Fitch Upgrades Affirmative Insurance Co. Ratings

July 14, 2004

Fitch has removed from Rating Watch Negative and upgraded the ratings of Illinois-based Affirmative Insurance Company and Insura Property & Casualty Insurance Company to ‘BBB’ from ‘BB’. The Rating Outlook is Stable.

The upgrades follow an initial public offering (IPO) of the companies’ parent, Affirmative Insurance Holdings, which sold approximately 4.4 million shares, generating net proceeds of approximately $56.7 million. The underwriters have a 30-day option to purchase an additional 663 thousand shares, which would generate additional proceeds of $8.6 million to AFFM.

Prior to the IPO, AFFM was 98% owned by Vesta Insurance Group. VTA also sold 3.75 million of its shares in the IPO and granted the underwriters an option on another 563,000. Assuming full exercise of the underwriters’ option, VTA will own 43% of AFFM. AFFM received no proceeds from the sale of VTA’s shares.

The upgrades of Affirmative Insurance Company and Insura Property & Casualty Insurance Company, which had previously been indirect subsidiaries of VTA, consider their inclusion in a separate entity without the natural catastrophe risks that were retained by VTA.

Additionally, AFFM has indicated that it will contribute at least $55.7 million of the proceeds from the IPO to the insurance companies to bolster their statutory surplus and enable them to retain more of their written premium.

The ratings also consider that AFFM has grown rapidly in recent years and is comprised of several elements that were acquired by VTA and integrated to form AFFM. As such, AFFM does not have a track record as an independent entity in its current form. Fitch ratings affected:Entity/Issue/Type Action Rating/OutlookAffirmative Insurance Co.–Insurer financial strength Upgrade ‘BBB’/StableInsura Property and Casualty Ins. Co.–Insurer financial strength Upgrade ‘BBB’/Stable.

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