S&P Places Meadowbrook Ratings on WatchNeg

February 21, 2001

Standard & Poor’s has placed its single-‘A’ counterparty credit and financial strength ratings on Star Insurance Co. and its wholly owned subsidiary, Savers Property & Casualty Insurance Co. – collectively known as Meadowbrook Insurance Group – on CreditWatch with negative implications.

This rating action follows Meadowbrook’s announcement on Feb. 15, 2001, that its year-end 2000 net operating loss was $17.8 million, which is greater than S&P had expected.

The earnings shortfall is mainly a reflection of an after-tax charge of $19 million for reserve strengthening Meadowbrook took in the fourth quarter of 2000, primarily related to discontinued programs. This reserve action resulted from a comprehensive reserve review conducted by management in consultation with two independent actuarial firms.

Capitalization, which has been very strong for the group, has suffered as a result and might not support current ratings. One of the capital resources for the group is an unsecured revolving bank line of credit of $50 million, which the company expects to reduce by $15 million by April 30, 2001. S&P met with management today to discuss the group’s most recent financial results, overall reserve adequacy position, and ongoing underwriting profitability.

Within the next week or so, Standard & Poor’s will review the ratings and evaluate very closely various company actions — such as rate increases and capital raising initiatives — that could positively affect the profitability of current programs, overall reserve position, and capital adequacy in the near term.

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