Best Takes Various Rating Actions on The Co-operators Group

November 21, 2005

A.M. Best Co. has upgraded the financial strength rating (FSR) to A- (Excellent) from B++ (Very Good) and assigned an issuer credit rating (ICR) of “a-” to Co-operators General Insurance Company (Co-operators General) (Ontario).

A.M. Best also has affirmed the FSRs of B+ (Very Good) of Co-operators General’s wholly owned subsidiaries, The Sovereign General Insurance Company (Sovereign) (Alberta), L’Union Canadienne Compagnie D’Assurances (L’Union) (Quebec) and COSECO Insurance Company (COSECO) (Ontario) and assigned an ICR of “bbb-” to each company.

A.M. Best also has affirmed the FSR of A (Excellent) of Co-operators Life Insurance Company (Co-operators Life) (Saskatchewan) and assigned an ICR of “a”.

Concurrently, A.M. Best has assigned an ICR of “bbb-” to Co-operators Financial Services Limited (CFSL) (Ontario), the interim holding company of Co-operators General and Co-operators Life. A.M. Best also has assigned a rating of “bbb-” to CFSL’s CAD 150 million 5.07% senior unsecured debentures due July 2012. The outlook on all ratings is stable.

The ratings of Co-operators General reflect its superior capitalization and balance sheet strength and profitable operating performance. The ratings also acknowledge the company’s market leadership position driven by its strong brand name recognition; product line diversification and geographic spread of risk across Canada; effective use of its multi-channel distribution system through subsidiary operations; and the strength of its experienced management team.

The financial strength of the company has improved steadily since the current management team took over the operations in 2002. Operating and underwriting performance have shown significant improvement targeting preferred markets and multi-line accounts and exiting unprofitable portfolios.

The company has also benefited from the recent hard market cycle, lower claims frequency, stricter underwriting guidelines, higher investment returns and sound business planning. Co-operators General continues to increase its standing in the co-operative community by attracting new members and espousing corporate responsibility.

Partially offsetting these positive factors is the company’s significant exposure in the difficult Alberta and Ontario automobile markets. Regulatory changes to reduce automobile premium rates and claims costs have created a degree of risk due to the uncertainty these reforms will have on the company’s future underwriting profits. In addition, pricing on commercial lines has softened due to increased competition, which could temper earnings from this sector.

Despite these concerns, A.M. Best believes that Co-Operators General’s current capital strength, improving investment performance and proactive changes implemented by management to improve underwriting performance will sustain its positive earnings trend.

The ratings of Co-operators General’s subsidiaries recognize their respective financial strengths and historically profitable operating performance, their strategic role within the Co-operators Group, as well as each company’s individual challenges within their market niches. Sovereign and L’Union serve as Co-operators General’s primary vehicles for distribution of commercial and personal lines products through independent brokers, while COSECO offers personal lines products primarily through employer and association groups, as well as on a direct basis.

The ratings of Co-operators Life reflect the company’s continued strong level of profitability, consistent surplus growth and excellent risk-adjusted capitalization.

It also recognizes the premium growth the company has realized in its core business segments in recent years through multi-channel distribution, which offers a wide variety of products to individual, group and credit union markets throughout Canada. Co-operators Life faces challenges cross-selling to the property/casualty policyholder base and competition from larger insurance organizations.

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