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S&P Affirms Auto Club Insurance Assn `Api' Rtg

18 October 1999

S&P Affirms Auto Club Insurance Assn `Api' Rtg

    NEW YORK--Oct. 15, 1999--Standard & Poor's affirmed its single-'Api' financial strength rating on Auto Club Insurance Association (ACIA).
    ACIA, combined with its subsidiaries Auto Club Group Insurance Co. (ACGIC) and Castle Insurance Co., form the Auto Club of Michigan Insurance Group. The Group is a member of the American Auto Association (AAA), a leading automotive and travel service provider. The company is organized as a reciprocal exchange and provides auto insurance for members of the Auto Club of Michigan, AAA Wisconsin Inc., and other affiliated organizations. Headquartered in Dearborn, MI, ACIA is licensed in Michigan and Wisconsin and commenced operations in 1922.
    As the lead company in an interafflilated pooling agreement, ACIA assumes all premiums, losses and expenses, and cedes 5% of the business to ACGIC and another 5% to Castle Insurance. In addition, a common management agreement is in place between the companies.
    Major Rating Factors:

    -- Geographic concentration for the interaffiliated pool is high,
    with 99% of direct business written in Michigan. Geographic
    concentration can expose a company to regulatory and
    competitive risk.

    -- Reserve development has displayed more volatility than for
    higher rated companies.

    -- Liquidity for the interaffiliated pool is good, at 114%, as
    measured by Standard and Poor's liquidity model.

    -- Operating performance for the interaffiliated pool is strong,
    with the average return on revenue from 1993 to 1998 at 8%.

    -- Capitalization for the interaffiliated pool is extremely
    strong in excess of 300%, as measured by Standard and Poor's
    capital adequacy model.

    'Pi' ratings, denoted with a 'pi' subscript, are insurer financial strength ratings based on an analysis of an insurer's published financial information and additional information in the public domain. They do not reflect in-depth meetings with an insurer's management and are therefore based on less comprehensive information than ratings without a 'pi' subscript. 'Pi' ratings are reviewed annually based on a new year's financial statements, but may be reviewed on an interim basis if a major event that may affect the insurer's financial security occurs. Ratings with a pi subscript are not subject to potential CreditWatch listings.
    Ratings with a 'pi' subscript generally are not modified with 'plus' or 'minus' designations. However, such designations may be assigned when the insurer's financial strength rating is constrained by sovereign risk or the credit quality of a parent company or affiliated group, Standard & Poor's said.---CreditWire