Fitch Affirms General Fire and Casualty

September 9, 2005

Fitch Ratings has affirmed General Fire and Casualty Company’s (GenFire) ‘BB-‘ insurer financial strength rating. The Rating Outlook is Stable.

The Stable Rating Outlook reflects new information obtained since GenFire’s rating was affirmed in August 2005 with a Negative Rating Outlook. GenFire will immediately resume the renewal of its business in California, its primary state. Additionally, GenFire’s parent, GF&C Holding Company (GF&C), has finalized a majority of its legal issues associated with its restatement of 2003 financial statements due to reinsurance issues. Fitch views both of these developments as material and positive for the rating.

Fitch believes the effect of the restatement on the company’s policyholders’ surplus is manageable, and has been replenished to its prior level. Although dividend capacity is limited due to 2004’s net losses, required debt service at the holding company has also declined substantially due to repayment of debt.

Fitch’s rating of GenFire still considers consequences related to the financial restatement which hindered the company’s longer term growth and development. Fitch believes that the company has limited access to new capital due to unresolved contingent liabilities, a reduced premium base following the ceasing of business in California, and greater susceptibility to market risks due to reduced market presence and a more competitive pricing environment.

Factors that may promote favorable future rating momentum include the following: a successful return to writing profitable business in California, finality to all outstanding issues associated with the financial restatement, and consistent favorable operating results without further adverse development.

The rating was downgraded to ‘BB-‘ from ‘BB+’, and placed on Rating Watch Negative in March 2005 following GenFire’s notification that it would need to restate its 2003 annual financial statements. The restatement allowed for a change in accounting of a major reinsurance contract due to concerns regarding appropriate levels of risk transfer. This contract has been non-renewed and commuted effective Dec. 31, 2004. GenFire has completed the filing for its year-end 2004 statutory statement and the restructuring of its reinsurance program for 2005.

GenFire is a specialty property and casualty insurer, which since 1999, has operated under a new and unique business model centered on its patent-pending policy form and web-based technology. The company focuses on specialty niches in the commercial multi-peril business segment, such as integrated agribusiness and other targeted commercial classes. Idaho-based GenFire reported statutory policyholders’ surplus and assets of $10.1 million and $44.7 million, respectively, at June 30, 2005.

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