S&P Affirms Specialty Risk Insurance Co. 'Bpi' Rating

    NEW YORK, March 6 Standard & Poor's today affirmed its
single-'Bpi' financial strength rating on Specialty Risk Insurance Co.
    Key rating factors include the constraining influence of the single-'Bpi'
rating on its immediate parent, Progressive Home Insurance Co. (formerly
Midland Risk Insurance Co.), which is itself owned by Midland Financial Group
Inc., a Tennessee insurance holding company, which was acquired by The
Progressive Corp. in March 1999.
    The Progressive Corp., the ultimate parent, is an insurance holding
company domiciled in Ohio (counterparty credit rating single-'A'-plus), of
which the combined subsidiary operations form the fourth largest writer of
private passenger auto and personal-use vehicles (motorcycles, recreational
vehicles, and snowmobiles) in the U.S., with reported surplus of $2.2 billion
at year-end 2000.
    Specialty Risk Insurance Co. writes mainly private passenger auto
coverage, with a focus on nonstandard automobile insurance. Its products are
distributed primarily through general agency agreements with two noninsurance
affiliates, Midland Risk Services Inc. and Midland Risk Services-Arizona Inc.
Based in Memphis, Tenn. and licensed in California, Georgia, Louisiana,
Tennessee, and Texas, the company derives more than 90% of its total revenue
from Tennessee and Georgia. It began business in 1937. It also writes surplus
lines business in Florida and Illinois.
    Specialty Risk Insurance Co. participates in an aggregate excess-loss
reinsurance agreement with United Financial Casualty Co. (UFCC), an affiliate,
relating to loss development on policies issued prior to Nov. 1, 1997. With no
employees or facilities, the company participates in a management and services
agreement with UFCC and Midland Financial Group Inc.
    Major Rating Factors:

    -- The rating is constrained to that of the company's immediate parent,
Progressive Home Insurance Co.
    -- Capital adequacy was more than adequate at year-end 1999, as measured
by Standard & Poor's model. Leverage, as measured by premium and liabilities
to surplus, was conservative, at 1.2 times. Policyholder surplus grew 15% in
the first nine months of 2000 to $12.7 million, following an increase of 23.9%
in 1999.
    -- The company's business scope is nevertheless considered limited. Net
premiums written were $10.5 million in 1999.
    -- The company (NAIC: 44288) has a history of volatility in premium
income. Net premiums written were about 10% lower, at $7.5 million, in the
first nine months of 2000, than in the equivalent year-ago period. Net writing
had increased 810.4% in 1999.
    -- Operating performance has been extremely strong, with the average
return on revenue from 1996 to 1999 at 23.4%. The company reported net income
of $1.9 million for the first nine months of 2000, compared with $1.6 million
for the same period in 1999.

    Ratings 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. Ratings with a 'pi'
subscript 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.