S&P Affirms Associated Industries Insurance Co.’s ‘Bpi’ Ratings

December 1, 2003

Standard & Poor’s has affirmed its ‘Bpi’ counterparty credit and financial strength ratings on Florida-based Associated Industries Insurance Co. (AIIC). The ratings reflect the company’s marginal capitalization, weak operating performance, and extremely high geographical and product line concentrations.

Major rating factors

— AIIC’s capital adequacy is marginal, as demonstrated by a Standard & Poor’s capital adequacy ratio of 56.2 percent as of year-end 2002. The company’s leverage (net premium plus liabilities/surplus) is 7.76x, which is higher than its peers.

— Operating performance has been weak, with a Standard & Poor’s earnings adequacy ratio of 22.8 percent at year-end 2002. In addition, the company has volatile returns, with the ROA ranging from negative 0.9 percent in 1999 to positive 0.8 percent in 2002.

— AIIC’s geographic and product line concentrations are extremely high, exposing it to economic, legal, and regulatory risks. In 2002, more than 99 percent of its business was written in Florida. Moreover, the company writes only workers’ compensation insurance.

AIIC writes only workers’ compensation insurance and distributes its products primarily through independent general agents. The company, which began business in 1954, is licensed in Alabama, Florida, Georgia, and Mississippi. The parent company of AIIC is Associated Industries Insurance Services Inc.

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