Ratings: United Fire, USI Holdings, Public Service Mutual, Berkshire Hathaway, Am. Family, Old Republic, Conseco

February 27, 2008

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and the issuer credit ratings (ICR) of “a” of United Fire & Casualty Group and its five P/C members, which operate under a business pooling agreement led by United Fire & Casualty Company. Best has also affirmed the FSR of ‘A-‘ (Excellent) and the ICR of “a-” of United Life Insurance Company, a wholly owned subsidiary of United Fire & Casualty, as well as the debt rating of “bbb” on the preferred stock of United Fire & Casualty’ s indicative shelf registration. The outlook for all ratings is stable. All of the companies are domiciled in Cedar Rapids, Iowa. “The ratings of United Fire reflect its solid risk-adjusted capitalization, inclusive of significant internal capital generation in 2006 and 2007, and $107 million of net proceeds from its common stock offering in May 2006,” said Best. The report also noted the “significant hurricane exposure reduction — primarily in Louisiana — and increased catastrophe reinsurance protection; and historically positive underwriting performance — excluding catastrophe losses — over the past five years, in part attributable to substantially favorable prior year loss reserve development. The ratings also acknowledge United Fire’ s diversified product offerings, strong market franchise and the financial flexibility afforded by United Fire & Casualty, which is publicly traded and carries no debt.”

Standard & Poor’s Ratings Services revised its outlook on USI Holdings Corp. to negative from stable. S&P also affirmed its ‘B-‘ counterparty credit, ‘B’ senior secured debt, and ‘CCC’ subordinated unsecured debt ratings on USI and its ‘2’ recovery ratings on USI’s senior secured debt. S&P credit analyst Tracy Dolin explained that the revised outlook reflects S&P’s “belief that USI will not meet our expectations in 2007 and 2008. In addition, USI’s coverage metrics are starting to mirror those of lower rated credits.”

Standard & Poor’s Ratings Services has revised its outlook on Public Service Mutual Insurance Co. and its wholly owned affiliates Paramount Insurance Co. (NY) and Western Select Insurance Co. (collectively, Magna Carta) to positive from stable. S&P also affirmed its ‘BBB-‘ counterparty credit and financial strength ratings on these companies. “The outlook revision is based on the company’s consistently exceeding our prior expectations, significant improvement in operating performance, and a sizable reduction of asbestos and environmental reserves in its balance sheet due to two large commutations,” explained S&P credit analyst Siddhartha Ghosh. “The ratings reflect the group’s good and sustainable competitive position, improved operating performance, and very strong capital adequacy.” Slightly mitigating these positive factors are the company’s potential future volatility associated with its asbestos reserves, albeit significantly diminished from its earlier levels, and its limited financial flexibility

Standard & Poor’s Ratings Services issued a statement that its ratings on Berkshire Hathaway Inc. (AAA/Stable/A-1+) and its two operating subsidiaries, National Indemnity Co. (NICO; AAA/Stable/–) and Berkshire Hathaway Assurance Corp. (BHAC; not rated), “would not be affected by the company’s announced intention to provide financial guaranty insurance through its 100 percent-owned operating subsidiary BHAC. S&P explained that as “significant contractual commitments, including a contingent payment insurance policy and a financial enhancement letter from NICO in support of BHAC, the NICO ‘AAA’ rating is expected to be assigned on a transactions-only basis to contracts written by BHAC.” S&P added that it will “assess required capital for each deal written by BHAC, so as to monitor and measure this additional required capital charge within the consolidated NICO capital adequacy model and existing NICO rating expectations.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of American Family Insurance Group (AMFAM) and its members. AMFAM’s lead company is American Family Mutual Insurance Company, which includes three reinsured subsidiaries. Best also affirmed the FSR of ‘A’ (Excellent) and ICR of “a” of American Family Life Insurance Company (AFLIC). Best has withdrawn the rating of AMB-1 on the commercial paper program of American Family Financial Services, Inc. (AFFSI) as management has discontinued the program. All companies are domiciled in Madison, Wis. The outlook for all ratings is stable. “The ratings of AMFAM are based on its strong risk-adjusted capitalization, leading personal lines market position within most of its operating territories and its exclusive agency distribution system,” said Best. “The ratings also acknowledge the group’s steady net investment income generated by its extensive invested asset base.” Best, however, indicated that AMFAM’s “volatile underwriting performance and geographic concentration of risk” should be considered as offsetting factors.

Standard & Poor’s Ratings Services has placed its ‘AA’ counterparty credit and financial strength ratings on Old Republic International Corp.’s (ORI) insurance subsidiaries on CreditWatch with negative implications. S&P also placed its ‘A+’ counterparty credit rating and long-term debt rating on ORI on CreditWatch with negative implications. “These actions follow our industry wide review of the U.S. mortgage insurance sector as well as analysis of operating results for ORI’s title insurance division (ORTIG) and property/casualty business (Old Republic General),” explained S&P credit analyst James Brender. The resolution of the CreditWatch will likely be an affirmation or a one-notch downgrade.

Standard & Poor’s Ratings Services said that the announcement by Conseco Inc. (B+/Negative/–) that it will be restating its earnings for periods prior to year-end 2007 will not affect the ratings on the company. S&P noted that, “although the restatement is expected to result in Conseco’s historical financial results being viewed as weaker than prior to the restatement, the difference in results is not expected to be significant. The restatement is largely the result of errors related to adjustments to reserves for insurance products in the specified disease and life blocks of business in the Conseco Insurance Group segment and in the company’s run-off block of long-term care business. The negative outlook on Conseco’s rating continues to reflect Standard & Poor’s concerns regarding the company’s financial performance during the next 6-12 months.”

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