S&P Affirms GEICO and Subs ‘AAA’ Ratings

Standard & Poor’s Ratings Services announced that it has affirmed its ‘AAA’ counterparty credit rating on GEICO Corp. and its ‘AAA’ counterparty credit and financial strength ratings on Government Employees Insurance Co., GEICO General Insurance Co., GEICO Indemnity Co., and GEICO Casualty Co., which are GEICO’s insurance subsidiaries. The outlook on all these companies remains stable.

“The ratings are based on GEICO’s extremely strong financial strength, which is supported by its extremely strong capital adequacy and conservative reserve position,” said the bulletin. “GEICO’s cost-efficient, direct-response marketing methods and its emphasis on customer satisfaction have established its brand name and competitive position within the U.S. personal auto insurance market. Standard & Poor’s believes that GEICO’s direct platform provides a significant cost advantage over its peers.”

S&P also noted that GEICO “continues to report very strong operating results through disciplined underwriting. Its combined ratio was 94 percent in 2003 and 89 percent through the first quarter of 2004. In addition, GEICO has a consistent investment earnings stream that is complemented by realized capital gains inherent in its total-return strategy.”

The announcement indicated, however that these “positive factors are partially offset by the group’s risk portfolio and geographic concentrations. Personal auto and auto physical damage writings constituted more than 99 percent of GEICO’s premiums in 2003. In addition, roughly 48 percent of GEICO’s direct writings are generated from four Eastern Seaboard states. GEICO holds a limited number of concentrated stock investments to diversify its investment portfolio. “

S&P said “GEICO is expected to maintain its expense advantage, which is a significant strength to the rating. In addition, capital adequacy is expected to remain extremely strong in 2004. Barring the potential negative earnings impact of large loss events or investment risk, expectations are that GEICO will continue to generate very strong earnings in 2004.”