A.M. Best Downgrades Rating of Clarendon Group

November 5, 2003

A.M. Best Co. has downgraded the financial strength rating to A- (Excellent) from A (Excellent) of Clarendon Insurance Group (Clarendon) (Wilmington, Del.) and its property/casualty affiliates. The outlook for the rating is stable.

The downgrade of Clarendon reflects the recent downgrade of its parent, Hannover Rueckversicherungs AG (Hannover Re) (Germany) to A (Excellent) from A+ (Superior) and the elevated credit risk maintained by Clarendon due to its above-average reinsurance recoverables.

A.M. Best is concerned with the general decline in credit quality of the reinsurance sector, to which Clarendon is significantly exposed based on its business profile as a program writer that cedes a significant portion of its direct writings to its reinsurance partners. A.M. Best considers the protection afforded Clarendon by its parent with regard to the collection of reinsurance recoverables to be reduced, based on the elevated underwriting leverage at Hannover Re. Nevertheless, Clarendon continues to benefit from its relationship with Hannover Re, but not to the extent supportive of the A (Excellent) rating.

The stable rating outlook reflects Clarendon’s established presence as a leading program writer, its strong operating results, steady surplus generation and management’s efforts to reduce the group’s credit risk in the near term. However, Clarendon will remain challenged as it strives to lower its credit risk without adversely affecting risk-adjusted capitalization through increased retention levels.

Clarendon operates as a program writer throughout the United States on both an admitted and surplus lines basis. Business is marketed through approximately 50 select managing general agents (MGAs) and general agents. The group operates through five insurers that provide commercial lines and personal lines coverages on an admitted basis, as well as through one surplus lines company.

The financial strength rating of A (Excellent) has been downgraded to A- (Excellent) for Clarendon Insurance Group and the following members:

— Clarendon America Insurance Company

— Clarendon National Insurance Company

— Clarendon Select Insurance Company

— Harbor Specialty Insurance Company

— Redland Insurance Company

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