Calif. State Fund Rating Lowered to ‘BB+’

December 5, 2001

Standard & Poor’s lowered its counterparty credit and financial strength ratings on the California State Compensation Insurance Fund to “BB+” from “BBB+” and removed them from CreditWatch, where they had been placed on Nov. 19, 2001.

Subsequently, S&P withdrew these ratings at the company’s request. These ratings had been placed on CreditWatch because of concerns over the fund’s very rapid growth, which accelerated in the third quarter of 2001. With $2.6 billion of net written premiums in the first nine months of 2001, the fund’s written premiums for full-year 2001 are likely to be nearly double the $1.8 billion of written premiums in 2000.

Because accident year 2001 is at an early stage of development and constitutes a large portion of the fund’s loss reserves, S&P believes the fund is very exposed to pricing risk and reserve adequacy risk. In addition, the fund’s growth and weak operating performance are straining the fund’s capital.

The fund is the largest writer of California workers’ compensation insurance. It is a nonprofit, public enterprise established by the state of California in 1913. Its role is to provide the California market with a permanent source of workers’ compensation protection at cost with no financial obligation to the public.

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