Fitch Affirms General Fire and Casualty Co. Rating

Fitch has affirmed and removed from Rating Watch Negative, General Fire and Casualty Company’s (GenFire) ‘BB-‘ insurer financial strength rating. The Rating Outlook is Negative.

The rating was downgraded to ‘BB-‘ from ‘BB+’, and placed on Rating Watch Negative in March 2005 following GenFire’s notification that it would need to restate its 2003 annual financial statements.

The restatement allowed for a change in accounting of a major reinsurance contract due to concerns regarding appropriate levels of risk transfer. This contract has been non-renewed and cut off effective Dec. 31, 2004. GenFire has completed the filing for its year-end 2004 statutory statement and the restructuring of its reinsurance program for 2005.

Fitch believes the effect of the restatement on the company’s policyholders’ surplus is manageable, and has been substantially replenished by a contribution from the parent, GF&C Holding Company, in 2004. Although dividend capacity is limited due to 2004’s net losses, required debt service at the holding company has also declined due to the repayment of debt.

The Negative Outlook is due to Fitch’s belief that the company has experienced a significant loss of business since it has been unable to write business in California (26% of direct earned premiums) as of March 2005 because the company did not meet all criteria required by the California Department of Insurance for licensure, including minimum capital requirements.

Additionally, Fitch believes that GenFire and its parent have a smaller premium base and less equity than when Fitch initially assigned a rating in October 2004, have limited access to new capital, and are more susceptible to market risks and reserve issues due to reduced market presence and less pricing power.

Factors that would cause Fitch to downgrade GenFire’s rating include further accounting restatements, adverse legal developments, significant harm to its business profile, and a continued reduction of premium written and equity.

Fitch anticipates a return to a Stable Outlook would be possible with the finality of legal issues, assuming no adverse unexpected outcomes, resumption of business written in California, and favorable operating performance.

GenFire is a specialty property and casualty insurer, which since 1999, has operated under a new and unique business model centered on its patent-pending policy form and web-based technology. The company focuses on specialty niches in the commercial multi-peril business segment, such as integrated agribusiness and other targeted commercial classes. Idaho-based GenFire reported statutory policyholders’ surplus and assets of $10.2 million and $50.8 million, respectively, at March 31, 2005.

Fitch has affirmed the following with a Negative Outlook:

General Fire & Casualty Company

Insurer financial strength at ‘BB-‘.