Ullico Downgraded

Ullico Inc.’s Wilmington, Del.-based property/casualty subsidiaries, Ulico Insurance Group (UIG), which includes two inter-company pooling members, Ulico Casualty Company (Delaware) and its wholly owned subsidiary, Ulico Indemnity Company (Arkansas), was downgraded to “B” (Fair) from “B++” (Very Good). The stand-alone financial strength rating of California-based Ulico Standard of America Casualty Co was lowered to “B-” (Fair) from “B” (Fair). The outlook for all of these ratings continues to be negative.

These ratings were affected by the reduced level of Union Labor Life’s final 2002 year-end statutory and surplus position, which was less than A.M. Best expected. Concerns remain about the capitalization, liquidity, asset concentration and invested asset quality at both Union Labor Life and the parent holding company, as well as the limited financial flexibility of ULLICO Inc.

While UIG maintains adequate capitalization, its rating was lowered further due to its unfavorable operating results, which were below management’s year-end financial indications. Current operating earnings are being weighed down by losses in its core lines of business, fiduciary liability and commercial lines, with adverse reserve development resulting from increased claims frequency, as evidenced by the further deterioration in its returns on revenue at year-end 2002. Additionally, the significant growth in gross written premium volume during the year compounded by the decline in policyholders’ surplus due to negative operating earnings has resulted in elevated gross and net leverage measures.