Cochran Caronia Waller Offers Auto Insurance Reserves Study

CHICAGO, April 3 /PRNewswire/ — Cochran Caronia Waller recently issued a research study on auto insurance reserves. Our findings and investment conclusions are summarized below.

Sector deterioration likely: We have changed our outlook on auto insurance stocks to negative based on our analysis of 2006 reserves. The data suggests that the auto underwriting cycle will likely undergo a negative inflection over the next two years. Given that valuations are still trading close to peak multiples, we suggest investors be cautious when investing in this sector.

Our analysis of auto reserves of the large publicly traded competitors yielded several distinctive themes:

— Reserves for 2006 calendar year are redundant, but less so than in2005.– Excess reserves from the strong part of the underwriting cycle (2002 to2005) are mainly exhausted.– 2006 AY reserves appear materially less conservative with only half thelevel of redundancy compared to 2005 AY.

Negative inflection in the Auto Cycle: We expect auto loss ratios to rise by 300 to 500 basis points over the next two years. Favorable reserve releases will likely slow or go away and future accident year loss ratios should begin to rise. A historic review shows that current loss patterns are similar, although somewhat muted, compared to those experienced before loss ratios inflected in 1999.

Investors should be cautious: We expect pressure on auto insurance stocks in the near term. A move to higher loss ratios means that return on equity should shift from 20% to 15% over the next two years. The lower ROE should result in a contraction in trading multiples from peak levels of 1.8x book to the historic average of 1.5x.

Downgrades: We are reducing our rating on Allstate from an Outperform to a Market Perform as we expect ROEs to move from over 20% in 2006 to a forecast 15% in 2008. We are reducing our rating on Safeco from Market Perform to Underperform, as the company has the highest relative valuation given a lower than average ROE. We are leaving Progressive at a Market Perform. We believe that the company is ahead of the curve in recognizing losses, has a huge amount of excess capital, may undergo significant change and the stock has already experienced significant multiple compression.

To view this report please click on the link below. If you have any trouble viewing the document, please contact tgosnell@ccwco.com .

http://www.ccwco.com/public_docs/Public_Docs_070402AutoReportCombined.pdf

Please feel free to call Adam Klauber, Cochran Caronia Waller’s Director of Equity Research, with any questions at (312) 425-4087.

About Cochran Caronia Waller

Cochran Caronia Waller is a full-service, independent investment banking firm specializing in the property-casualty, life and health industries and related businesses. It offers clients research, equity sales and trading, alternative capital-raising and mergers and acquisitions advisory services. Headquartered in Chicago, with offices in New York, Cochran Caronia Waller is consistently ranked among the leaders in insurance investment banking transactions. For further information about Cochran Caronia Waller, visit its website at http://www.ccwco.com/ . Cochran Caronia Waller is a member of the National Association of Securities Dealers, CRD number 44824.

Media Contact:Tiffany Gosnell312.425.4074tgosnell@ccwco.com

Cochran Caronia Waller

CONTACT: Tiffany Gosnell of Cochran Caronia Waller, +1-312-425-4074, ortgosnell@ccwco.com

Web site: http://www.ccwco.com/http://www.ccwco.com/public_docs/Public_Docs_070402AutoReportCombined.pdf