S&P Rates Rocky Mountain Fire and Casualty Co.

December 5, 2001

Standard & Poor’s assigned its “BBBpi-” financial strength rating to Rocky Mountain Fire & Casualty Co.

The rating reflects the company’s extremely strong capitalization and strong operating performance, offset by its volatile returns and limited market penetration.

Based in Seattle, Wa., Rocky Mountain writes mainly private passenger auto and homeowners multi-peril. About 90 percent of the company’s business lies within its major states of operations: Washington, Oregon, California, and Colorado. Its products are distributed primarily through independent general agents.

The company, which began business in 1959, is licensed in California, Colorado, Idaho, Montana, Oregon, Washington, and Wyoming.

Major Rating Factors:

* At year-end year 2000, Rocky Mountain’s capital adequacy was measured as extremely strong. However, the company has exposure to interest-rate risk, with mortgage backed securities constituting about half of surplus.

* Operating performance has been strong, with a five-year average ROR of 10.7 percent. At the end of the second quarter of 2001, the company reported a loss of $1.0 million compared with a net income of $200,000 for the same time period in the prior year (a net decrease of $1.2 million). Full-year 2000 net income was a reported loss of $0.2 million.

* The company has volatile returns with, for example, ROA ranging from negative 0.6 percent in 2000 to positive 6.9 percent in 1996, a limiting factor.

* The company’s market penetration is limited. Total 2000 net premium written amounted to just $19.3 million.

Although the company is a member of Grange Insurance Group, the rating does not include additional credit for implied group support.

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