A.M. Best Comments on Potential Rating Implications from Hurricane Frances

September 3, 2004

A.M. Best Co. has recently taken rating actions on several Florida insurance companies in response to their reduced risk-adjusted capitalization due to losses from Hurricane Charley, as well as potential exposure to subsequent catastrophic events.

With the significant threat to the southern U.S. coast line from Hurricane Frances, Best will closely monitor the impact from loss accumulation from these events of all rated companies in the exposed areas. Based on Hurricane Frances’ size, intensity and expected landfall in Florida, Best anticipates that the financial strength ratings of numerous Florida property carriers could be placed under review or downgraded. Further, there are a small number of Florida property writers not rated by Best that could face substantial losses, but Best is not in a position to comment on the potential impact on the financial strength of these companies.

Further, the Florida Hurricane Catastrophe Fund, which provides reinsurance for personal lines writers in the state, may exhaust its cash balance and would have to issue revenue bonds to fulfill its contractual obligations to its customers.

If Hurricane Frances does make landfall in Florida and causes significant insured losses, Best will request that rated companies provide information as to gross and net losses incurred, updates on reinsurance coverage and reinstatement clauses to protect the companies’ capitalization from any future catastrophes for the remainder of the hurricane season.

Additionally, companies will need to provide recapitalization plans, if necessary, to maintain overall capitalization supportive of their rating.

Those companies that require action to maintain their financial strength will be placed under review following the landfall of the storm. We expect management’s initial focus will be on servicing their policyholders. Through the under review process, Best will allow for this important priority, at the same time identifying those companies that must take action to solidify their financial strength. Once Best has had a chance to review a company’s recapitalization plans and they have been fully executed, the under review status will conclude and the appropriate rating action taken.

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