A.M. Best Affirms Ratings of Wawanesa Mutual and Subsidiary

July 30, 2002

A.M. Best Co. has affirmed the financial strength rating of A+ (Superior) of Wawanesa Mutual Insurance Company, (Winnipeg, Canada).

The rating also applies to Wawanesa General Insurance Company of San Diego, its U.S. subsidiary. The outlook for this rating is stable.

The rating reflects Wawanesa Mutual’s excellent capitalization, strong operating performance and long-standing market position in the Canadian property/casualty industry. Wawanesa Mutual maintains a large surplus base, supported by a conservative reserving philosophy and a consistent operating profitability, which enables it to support current underwriting and investment risk. The company has demonstrated strong operating fundamentals emphasizing sound underwriting discipline and claims handling, efficient expense management through the use of technology and responsive customer service.

Wawanesa Mutual has achieved its market position in Canada through successful, long-term relationships with its independent broker base, which has helped it maintain a strong regional presence and obtain a high renewal retention rate. Wawanesa Mutual is the largest mutual insurance company in Canada.

Partially offsetting these rating strengths is Wawanesa Mutual’s challenge to maintain sound underwriting results through adequate pricing despite loss cost inflation, especially in the Ontario, Alberta and Atlantic personal auto markets. Additionally, the U.S. operations are concentrated in California, which presents a complex regulatory and legal environment, as well as exposure to catastrophic loss. Nevertheless, historically, management has proven the ability to generate strong results in this environment.

The U.S. operations are composed of Wawanesa Mutual (U.S. branch) and Wawanesa General Insurance Company. The U.S. branch currently only services a renewal book of California preferred personal auto and property business. All new business is written through Wawanesa General on a direct basis at preferred rates. Historically, the U.S. branch has generated strong operating results, contributing to an extremely strong capital base.

Wawanesa General’s underwriting results have not performed well since the company’s inception; however, A.M. Best expects results to improve as the book of business matures.

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