Attorneys Liability Protection Society Outlook Changes to Negative; ‘BBB’ Ratings Removed

July 19, 2005

Standard & Poor’s Ratings Services has revised its outlook Attorneys Liability Protection Society Inc. an RRG (ALPS) to negative from stable.

Standard & Poor’s subsequently withdrew its ‘BBB’ counterparty credit and financial strength ratings on ALPS at management’s request.

“The outlook was revised because ALPS’s financial performance is expected to weaken in 2005 as a result of a significant reserve strengthening taken this year,” explained Standard & Poor’s credit analyst Jon Reichert. “The ‘BBB’ ratings reflected ALPS’s significant line-of-business concentration as a monoline writer of attorneys’ liability coverage as well as the company’s capitalization, which is supportive of the rating.”

In the first half of 2005, ALPS conducted an extensive case-by-case analysis of reserves, similar to the one conducted in 2002, and determined that a reserve deficiency existed.

As a result of the deficiency, a new head of the claims operation has been named. At year-end 2004, Standard & Poor’s had estimated that there was a reserve deficiency of about 18% of posted reserves.

ALPS ended 2004 with $21 million of policyholders’ surplus. Factoring in Standard & Poor’s estimated deficiency at year-end 2004, the company had a Standard & Poor’s capital capital adequacy ratio of 114% for 2004, which is supportive of the rating. To help bolster capital in 2005, ALPS anticipates issuing $5 million-$10 million in surplus notes.

With this year’s reserve strengthening, an underwriting loss for calendar-year 2005 is expected. As part of Standard & Poor’s reserve analysis at year-end 2004, it was determined that if the estimated reserve deficiency was apportioned by accident year, ALPS would still have generated underwriting profits in accident years 2002, 2003, and 2004.

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