RUTX Republic Companies

A.M. Best Co. has affirmed the financial strength rating (FSR) of A- (Excellent) of Republic Companies Group (Republic) and has assigned issuer credit ratings (ICR) of "a-" to its property/casualty insurance operating companies. Concurrently, A.M. Best has assigned an ICR of "bbb-" to Republic's parent, Republic Companies Group, Inc. (Nasdaq:RUTX). The executive offices are located in Dallas, Texas. The outlook for all ratings is stable. The ratings recognize Republic's improved risk-adjusted capitalization due to a continuation of its recently favorable underwriting performance. The improvement has been derived from management's aggressive corrective underwriting actions, enhanced catastrophe reinsurance programs and a re-focusing of its operating strategy as a regional writer targeting niche opportunities through its multi-channel network, resulting in a surplus appreciation of approximately 25% over the past two years. In addition, Republic improved its capital base following the initial public offering (IPO) of its parent company in August 2005, as the majority of the IPO's proceeds were utilized to redeem preferred stock and accrued preferred dividends. Partially offsetting these strengths is Republic's regional concentration of risk and its exposure to weather-related events. However, a conservative reinsurance program mitigates this exposure both on a severity and frequency basis. Furthermore, revised underwriting criteria and disciplined underwriting assists in mitigating the group's potential exposures in catastrophe prone areas. This is evident in the favorable underwriting performance despite an active 2005 hurricane season, in which Republic produced an underwriting profit for the second consecutive year. This is in stark contrast to prior years, when Republic was under previous ownership in which fluctuating operating performance, combined with sizeable capital losses and dividends resulted in historical surplus volatility. The FSR of A- (Excellent) has been affirmed and ICRs of "a-" have been assigned to Republic Companies Group and its following property/casualty affiliates: -- Republic Fire & Casualty Insurance Company -- Republic Lloyds -- Republic Underwriters Insurance Company -- Republic-Vanguard Insurance Company -- Southern County Mutual Insurance Company -- Southern Insurance Company -- Southern Underwriters Insurance Company -- Southern Vanguard Insurance Company An ICR of "bbb-" has been assigned to Republic Companies Group, Inc. For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings. For current Best's Ratings, independent data and analysis on more than 3,000 individual property/casualty companies and A.M. Best groups, please visit www.ambest.com/pc. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.