Ratings Recap: Mercury; Willow Re (Allstate); Penn Treaty

June 15, 2007

A.M. Best Co. has affirmed the financial strength rating (FSR) of “A+” (Superior) and issuer credit ratings (ICR) of “aa-” of Los Angeles-based Mercury Casualty Group and its members. Best also affirmed the FSR of “A-” (Excellent) and ICRs of “a-” of American Mercury Insurance Group (AMI) of Oklahoma City and its members as well as the ICR of “a-“, the senior debt rating of “a-” on existing debt securities and the indicative rating of “a-” of the senior debt under the $300 million shelf registration, of which $175 million remains, of Mercury and AMI’s parent, Mercury General Corporation. The outlook for all the ratings is stable. Mercury’s ratings reflect its “strong risk-adjusted capital position, conservative investment risk profile and low dependence on reinsurance,” said Best. “Moreover, Mercury’s capitalization is supported by solid surplus growth through a consistently positive operating performance.” For a complete listing of Mercury General Corporation’s FSRs, ICR and debt ratings go to: www.ambest.com/press/061404mercury.pdf.
Standard & Poor’s Ratings Services has assigned its “BB+” senior secured debt rating to Willow Re Ltd.’s $250 million Class B Series 2007-1 principal-at-risk variable-rate notes.
This is the first issuance under Willow Re’s newly established US$2 billion principal-at-risk variable-rate note program. “The proceeds from the notes issuance will provide Allstate Insurance Co. (AA/Negative/A-1+) and its affiliates with a source of index-based collateralized reinsurance for hurricanes in the covered area–the states of New York, New Jersey, and Connecticut–on a per-occurrence basis over a three-year period,” S&P explained. The issue is the first time Allstate has sponsored a hurricane-linked cat bond. S&P credit analyst Gary Martucci explained that the “rating on the notes is based on the modeled probability of attachment and the analysis of the deal structure.” AIR Worldwide Corp.’s Atlantic Tropical Cyclone Model Version 9.0 was used to determine the probability of attachment of the notes.

Standard & Poor’s Ratings Services said today that it affirmed its “B” counterparty credit and financial strength ratings on Penn Treaty Network America Insurance Co. (PTNA). However S&P kept the ratings remain on CreditWatch with negative implications. “This action follows the recent announcement by the Florida Office of Insurance Regulation (Florida OIR) that the company’s certificate of authority to conduct business in Florida has been suspended for a period of at least 12 months because the company did not file its 2006 audited statutory financial statements by June 1, 2007,” S&P explained. “Florida constituted 5.9 percent of PTNA’s new business applications in the first five months of 2007. The company is pursuing a stay of the order or a reversal and is working with the Florida OIR to reach a solution as it finalizes its audited statutory financial statements.”

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