S&P’s Puts Acceptance Insurance Cos. and Subsidiaries on Watch Negative

November 19, 2002

Standard & Poor’s has placed its ‘B+’ counterparty credit rating on
Acceptance Insurance Cos. Inc. (AICI) and its operating units on CreditWatch with negative implications. At the same time, Standard & Poor’s placed on CreditWatch with negative implications its ‘CCC+’ rating on the company’s trust-originated preferred securities due 2027.

In addition, Standard & Poor’s also said it placed its ‘BBB-‘ counterparty credit and financial strength ratings on American Growers Insurance Co. (AGIC) on CreditWatch with negative implications.

“The rating action reflects AICI’s postponement of its third-quarter
earnings conference call, originally scheduled for Nov. 15; its concomitant announcement that it intends to extend the date for filing its 10-Q quarterly report to the Securities and Exchange Commission; unusual trading activity and steep decline in the market value of its common stock; and management’s noting when it postponed the earnings call that it was in active discussions
regarding possible strategic transactions – a fact known to Standard & Poor’s,” Standard & Poor’s credit analyst Charles Titterton said.

AICI is a holding company whose main operation is AGIC, the largest
provider of federal multiperil crop insurance (MPCI) and crop revenue coverage insurance (CRC) to farmers in the U.S. In addition, AGIC writes commercial crop and named peril insurance for farmers. AICI also owns Acceptance Insurance Co. (AIC) an unsuccessful multiline commercial insurer that is in runoff.

On Aug. 29, 2002, Standard & Poor’s affirmed its ratings and established a positive outlook on AICI and AGIC, citing the latter’s strong market position and good long-term operating results in MPCI and CRC and the former’s ability to service its trust-originated preferred securities, the only external source of funds on its balance sheet besides funding obtained in the normal course of business like accounts payable. On that date Standard & Poor’s lowered its counterparty credit and financial strength ratings on AIC to ‘B+’ from ‘BB-‘ and, at management’s request, withdrew these ratings.

Standard & Poor’s expects to resolve its CreditWatch after talking with management about the current state of affairs of the Acceptance organization.

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