Ratings Recap: KFB, Combined, Ambac, Countrywide, Echelon Property

March 14, 2008

A.M. Best Co. has withdrawn the financial strength rating of ‘A’ (Excellent) and assigned a category of NR-5 (Not Formally Followed) to Kansas-based KFBInsurance Company, formerly a wholly owned subsidiary of Farm Bureau Mutual Insurance Company, and a fully reinsured member of Farm Bureau Mutual Group (both of West Des Moines, Iowa). KFB was dissolved effective December 19, 2007 following the substantial completion of run-off operations, and Farm Bureau Mutual assumed all remaining liabilities of KFB.

Standard & Poor’s Ratings Services announced that its ‘A-‘ counterparty credit and financial strength ratings on Combined Insurance Co. of America and Combined Life Insurance Co. of N.Y. (collectively, Combined) would remain on CreditWatch with positive implications. “These ratings were placed on CreditWatch Dec. 17, 2007, following the agreement by Combined’s parent company, Aon Corp., to sell the operations to ACE Ltd.,” explained S&P credit analyst Kevin Maher. “Upon closure of this merger, which requires regulatory approval, we expect to raise the counterparty credit and financial strength ratings one notch, reflecting the strategic importance of these affiliates to ACE Ltd. (ACE; A-/Stable/A-2). ACE’s operating companies currently have a financial strength rating of A+/Stable/A-1,” said S&P.

Standard & Poor’s Ratings Services today removed from CreditWatch with negative implications its ‘AAA’ issuer credit, financial strength, and financial enhancement ratings of Ambac Assurance Corp.; its ‘AA’ preferred stock rating of Anchorage Finance Sub-Trusts I-IV and Dutch Harbor Finance Sub-Trusts I-IV (committed capital facilities supported by, and for the benefit of, Ambac); and its ‘AA’ issuer credit rating on holding company Ambac Financial Group Inc. The outlook remains negative. “These actions follow Ambac Financial’s success in raising $1.5 billion in new capital, consisting of $1.25 billion in common equity and $250 million of equity units,” said S&P.

Fitch Ratings has also affirmed the insurer financial strength (IFS) rating on Ambac Assurance Corp. and its subsidiaries at ‘AA’ and the long-term rating of Ambac Financial Group, Inc. the parent company of Ambac, at ‘A’. As with S&P, the outlook remains negative.

Fitch Ratings has downgraded the Long-term Issuer Default Rating (IDR) of Countrywide Financial Corporation (CFC) and related subsidiaries to ‘BBB-‘ from ‘BBB+’. “The rationale for this specific rating action follows that of Fitch’s negative rating actions taken on eight banking companies on March 7, 2008,” said the announcement. “Those actions were supported by evidence of further deterioration within home equity portfolios and continued pressure on home prices.” Fitch said it “believes that Bank of America’s decision to purchase CFC remains on track based on public comments from BAC to this effect, and today’s action in no way reflects doubts about the likelihood of completion. As such, Fitch is keeping CFC on Rating Watch Positive.”

A.M. Best Co. has placed the financial strength rating of ‘B-‘ (Fair) and the issuer credit rating (ICR) of “bb-“of Echelon Property & Casualty Insurance Company under review with developing implications. Best said it took the rating actions following the recent announcement that “Echelon P&C entered into a definitive stock purchase agreement with Lockhart Insurance Holding Company, Ltd. and the approval of the Form A Statement by the Illinois Division of Insurance. Under the definitive agreement, Lockhart would purchase approximately 83 percent of Echelon P&C’s stock for roughly $4.2 million.” Best said the “ratings will remain under review pending the close of the transaction and discussions with management regarding ultimate capitalization plans and Echelon P&C’s new business plan. However, should the transaction fail to close within a reasonable period of time, the ratings would be downgraded as surplus at year-end 2007 fell below Illinois’ minimum regulatory requirements.”

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