A.M. BEST CO.

A.M. BEST CO.

July 14, 2005 16:33 ET

A.M. Best Assigns Rating to CAA Insurance Company

OLDWICK, N.J.--(CCNMatthews - Jul 14, 2005) -

A.M. Best Co. has assigned a financial strength rating of B+ (Very Good) to CAA Insurance Company (Ontario) (CAAIC) (Ontario, Canada). The rating outlook is stable.

The rating is based on CAAIC's strong capitalization, improved operating and underwriting performance due to renewed focus on controlled growth and disciplined underwriting, conservative investment portfolio and the explicit financial support provided by its parent, CAA South Central Ontario (CAASC). These rating strengths are offset in part by the company's elevated leverage position, below average profitability over the last five years and CAAIC's concentration of risk in the Ontario insurance market.

CAAIC is a personal lines insurer focused on standard automobile and personal property coverages. Capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), is very good. Surplus growth has been strong over the last three years and is protected by a sound reinsurance program and supported by a strong parent. In addition, operating performance has shown significant improvement in recent years attributed to premium rate increases and lower claims frequency. Furthermore, the investment portfolio is more conservative than typical automobile insurers in Canada, with a greater concentration in bonds and fixed income securities.

Leverage ratios are elevated, however, indicating CAAIC's exposure to errors in pricing and estimation of liabilities. Five-year average profitability ratios are below average due to significant underwriting losses in 2002 and 2003 and below average investment returns. CAAIC is also subject to weather, economic and regulatory risks due to its concentration in Ontario, where over 94% of its business was produced in 2004. Recent enactment of regulatory changes to automobile insurance in that province has resulted in rate freezes and rollbacks in exchange for measures designed to reduce claims costs and make automobile insurance more affordable and profitable. A.M. Best remains guarded in its assessment of the impact these changes will have on the long-term underwriting profitability of the company. Nevertheless, the rating outlook is reflective of the significant steps CAAIC has taken to improve underwriting results through controlled growth and more disciplined risk selection and the explicit financial support provided by CAASC.

For Best's Ratings, an overview of the rating process and rating methodologies, please visit http://www.ambest.com/ratings.

For current Best's Ratings, independent data and analysis on more than 3,000 individual property/casualty companies and A.M. Best groups, please visit http://www.ambest.com/pc.

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 http://www.ambest.com.

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