S&P Affirms GEICO and Subs ‘AAA’ Ratings

September 3, 2004

Standard & Poor’s Ratings Services announced that it has affirmed its ‘AAA’ counterparty credit rating on GEICO Corp. and its ‘AAA’ counterparty credit and financial strength ratings on Government Employees Insurance Co., GEICO Indemnity Co., GEICO Casualty Co., and GEICO General Insurance Co. The outlook on all these companies (collectively referred to as GEICO) is stable.

“GEICO is a leading provider of personal auto insurance on a direct basis in the U.S. The ratings on GEICO are based on its core status to ultimate parent company Berkshire Hathaway Inc. (BRK; AAA/Stable/A-1+), extremely strong capital adequacy, and adequate reserve position,” said the bulletin.

S&P also noted: “GEICO’s cost-efficient, direct-response marketing methods and its emphasis on customer satisfaction have established its brand name and competitive position. Operating performance is also considered very strong, as demonstrated by a combined ratio of 94 percent in 2003 and 89 percent through the first quarter of 2004.”

The rating agency observed, however: “These positive factors are partially offset by the group’s risk portfolio and geographic concentrations. Personal auto writings constituted more than 99 percent of GEICO’s premiums in 2003, and roughly 49 percent of GEICO’s direct writings were generated from four states: Florida, New York, Maryland, and Virginia.

“In addition, GEICO has a very high common equity allocation and holds a limited number of concentrated stock investments. GEICO has announced that it will begin writing policies in New Jersey. New Jersey is not expected to contribute a significant amount of premiums in the near term relative to GEICO’s total premium volume but could add a couple of points in countrywide annual unit count growth. GEICO’s expansion into New Jersey is not viewed as a significant rating factor at this time because of the initial volume expected and the company’s underwriting expertise.”

S&P said that over the next few years it expects GEICO “to maintain its expense advantage, with an expense ratio of about 18 percent or less. In addition, capital adequacy is expected to remain well above 200 percent in 2004, which is considered extremely strong. Barring the potential negative earnings impact of large loss events or investment risk, expectations are that GEICO will continue to generate very strong earnings in 2004, and premiums will grow 10 percent to 20 percent.”

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