S&P Lowers Reliance Group Holdings and Related

July 7, 2000

Standard & Poor’s has lowered its ratings on Reliance Group Holdings Inc. (Reliance) and the members of the Reliance Insurance Co. Intercompany Pool. These ratings remain on CreditWatch, where they were placed May 26, 2000, with developing implications.

Standard & Poor’s lowered Reliance’s ratings because of increasing concerns that the company will fail in its efforts to refinance more than $500 million in debt obligations, which mature in August and November.

The company continues to divest itself of key businesses, which Standard & Poor’s believes weakens the company’s ability to generate the necessary liquidity to meet its ongoing obligations. Another important consideration is that Reliance retains the run-off of reserves on the businesses it has sold.

Standard & Poor’s believes this exposes Reliance to potentially significant adverse loss reserve development; and that this, coupled with the projected negative operating cash flow, creates a significant liquidity strain on the company. As a result, Reliance’s ability to meet its various obligations at the operating company and holding company levels is weak.

The developing outlook reflects the pending completion by Leucadia National Corp. to acquire 100 percent of the outstanding shares of Reliance. Leucadia has extended the time frame for completing its due diligence, which Standard & Poor’s believes threatens Reliance’s ability to maintain adequate business relationships. Combined with the uncertainty surrounding the adequacy of reported loss reserves, Standard & Poor’s expects Reliance’s financial condition to deteriorate further.

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