A.M. Best Assigns A+ Rating to the Gulf Insurance Group

August 5, 2002

A.M. Best Co. has assigned a financial strength rating of A+ (Superior) to the re- established Gulf Insurance Group (New York), and removed from under review the rating of six companies, which were previously part of the Travelers Property/ Casualty Pool.

This rating action follows the $139 million capital investment in Gulf’s immediate parent, Commercial Insurance Resources Inc. (CIRI), by outside investors and approximately 75 senior employees of Gulf Insurance Company, as well as the re-establishment of the Gulf Insurance Group pool, which will be retroactive to Jan. 1, 2002. The rating also takes into account Gulf’s ceding of more than $230 million of non-core businesses along with $183 million of loss reserves, both via 100 percent quota share to Travelers Indemnity Company. Capital investments made by investors include $86 million of mandatory convertible preferred stock, $50 million of convertible notes and $3 million of common equity.

Despite a change in ownership, A.M. Best believes Gulf remains well managed and is strongly positioned in its markets. Other positive factors include Gulf’s strong capitalization, highly specialized and diversified product offerings, proven track record and benefits derived from its affiliation with Travelers.

Although managed autonomously, the rating acknowledges Gulf’s affiliation with Travelers, the strategic role it plays within this well-respected franchise and the implicit financial and operating support of its parent.

Partially offsetting these factors is the underwriting deterioration and greater earnings volatility over the past few years, continued broker concentration and reinsurance dependence. Gulf produced an uncharacteristically high combined ratio of 121.4 percent in 2001, primarily due to the events of Sept. 11. Excluding Sept. 11, Gulf’s normalized combined ratio of 102.7 percent was higher than Gulf’s historical results. Rising loss costs have necessitated some aggressive re- underwriting and increased pricing in an effort to restore underwriting profitability. Hardened property/casualty markets are proving exceedingly beneficial to Gulf, although 2002 could prove to be a transitional year as underwriting initiatives have just begun to manifest themselves.

CIRI, Gulf’s immediate parent holding company, will maintain low financial leverage. Modest cash needs at the holding company should allow for further accumulation of capital at the insurance companies. A.M. Best views the rating outlook of Gulf as stable.

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