Best Affirms 21st Century’s Ratings

June 11, 2004

A.M. Best Co. has affirmed the financial strength ratings of A+ (Superior) for California-based 21st Century Insurance Group. Concurrently, A.M. Best has affirmed the “a-” senior debt rating of 21st Century Insurance Group Inc.’s existing debt securities. The outlook for the ratings is stable.

The ratings reflect 21st Century’s strong capitalization and leadership position in the California private passenger automobile market. These attributes are derived from its strong brand recognition, direct response marketing approach, emphasis on customer satisfaction and advanced use of technology. As a result, 21st Century maintains a significant competitive expense advantage and an exceptional level of customer persistency relative to its peers. In addition, the group benefits from strong risk mitigation practices and a high-quality investment portfolio.

The group has implemented numerous strategic initiatives to improve earnings, which have included an exit from its homeowners line of business, private passenger automobile rate adjustments and stricter underwriting guidelines.

These initiatives, in conjunction with the diminished impact of reopened Northridge earthquake claims, firm private passenger automobile market conditions and lower automobile claims frequency trends, have resulted in a substantial improvement in operating results since the beginning of 2003. The ratings also recognize 21st Century’s financial flexibility, which is reflective of its moderate financial leverage, access to capital markets and the financial strength of American International Group Inc., whose current ownership approximates 63 percent.

These positive rating factors are partially offset by the group’s modest operating results over the previous five-year period, along with its business concentration within one state and line of business.

In addition, the insurance companies generated operating losses and paid significant stockholder dividends to its immediate holding company, 21st Century Insurance Group Inc., that resulted in a decline in surplus prior to 2003, causing underwriting leverage to trend upward.

These operating losses were driven by the reopening of previously closed Northridge earthquake claims under California Senate Bill 1899 and adverse loss reserve development on 1999 and prior accident years for the private passenger automobile liability line of business.

However, the insurance companies have reduced stockholder dividends to the holding company in recent years and received a significant capital contribution, resulting in underwriting leverage measures more in line with industry composite norms. In addition, the group’s business concentration as a California predominant personal automobile writer exposes earnings and surplus to volatility from regulatory and judicial changes, as well as market dislocations.

The financial strength ratings of A+ (Superior) have been affirmed for 21st Century Insurance Group and the following members:

— 21st Century Insurance Company

— 21st Century Casualty Company

— 21st Century Insurance Company of Arizona

The following senior debt rating has been affirmed:

21st Century Insurance Group Inc.–

— “a-” on $100 million of 5.90% senior notes, due 2013

For a list of A.M. Best’s debt ratings, please visit

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