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S&P Affirms California Capital Insurance 'Api' Rtg

8 November 1999

S&P Affirms California Capital Insurance 'Api' Rtg

    NEW YORK--Standard & Poor's--Nov. 8, 1999-- Standard & Poor's today affirmed its single-'Api' financial strength rating on California Capital Insurance Co.
    Licensed to operate in six states in the western U.S., California Capital Insurance Co. underwrites solely in California and Nevada. The property and casualty insurer's products include personal auto, home, farm and business owners insurance coverage.
    California Capital and its affiliates participate in an inter-affiliated pooling arrangement, in which the company retains 80% of the pool, while its two affiliates, Eagle West Insurance Co. and Monterey Insurance Co., each share 10%. The company commenced operations in 1898.
    The California Insurance Group, comprised of California Capital Insurance Co., Eagle West Insurance Co. and Monterey Insurance Co., instituted an employee stock ownership plan (ESOP) early in 1998. Employees of the insurance group will eventually hold a 42% equity stake in the companies, after debt issued for the ESOP is repaid at year-end 2008. William E. Moore, co-founder of Kelly-Moore Paint Co., holds the remaining 58% of the California Insurance Group.

   
     Major Rating Factors:

--   The California Insurance Group's pool capitalization is extremely
     strong. Under Standard & Poor's capital adequacy model, the
     pool's 1998 capital adequacy ratio increased to 342% from the
     prior year's ratio of 285%.

--   Consolidated net income reported in June 1999 declined to $3.8
     million from the $7.0 million reported in June 1998. This decline
     is chiefly attributable to a $3 million charge to pay principal
     and interest on a $34 million note for the newly instituted ESOP.

--   Further, net premiums have declined by 9.1% to $121 million. This
     is partially attributable to intense competition in the
     California auto insurance market. Further, the pool strategically
     reduced earthquake premiums written, to lower the overall
     exposure to a catastrophic event, while increasing its use of
     reinsurance.

    '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