Argonaut Group Ratings Affirmed, Outlook Revised

February 26, 2004

Standard & Poor’s Ratings Services said it affirmed its ratings on Argonaut Group Inc. and its insurance company affiliates, including its “BBB+” counterparty credit and financial strength ratings on the affiliates, and revised the outlook on all ratings to stable from negative.

“The rating actions reflect Argonaut’s substantially improved capital position as of year-end 2003 following a common stock issue that raised $79.9 million,” explained S&P credit analyst John Iten, in the announcement. He added that surplus benefited from improved underwriting results and a large increase in realized capital gains.

S&P expects underwriting results will continue to improve in 2004, driven by strong results in excess and surplus lines and a decrease in the earnings drag from legacy issues related to Argonaut’s poorly performing workers’ compensation book. The resulting surplus growth will be required to support increased business volume, particularly at the Colony Insurance Group, which is benefiting from the very favorable pricing environment in the excess and surplus lines market. Despite the strain of new business volume, capital adequacy is expected to improve further in 2004.

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