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AM Best Rating Review

A few weeks ago, AM Best announced that its A rating of AEGIS was under review with Negative implications. This week, Best announced the results of their review, which is to downgrade our rating from A (Excellent) Negative Outlook to A- (Excellent) and to upgrade our outlook to Stable.

We held a number of face to face and telephonic meetings with Best's over the past several months as part of the annual review process that began in the fall of 2008. We spent a considerable amount of time with their analysts explaining to them the various steps we have taken to address capital adequacy and to improve our score under the Best's Capital Adequacy Rating model (BCAR). They understand and appreciate the wisdom of these steps and over time they did indeed improve their view of our capital adequacy. One of the most effective tools we used was to purchase an adverse development cover ("ADC") from Berkshire Hathaway at year-end 2008 to reduce potential volatility in our loss reserves on previously written casualty business. The agreement was designed by AEGIS, Berkshire Hathaway and Guy Carpenter to provide us with additional capital support at a reasonable cost, and should enable us to improve our BCAR scores over the next several years.

While Best agreed that the ADC reinsurance arrangement we put in place was helpful, they suggested certain term changes that would have allowed us to maintain our A rating but would have cost AEGIS significantly more premium without achieving sufficient economic benefit to the Company. Although we would, of course, prefer the slightly higher rating, we have a fiduciary duty to you, our owners. AEGIS management and its Board of Directors wholeheartedly agreed that we should not spend the additional premium necessary to retain the A rating. Based on our discussions, we believe that if we achieve our business plans over the next 12-24 months, we will be in a position to receive an upgrade to our rating.

I have discussed the importance and worth of an A rating versus an A- rating with a number of risk managers and our major brokers. All said they had no difficulty with an A - rating and all agreed that they saw no problem with AEGIS maintaining our business and market leadership. This is particularly true, they advised, during these tough financial times as most companies suffered in 2008 and many household insurance names are experiencing significantly greater financial difficulty. We agree with the risk managers and brokers we surveyed and we hope that all of you agree with our decision not to make uneconomic expenditures simply for rating agency purposes.

AEGIS has had a history of successfully weathering storms over the last twenty years and with your support we fully expect to do so again. As you will see from Best's review when it is published, AEGIS obviously remains a well capitalized company that has the unique strength of being a mutual that the energy industry has constantly supported. Our mission remains the same and we promise to continue to do our utmost to fulfill it by working together with you. We look forward to discussing our progress with you in detail at our annual Policyholder's Conference in July.