Fitch Lowers Attorneys’ Liability Assurance Society

July 24, 2002

Fitch Ratings lowered its insurer financial strength rating on Attorneys’ Liability Assurance Society Ltd. (ALAS) of Bermuda to “AA-” from “AA”. The rating outlook is stable.

Fitch’s action reflects its belief that due primarily to intense competition and cyclical market challenges evident the past several years in the professional liability markets, that it is no longer consistent with Fitch’s rating parameters to rate a monoline professional liability insurer at the “AA” rating level. Fitch believes the action better aligns ALAS’ rating with those of peer companies within Fitch’s rating universe, a significant number of whom have also been downgraded in the past 12-18 months, to reflect Fitch’s more negative long-term macro views in the commercial property/casualty sector.

Fitch’s very strong insurer financial strength rating on ALAS continues to reflect the company’s good competitive position and strategy in its chosen market, exceptionally strong capital position, comprehensive reinsurance protection and high-quality investment portfolio.

Fitch believes that ALAS’ competitive position and operating profile will benefit from the current hard market conditions. However, Fitch also believes that ALAS’ experience during the prolonged soft market of the mid-to-late 1990’s demonstrates the impact of market conditions on the company’s operating profile. During this period, ALAS’ underwriting profitability declined and the company found it difficult to attract new member firms. In addition, claim severity has been increasing, reflective of overall trends in the lawyers’ liability market.

Fitch believes that ALAS has achieved a high-market share in its chosen market and a high-member retention rate (mid to high 90 percent) by combining a competitively priced product with value-added loss prevention and claims management services. As an established, stable long-term player in the market, ALAS should be well positioned in the hardening market phase to retain and add new high-quality insured-member firms and attorneys that fit its risk profile.

ALAS’ members’ net worth has remained very strong at $276 million at Nov. 30, 2001 (fiscal year-end 2001). ALAS has been able to maintain its surplus position despite severe price competition and payment of premium credits and other forms of members’ distributions, due in part to sizable favorable investment results, including portfolio gains, both realized and unrealized.

However, to the extent that the investment environment remains difficult, ALAS, as well as the insurance industry overall, will be challenged to achieve a similar level of investment results going forward.

ALAS’ reinsurance program provides significant protection against large losses, limiting retained losses to roughly $8 million on any one loss. Fitch believes that this is especially important for ALAS given the high policy limits it offers and the underwriting volatility inherent in the lawyers’ liability line.

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