S&P Affirms Interinsurance Ex of Auto Club `AApi' FSR

    NEW YORK--Standard & Poor's--March 28, 2001--Standard & Poor's today affirmed its double-'Api' financial strength rating on Interinsurance Exchange of the Automobile Club.
    Key rating factors are extremely strong capitalization and strong operating performance, mitigated by geographic concentration.
    Interinsurance Exchange of the Automobile Club (NAIC:15598) is a reciprocal insurance company organized under the laws of the State of California. The company provides automobile, homeowners, watercraft, and personal excess liability insurance to members of its affiliate, the Automobile Club of Southern California, the largest affiliate of the American Automobile Association. Headquartered in Los Angeles, Calif., Interinsurance Exchange of the Automobile Club derives 99% of its total revenue from within the California insurance market. The company, which began business in 1912, is licensed in Arizona, California, New Mexico, and Texas.

    Major Rating Factors:

    -- As of September 2000, the policyholders' surplus increased to $1,845 million (or about 2%) from $1,803 million at year-end 1999. Capitalization was extremely strong at year-end 1999, as measured by Standard & Poor's capital adequacy model. In addition, retained earnings, as measured by unassigned surplus to assets of 55%, is good.

    -- As of September 2000, the company reported a net income of $105 million, compared with a net income of $125 million for the same time period in the prior year. Although profitability is extremely strong with a five-year average ROR of 21%, when adjusted for risk it is lower than that of other companies at the double-'Api' rating level.

    -- The company's erratic premium revenues are viewed as a limiting factor. Yearly changes in premium levels have varied between negative 1.3% and positive 15.3% over the last five years. Although the company is licensed in Texas, New Mexico, and Arizona, 100% of direct premiums written in 1999 were in California. Geographic and product line concentrations expose the company to regulatory and competitive risks.

    -- The company has strong reserves, with a consistent favorable two-year loss reserve development. The average reserve release has been 20% with respect to surplus since 1995. The reported ratios have been redundant (negative development) in the past five years.

    -- The company's 1999 unaffiliated common stock leverage is moderately high at 42% of policyholders' surplus. More than 28% of the company's invested assets are invested in interest rate-sensitive collateralized mortgage obligations and loan-backed bonds.

    The company is rated on a stand-alone basis.

    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.

    Copyright 2001, Standard & Poor's Ratings Services