AmWINS Outlook Revised to Stable From Neg; Ratings Affirmed

March 14, 2007

Standard & Poor’s Ratings Services said that it affirmed its ‘B’ counterparty credit and senior debt ratings on AmWINS Group Inc. (NYSE:AGI; f/k/a American Wholesale Insurance Group Inc.) and revised its outlook on the company to stable from negative.

The rating actions follow AmWINS’s recently announced IPO plans. “The outlook was revised to stable due to the company’s demonstrated ability to maintain margins in the last few quarters,” explained Standard & Poor’s credit analyst Tracy Dolin. “In addition, AmWINS is committed to redeeming a proportional amount of debt from the proceeds of its planned IPO.”

The counterparty credit rating on AmWINS reflects its enhanced competitive position following the acquisition of Stewart Smith Group in April 2005. The company’s EBITDA margins improved to 24.4% in 2006 compared with 17% in 2004. AmWINS’s diversified revenue base–consisting of property/casualty brokerage, specialty underwriting, and group benefits segments–helps manage earnings through market cycles. Offsetting these strengths is its limited track record since beginning operations in 2002 as a single, independent entity. In addition, there are inherent integration and execution risks imbedded in AmWINS’s growth by acquisition strategy and in its roll-up infrastructure.

As of year-end 2006, the ratio of adjusted intangible assets to total capital was 87%, consistent with Standard & Poor’s interactively rated group of insurance brokers that also have high ratios of intangible assets to total capital. The large amount of goodwill is attributable to the company’s rapid growth through acquisitions, including the Stewart Smith acquisition. Good earnings in 2006 contributed to an improved adjusted debt-to capital ratio of 66% compared with 72% in the prior year. Offsetting Standard & Poor’s concerns are the company’s history of generating positive cash flow, prospective lower interest expenses, and the expectation that IPO generated cash flow might be utilized to pay down debt ahead of scheduled amortization.

Standard & Poor’s believes that the company will continue to remain cash-flow positive and meet its restrictive covenants in the near-to-intermediate term. GAAP pretax interest coverage of more than 2.5x is expected for year-end 2006, with total debt-to-capital of less than 40%. Standard & Poor’s expects that the company will achieve EBITDA margins in excess of its three-year average of 21.7%. As of Dec. 31, 2006, the company’s EBITDA margin measured about 24.4%.

Standard & Poor’s would consider revising the outlook to positive once the company has established a track record of increased margins and lower debt levels. In the near term, management might be distracted from its operating goals as it dedicates significant time and resources to operate as a public company for the first time. AmWINS faces the formidable task of maintaining capital management conservatism while it increases its strategic acquisition appetite. Simultaneously, AmWINS will be challenged to grow organically in a softening excess and surplus rate environment compared with prior favorable years. Standard & Poor’s would consider a negative outlook should the company’s margins compress, precipitating it to operate at the boundaries of its restrictive debt covenants.

Source: S&P

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