S&P’s Lowers CGU Group Canada to ‘A+’; Outlook Stable

April 9, 2003

Standard & Poor’s has lowered its counterparty credit and financial strength ratings on the primary operating subsidiaries of Toronto, Ont.-based CGU Group Canada Ltd. (CGU Canada; unrated) to ‘A+’ from ‘AA-‘. The outlook is stable.

The primary operating subsidiaries of CGU Canada include CGU Insurance Co. of Canada; Elite Insurance Co.; Pilot Insurance Co.; Scottish & York Insurance Co. Ltd.; and Traders General Insurance Co. (collectively known as CGU Group Canada).

The ratings actions follow the lowering of the ratings on Aviva PLC’s
group of companies (Aviva). (See article, “Various Aviva Insurance Group Core Subsidiaries Ratings Lowered to ‘AA-‘; Outlook Stable” published today on RatingsDirect, Standard & Poor’s Web-based credit analysis system.) CGU Group Canada represents the Canadian operating subsidiaries of Aviva, a leading U.K.-based financial services company.

Standard & Poor’s views CGU Group Canada as a strategically important subsidiary of Aviva. Accordingly, the financial strength and counterparty credit ratings on CGU Group Canada receive implicit support from ownership by Aviva. The level of this support, however, is capped to one notch below the core group rating (AA-/Stable/A-1+, lowered from AA/Negative/A-1+).

“Given that CGU Group Canada was already at the ceiling for a
strategically important subsidiary, the downgrade is driven by support issues, as there has been no change in the subsidiaries’ stand-alone credit profile,” said Standard & Poor’s credit analyst Donald Chu.

CGU Group Canada is one of the market leaders in the Canadian property and casualty (P&C) market with its 9 percent market share position, which is strongly supported by its well-established distribution channels and diversified product lines. As of Dec. 31, 2002, CGU Group Canada had general assets of C$5.7 billion, and a total shareholder equity base of C$1.2 billion. CGU Group Canada contributes 10 percent of worldwide general insurance premiums and about 3 percent of the group’s total gross premiums.

The stable outlook reflects the benefit from the implied support of
Aviva. CGU Group Canada will remain challenged in achieving a reasonable growth and earnings target, given the intensely competitive environment and negative trends seen in the operating margins of the Canadian P&C insurance sector.

Ongoing weakness in the global equity markets and the low interest rate environment will continue to put further downward pressure on investment returns, which will compound the difficulties currently being experienced on the underwriting side.

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