Proformance Insurance Under Review

A.M. Best Co. placed the financial strength rating of "B" (fair) of the Proformance Insurance Co. of Freehold, N.J., under review with negative implications. This action reflects the deterioration of Proformance's risk-adjusted capitalization through the first nine months of 2004. The deterioration was driven by $9.6 million in adverse loss reserve development that resulted in a decline in surplus.

The company's parent, National Atlantic Holdings Corporation, is projecting the completion of an initial public offering for January 2005, and expects to contribute a portion of the proceeds to Proformance. Successful execution of the public offering and the subsequent capital contribution to Proformance would result in risk-adjusted capitalization supportive of its current rating. However, failure to successfully execute the public offering and subsequent capital contribution to Proformance would likely result in a downgrade.

Employers Re on CreditWatch Negative

Standard & Poor's Ratings Services placed its "A+" counterparty credit and financial strength ratings on Employers Reinsurance Corp., "A-" counterparty credit rating on GE Insurance Solutions Corp. and various ratings on several affiliates on CreditWatch with negative implications.

S&P said it has ongoing concerns about the group's continuing reserve strengthening for past accident years. It expects to resolve the CreditWatch status of the ratings in the first quarter of 2005 following a review of year-end 2004 statutory financials. Although a definitive conclusion cannot be established prior to that time, S&P believes that the ratings will not change by more than two notches.

The current ratings on ERC and GE Insurance Solutions reflect the company's strong global reinsurance franchise, moderately improving operating performance, and conservative investment portfolio. The ratings are also said to reflect GE Insurance Solutions's position as a nonstrategic subsidiary of General Electric Co. Partially offsetting these factors is the company's lower business diversification.

MMC Still on CreditWatch Negative

S&P announced that its "BBB" long-term counterparty credit and senior debt ratings on Marsh & McLennan Cos. will remain on CreditWatch negative.

The decision follows the announcement that MMC closed on a new $1.3 billion term loan facility and executed a $1.7 billion amendment of revolving facilities consistent with the commitment letter disclosed in MMC's Nov. 17, 2004, 8K filing, according to S&P.

The rating service considers MMC's closing on the restructured credit facilities is a positive event and consistent with the expectation that MMC has the resources and financial flexibility to manage its liquidity requirements.

However, S&P indicated that while it expects MMC's financial profile to be in compliance with the terms of the restructured credit facilities, the ratings reflect expectations of diminished cash flow and earnings from the termination of MSAs, a modest adverse impact (up to 5 percent revenue loss) to Marsh's business outlook, and that MMC will have the financial resources to manage any settlements reached in connection with outstanding legal and regulatory investigations.

Keeping the ratings on CreditWatch with negative implications reflects the continued ongoing uncertainties of this evolving situation, particularly the impact on Marsh's competitive position, earnings, and cash flow. Short of criminal charges being filed against the company by a legal authority, S&P continues to believe that the diversified operational profile of MMC, with several well-positioned operating business, will enable it to remain a viable and profitable entity into the future.