A.M. Best Lowers Kemper Cos. Ratings

March 3, 2003

A.M. Best Co. has lowered the financial strength rating to B (Fair) from B+ (Very Good) of the participants in the Kemper Insurance Companies (Long Grove, Ill.) inter-company pool, 10 reinsured affiliates and one domestic affiliate.

The rating remains under review with negative implications. Additionally, A.M. Best has lowered the debt rating of the surplus notes to “ccc+” from “bb-” issued by Lumbermens Mutual Casualty Company, the lead member of the inter-company pool and group.

Separately, the financial strength rating of B+ (Very Good) of Eagle Insurance Group, including Eagle Pacific Insurance Company (Washington) and its affiliate, Pacific Eagle Insurance Company (California), remains under review with developing implications. This follows the termination of the 80 percent quota share reinsurance arrangement with Lumbermens Mutual Casualty Company effective Jan. 1, 2003, and its pending successful and timely conclusion of capital enhancing efforts and reinstatement of the inter-company reinsurance pooling arrangement between Eagle Pacific and Pacific Eagle.

The lowering of the Kemper rating is a result of its weakened capitalization, the ongoing operating uncertainties and execution risk associated with management’s announced restructuring initiatives, including the sale of the renewal rights to various lines of business, including its financial lines, bundled and unbundled large risk national accounts, alternative risk programs, environmental and excess casualty and surety business. The rating also reflects the weakened liquidity and cash flow following the sale of many books of business.

The rating will remain under review with negative implications pending the analysis of year-end 2002 financials.

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