Vesta Group Under Review

A.M. Best Co. has placed the financial strength rating of "B" (fair) of the property/casualty affiliates of Alabama-based Vesta Insurance Group Inc. (Vesta) under review with negative implications.

These rating actions reflect Vesta's significant deterioration in capital and its ongoing uncertainty regarding management's capital enhancement initiatives. The reduction in capital was driven primarily by a $60.6 million loss stemming from the four Florida hurricanes and a recent jury verdict received on a previously disclosed litigation case, Muhl v. Vesta. The charge for this case is initially estimated to be in the range of $10 to $15 million and will result in a loss from discontinued operations in the third quarter. Accordingly, Vesta's risk-adjusted capitalization has fallen below its current rating level.

In addition, Vesta recently announced that it has terminated the agreement to sell its life insurance operations to an unaffiliated investor group. Vesta terminated the agreement following the buyers' failure to close after the transaction received regulatory approval.

Consequently, the financial strength rating of "B" (fair) of American Founders Life Insurance Company (American Founders Life) of Texas, remains under review with negative implications. Vesta is currently evaluating its alternatives related to American Founders Life, including retaining and growing the business or pursuing a divestiture.

The ratings will remain under review pending Best's meeting with management as well as completion of Vesta's capital enhancement initiatives. While the holding company has access to additional funds for the insurance operations, execution risk remains. In the absence of improved risk-adjusted capitalization, the ratings will likely be downgraded.

PMA Insurance Group Restored

Philadelphia-based PMA Capital Corp. announced that A.M. Best restored the "A-" (excellent) rating with a stable outlook to The PMA Insurance Group.

The announcement completes a one-year period during which PMA Capital stabilized its financial results, protected its primary insurance client base and service franchise and instituted an orderly withdrawal from its reinsurance business while taking the necessary steps to obtain the restoration of The PMA Insurance Group's "A-" financial strength rating. The upgrade enables the Group to enter the 2005 renewal season with positive momentum and enhanced confidence in its ability to serve its existing customers and to write new business that meets its underwriting standards.

In conjunction with its efforts to restore the financial strength rating, PMA Capital took several actions to strengthen the capital base of the holding company, including the recent completion of an exchange offer for its $86.25 million 4.25 percent Senior Convertible Debentures due 2022.

Bluepoint Assigned by Moody's

Moody's Investors Service announced it has assigned BluePoint Re Ltd. (BluePoint) an insurance financial strength rating of "Aa3." The outlook is stable. The rating reflects the company's strong capital base, conservative underwriting guidelines, rational business strategy and the market's firm demand for financial guaranty reinsurance.

BluePoint has been recently funded with $300 million in equity from the company's wholly owned parent, Wachovia Corp. (Wachovia). The company will underwrite all lines covered by the major primary monolines including U.S. public finance, structured finance and international securities. The company will follow conservative single risk limits and exercise heightened caution in underwriting healthcare, utility and project finance sectors.

Moody's stated that it viewed BluePoint's ability to secure several quota share treaties with major monolines prior to the start of operations as key to validating demand from the company's customer base. Additionally, BluePoint has been able to secure a start-up portfolio of approximately $3 billion in quality business, which will provide the company an immediate earned premium stream.

Moody's noted that although BluePoint's rating receives no credit enhancement from Wachovia, BluePoint's business outlook benefits from Wachovia's commitment to not withdraw capital from BluePoint until at least October 2009. Furthermore, BluePoint will receive a limited degree of direct underwriting business from Wachovia, where it will write guarantees in support of select structured transactions in credit default swap form. In addition, Wachovia's strong relationships with the primaries should generally benefit BluePoint.

Toa Reinsurance Downgraded

A.M. Best Co. downgraded the financial strength rating of The Toa Reinsurance Company of America (TRA), of Morristown, N.J., to "A" (excellent) from "A+" (superior). The outlook is stable. Concurrently, Best assigned an issuer credit rating of "a+" to TRA with a negative outlook.

The downgrade reflects Best's decision to remove TRA's core status. Given the current environment within the industry, Best refined its view of core as outlined in its updated methodology on rating members of insurance groups. While Best recognizes management's efforts to further enhance its strategic importance, TRA has been removed from core after a comprehensive analysis. As a result, the rating of TRA's parent company, The Toa Reinsurance Company (TRJ), of Japan, is no longer assigned to TRA. However, Best considers TRA to be a strategic subsidiary of TRJ, and rating uplift is applied to TRA's stand-alone rating.

The rating reflects TRA's strategic importance to TRJ, its strong capital position, comparatively favorable underwriting results, well established market position and long-term relationship with its clients. The company's excellent stand-alone risk-adjusted capitalization is supported by its conservative invested assets, low credit risk and low catastrophe exposure. Additionally, excellent investment returns, especially from capital gains, have been the main driver for its good overall earnings and continued surplus growth. However, competitive pressures are expected to intensify over the near term, which, in Best's opinion, may limit TRA's business position within the U.S. reinsurance market. The stable outlook on the financial strength rating reflects its position within the "A" (excellent) category, which includes strategic lift from the parent.

The negative outlook on the ICR reflects Best's current outlook on TRJ's financial strength rating and the potential for its ICR to change while its financial strength rating remains unaffected.