Argonaut Placed on CreditWatch Neg

January 20, 2003

Standard & Poor’s Ratings Services announced it placed its ‘A’ counterparty credit and financial strength ratings on the members of San Antonio-based property/casualty insurer Argonaut Insurance Cos. (Argonaut) on CreditWatch with negative implications based on an anticipated year-end 2002 contribution which has yet to be completed.

“Argonaut has seen declining capitalization and equity levels in the past three years,” said S&P’s credit analyst Frederic Sklow. Offsetting these negative factors are the company’s improving operating performance, conservative but solid management, strong distribution channels, successful efforts in increasing diversification, focused loss reserving posture, and conservative investment profile. The pro forma 2002 capital level of the operating subsidiaries factored in a fourth-quarter 2002 contribution to bring its capital to a level consistent with the rating.

S&P’s believes Argonaut will continue to face challenges associated with the execution risk from its recent acquisitions, loss reserve profile of its prior year workers’ compensation book, and return to its historical underwriting profitability levels.

Argonaut is expected to pursue capital raising initiatives in the first quarter of 2003.

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