A.M. Best Affirms Rating for Capitol Transamerica Group

Business Wire, Jan 7, 2002

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Jan. 7, 2002

A.M. Best Co. has affirmed the financial strength rating of A (Superior) for Capitol Transamerica Group (CATA, Group), Madison, Wisconsin.

The rating action follows the close of the transaction in which Alleghany Corporation acquired CATA. The rating reflects CATA's superior level of capitalization, solid liquidity and outstanding operating leverage. In addition, CATA's long-standing agency relationships have enhanced its market presence and have assisted in the historical profitability of the group. Active monitoring of its expansion efforts and prudent underwriting standards have also enabled CATA to operate successfully in niche specialty markets. The rating largely recognizes the vital role Alleghany Corporation will play in enhancing CATA's business plan, including increasing the efficiency of operations, improving its distribution network, reducing the risk within the investment portfolio and strengthening management of the organization.

Partially offsetting these positive factors are the fluctuation in operating performance from weakened underwriting results, variation in the unrealized earnings from a portion of equity investments and competitive market pressures, which have had an impact on the stability of surplus over the last five years. The company has re-underwritten its book of business with reserve strengthenings of $14 and $7 million in 1997 and 2000, respectively, to correct the historically adverse loss reserve development and stabilize the levels of loss reserves to net premiums earned and policyholder surplus.

The rating for Capitol Transamerica Group applies to Capitol Indemnity Corporation and its reinsured affiliate, Capitol Specialty Insurance Corporation. Capitol Transamerica Group provides commercial multi peril, surety, general liability and workers' compensation coverage in thirty-seven states.

In addition, effective January 3, 2002, Alleghany Corporation acquired Underwriters Insurance Company (UIC) from Swiss Reinsurance America Corporation. UIC will be a sister company to CATA, and it is Alleghany's intent to form a pooling arrangement between Underwriters Insurance Company and CATA. As a result of this transaction, the A rating of Underwriters Insurance Company has been placed under review, with negative implications. A.M. Best expects to assign an A pooled rating to the company upon the receipt of regulatory approval for the pooling agreement.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.