Gulf Insurance Group Cut

Standard & Poor’s Ratings Services lowered its long-term counterparty credit and financial strength ratings on the members of the Gulf Insurance Group (Gulf) to “A+” from “AA-.” The outlook is negative.

An S&P’s analyst said the ratings action was taken because “adverse reserve development in its runoff residual value business” had affected the company’s operating performance and overall business profile such that they “no longer support the ‘AA-‘ rating.”

Gulf strengthened its reserves significantly during the first quarter of 2003. S&P’s believes the action will have a material negative effect on Gulf’s operating earnings for 2003. The ratings agency noted that Gulf’s core specialty business is performing well and is expected to remain strong in 2003 due to favorable pricing trends and underwriting terms and conditions.

S&P’s observed that current trends in low consumer demands for used cars, soft economy, and attractive financing incentives from major automakers could add to volatility of Gulf’s overall operating performance in the next two years.

The negative outlook reflects the potential for further adverse development in Gulf’s residual value business, and continued volatility associated with the group’s specialty lines in general. S&P’s expects Gulf’s capital adequacy to remain at a very strong (‘AA’) level in the near term.