Fitch Affirms 21st Century Insurance Ratings; Stable Outlook

Fitch Ratings has affirmed the ‘A-‘ issuer default rating on 21st Century Insurance Group (21st Century) and the ‘BBB+’ rating on 21st Century’s senior notes. Additionally, Fitch has affirmed the ‘A+’ insurer financial strength (IFS) ratings of 21st Century Insurance Company (21st Century Insurance), 21st Century Casualty Company, and 21st Century Insurance Company of the Southwest. The Rating Outlook is Stable.

Fitch’s ratings reflect 21st Century’s strong competitive position in the California auto insurance market, good underwriting results, low-cost direct distribution platform, and strong balance sheet. Partially offsetting these positives is the effect of the company’s mono-line product offering and concentrated geographic focus in the competitive California auto insurance market.

21st Century has its largest market share in California where it ranks among the state’s 10 largest writers of personal auto insurance. However, 21st Century is expanding its personal auto business to other states where it sees opportunity for profitable growth. Fitch believes the company’s prudent use of technology, advertising, and its low-cost distribution allow it to enter new states efficiently and effectively.

In 2005, 21st Century reported a combined ratio of 94.9%. Fitch believes that the company’s good underwriting results are due in part to stricter underwriting controls, including a high level of detailed pricing segmentation outside of California. 21st Century’s expense ratio continues to be lower than peers, even with increased advertising expenditures, due to its direct distribution platform and growing economies of scale as the company expands. Additionally, market conditions have been relatively stable, with claims frequency remaining steady and severity trending slightly upward. Unlike in past years, premium rates have remained sufficient to cover increasing loss costs.

21st Century Insurance has a strong balance sheet with limited investment and reinsurance-related risk. The company invests primarily in investment-grade fixed-income investments, and its reinsurance recoverable is small relative to the company’s surplus and is due from highly rated companies, including subsidiaries of its majority shareholder, American International Group, Inc. (AIG). Operating leverage is comparable to that of other highly rated personal auto writers.

21st Century uses a modest amount of financial leverage. At year-end 2005, the company’s debt-to-capital ratio was 13%, and its operating earnings-based interest coverage was a strong 17.3 times (x). Fitch believes that operating earnings-based coverage could be somewhat pressured due to heightened competitive conditions but that it will remain strongly supportive of 21st Century’s current ratings.

In 2005, 94% of the company’s direct premiums written were derived from California-based policyholders and, as a result, it is highly exposed to market conditions and the political climate in California. However, exposure in California has declined somewhat as the company expands outside of the state to seek profitable growth opportunities. All of 21st Century’s growth in 2005 stemmed from its expansion states as California has become increasingly competitive.

Fitch has affirmed the following ratings with a Stable Outlook:

21st Century Insurance Group

— Issuer default ‘A-‘;

— $100 million senior notes 5.9% due 2013 ‘BBB+’.

21st Century Insurance Company

— Insurer financial strength ‘A+’.

21st Century Casualty Company

— Insurer financial strength ‘A+’.

21st Century Insurance Company of the Southwest

— Insurer financial strength ‘A+’.

Fitch’s rating definitions and the terms of use of such ratings are available on the agency’s public site, ‘’. Published ratings, criteria and methodologies are available from this site, at all times. Fitch’s code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the ‘Code of Conduct’ section of this site.