S&P Lowers RVI Guaranty Ratings

May 21, 2007

Standard & Poor’s Ratings Services has lowered its rating on R.V.I. Guaranty Co. Ltd., R.V.I. America Insurance Co., and R.V.I. National Insurance Co. (collectively referred to as RVI) to “A-” from “A” and assigned them a negative outlook.

“The downgrade is based on the view that RVI is weaker from a management perspective because of significant management turnover in 2006 and 2007, and because there is the possibility of sizeable earnings volatility related to potential losses on two real estate properties,” explained S&P credit analyst Damien Magarelli. “RVI intends to sell these two real estate properties, but the value of the real estate buildings and any potential losses for RVI remain uncertain.”

S&P also noted that RVI’s “more concentrated competitive profile,” which after the real estate sale will consist of “only two segments, passenger vehicle and commercial equipment,” as additional concerns relating to the ratings downgrade.

RVI’s rating is still in the “A” category, due, said S&P, to its “strong, though more concentrated, competitive position, conservative investments, and strong liquidity,” as well as its strong capital adequacy. S&P expects the Company to “maintain excess capital to compensate for potential earnings and reserve volatility.”

As additional “negative factors,” S&P cited “the group’s reliance for a large portion of its revenues on the lease accounting standards currently in place, and the risk that a change in accounting standards would significantly affect RVI’s premium volume and earnings.”

The rating agency also explained that its “negative outlook is based on the view that the significant management turnover will not immediately be fully addressed in terms of new staff and could affect consistency within risk controls and underwriting until 2008.”

In addition, the high concentration of passenger vehicle clients remains significant, and as this poses the problem that “some significant clients renew in 2007, with potentially lower revenues and thereby potentially lower earnings for RVI,” it is also considered as a negative factor. The real estate transactions may also create “possible losses, impairments, and future expenses,” that have the “”potential to significantly decrease earnings in 2007,” S&P added.

As a result S&P said: “The three issues of management turnover, client concentrations, and potential real estate losses could individually or collectively lead to the rating being lowered an additional notch.”

However S&P also indicated that it “expects that RVI will maintain consistent underwriting and risk control standards in 2007 and 2008, and if this expectation is met, the outlook may be revised to stable. Also, if the real estate properties are sold and losses are contained while maintaining net income near $16 million, the outlook may be revised to stable. If RVI is able to maintain a consistent volume through renewals within passenger vehicle and commercial equipment, this would further contribute to a stable outlook.”

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