Folksamerica Reinsurance Rating Lowered

April 19, 2001

The “A” financial strength rating of Folksamerica Reinsurance Company, New York, was lowered to “A-” by A.M. Best.

Cited as a major rating factor was a deterioration in recent earnings trends, resulting in an increased dependence on reinsurance and parental contributions. A.M. Best also expressed concern over the company’s ability to restore profitability and generate future capital in light of the challenges associated with the highly competitive reinsurance market as well as Folksamerica’s limited geographic diversification and distribution capabilities.

In addition, A.M. Best stated that the financial flexibility afforded the company under its current ownership structure may diminish as a result of the pending acquisition of CGU by Folksamerica’s parent, White Mountains.

However, Folksamerica’s rating continues to be “Excellent,” reflecting its solid capitalization, historic operating performance and opportunistic market strategy. The rating also considers the demonstrated commitment of the company’s parent, as evidenced by capital contributions of $120 million to alleviate underwriting leverage.

A.M. Best said it expects improved operating trends to result from Folksamerica management’s remedial actions, taken to stabilize capitalization and restore earnings growth.

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