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Rating Action:

MOODYS RATES WHITE MOUNTAINS INSURANCE GROUP, LTD. SUBSIDIARY AT Baa2 FOR SENIOR DEBT

05 Jun 2001
MOODYS RATES WHITE MOUNTAINS INSURANCE GROUP, LTD. SUBSIDIARY AT Baa2 FOR SENIOR DEBT

Approximately $875 Million of Bank Debt Affected.

New York, June 05, 2001 -- Moody's Investors Service has assigned a Baa2 debt rating to the senior secured credit facility entered into by Fund American Companies, Inc., a subsidiary of White Mountains Insurance Group Ltd. Fund American Companies, Inc. is the entity created to facilitate the acquisition of CGU Insurance Group, the US operations of UK based CNGU Plc., by White Mountains Insurance Group Ltd. In addition, Moody's has withdrawn its Baa2 rating on the medium term notes of White Mountains Insurance Group Ltd., following the repurchase and defeasement of this debenture. The outlook for the credit facility rating is stable.

The $875 million credit facility was established to help finance White Mountains' acquisition of CGU Insurance Group, which closed on June 1, 2001. The facility contains a $175 million revolving credit facility, a $300 million tranche A term loan facility which is repayable in installments over the next five years, and a $400 million tranche B term loan facility which contains a bullet payment of $376 million in 2007. CGU Insurance Group, as well as Folksamerica Reinsurance Company (formerly a subsidiary of White Mountains), have become subsidiaries of Fund American Companies, Inc., and will thus provide the principle support for debt service and other cash needs at Fund American Companies, Inc.

In its rationale, the rating agency noted the strong franchise and market position of CGU Insurance Group (CGU) where the company ranks among the top twenty property and casualty insurers. The rating also reflects CGU's strong agency relationships, balanced mix of personal and commercial lines business, and improved market and business prospects going forward. However, these strengths are tempered by uncertainty surrounding loss reserve adequacy. While our estimation of weakness in CGU's loss reserve position diminishes our view of the company's overall capital strength, it is important to note that the management has strengthened reserves at year-end 2000, and has purchased reinsurance in order to mitigate the impact of future adverse reserve development. Furthermore, Moody's believes that the company should have more than adequate cash flow relative to future interest payments, however, its ability to meet its fixed charge obligations over the next several years will be modest, due to amortization provisions within the term loan facility.

In a related action, the rating agency stated that it has withdrawn its Baa2 rating on White Mountains Group, Ltd. medium term notes. White Mountains recently completed a tender offer, repurchasing $91 million of the outstanding debt. The remaining $5 million of debt has been defeased through the establishment of an escrow trust agreement.

White Mountains Insurance Group, Ltd., is a Bermuda-based holding company with investments in various insurance-related companies. White Mountains Insurance Group, Ltd. reported net income of $407.9 million for the twelve months ending December 31, 2000 versus net income of $121.0 million for the comparable period in 1999. 1999 results included a $88.1 million pre-tax million from the sale of the Valley Group operations and 2000 results include a $391.2 million pre-tax gain from the sale of White Mountains interest in FSA.

CGU Insurance Group is a US-based property & casualty insurance company based in Boston, Massachusetts. The company markets both commercial and personal lines insurance through a nationwide network of independent agents. As of December 31, 2000 CGU reported net written premiums of $4.4 billion and combined statutory surplus of $2.8 billion.

New York
Karen Davies
Vice President - Senior Analyst
Property and Casualty Insurance
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

New York
Ted Collins
Managing Director
Property and Casualty Insurance
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

No Related Data.
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