S&P Rates Penn National ‘BBB’

March 18, 2004

Standard & Poor’s Ratings Services announced that it has assigned its ‘BBB’ counterparty credit and financial strength ratings to Pennsylvania National Mutual Casualty Insurance Co. and its wholly owned property/casualty subsidiaries: Penn National Security Insurance Co. and Founders Insurance Co. (collectively referred to as Penn National Insurance). S&P also said the outlook is stable.

“The ratings are based on the group’s improved operating results and strong capitalization,” said S&P. “Partially offsetting these positive factors is the group’s limited market breadth. In addition, one of the company’s four largest lines of business–workers’ compensation–is one of the industry’s more challenging lines.”

The rating agency expects Penn National’s operating performance at year-end 2004 “to be similar to or slightly better than that of 2003, with a combined ratio of about 99 percent and an ROE of about 7 percent,” with capital adequacy levels of “about 140 percent at year-end 2004.”

S&P said it “believes management will continue to make improvements in operating efficiencies and continue to improve its expense ratios. At the same time, the corrective measures management has taken to tighten risk controls in its workers’ compensation business should produce results that are better than in the prior three years. “

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