind. Given the potential for further adverse loss reserve development, A.M. Best continues to view the rating outlook as negative until reserves stabilize and operating profitability is restored.

The rating was placed under review as the substantial reserve charge reported by Providence Washington at year-end 2003 resulted in considerable operating losses and risk-adjusted capitalization that was unsupportive of the current rating. A.M. Best has been in discussions with management concerning these issues, particularly with regard to capitalization.

Based on these discussions, there is a possibility that additional capital could be infused into PW Acquisition Company on or before May 31, 2004. Upon receipt of the proceeds, Providence Washington’s capitalization will fall more in line with its current secure rating. The negative implication signals the risk associated with the capital raising initiatives with regard to amount, terms and placement. If capital is not increased, the rating of Providence Washington is likely to be further downgraded.

The financial strength rating has been downgraded to B+ (Very Good) from A- (Excellent) for the following inter-company pool members of Providence Washington:

• American Concept Insurance Company
• Providence Washington Insurance Company of New York
• Providence Washington Insurance Company
• York Insurance Company

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