Ratings Recap: Progressive, Proformance

November 21, 2007

Fitch Ratings has affirmed the ‘AA-‘ Issuer Default Rating (IDR) and ‘A+’ senior debt ratings of The Progressive Corporation, as well as the ‘AA+’ Insurer Financial Strength (IFS) rating of Progressive’s operating subsidiaries. “The ratings and rating outlook reflect Progressive’s excellent operating performance; pricing and underwriting expertise; personal auto insurance franchise; modest catastrophe risk; conservative investment allocation and strong capital position,” Fitch explained. “Progressive’s overall GAAP combined ratios for nine months ended Sept. 30, 2007 and 2006 were 91.8 percent and 86.4 percent, respectively.

A.M. Best Co. has placed the financial strength rating of ‘B++’ (Good) and the issuer credit rating (ICR) of “bbb” of Proformance Insurance Company under review with negative implications. Best also placed the ICR of “bb” of Proformance’s holding company, National Atlantic Holdings Corporation, both domiciled in Freehold, NJ, under review with negative implications. Best said the rating action “is based on the ineffectiveness of certain claims oversight processes with respect to Proformance’ s bodily injury claims function and the subsequent deterioration in A.M. Best’ s view of risk-adjusted capitalization.” The bulletin noted that during third quarter 2007, the Company’s management “determined that Proformance’ s procedures related to bodily injury claims handling and reserving were not applied consistently throughout the organization, which resulted in a $14.3 million increase in loss reserves for third quarter 2007. Consequently, risk-adjusted capitalization declined to a level below the minimum required for Proformance’ s ratings.” In addition Best noted that, although it had “previously contemplated adverse loss reserve development in its assessment of risk-adjusted capitalization, the timing and amount of the reserve strengthening was unexpected. While Proformance has retained an independent claims consulting firm to address these issues, A.M. Best remains somewhat concerned regarding overall management oversight.”

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