TIG Downgraded, C&F Affirmed

A.M. Best Co. downgraded the financial strength rating of TIG Insurance Group, Irving, Texas, from "A-" (Excellent) to "B++" (Very Good), affirmed the "A-" (Excellent) rating of Crum and Forster Insurance Group (C&F), Morristown, N.J., and removed both ratings from under review.

Concurrently, A.M. Best affirmed the financial strength ratings of other insurance subsidiaries of Toronto-based Fairfax Financial Holdings. Additionally, the "bbb-" senior debt rating relating to Fairfax, the "bb+" senior debt and "bb" trust preferred ratings relating to TIG Holdings were affirmed.

In early November, Fairfax announced a third quarter loss of C$458 million, which included a substantial charge relating to reserve strengthening at its two largest U.S. insurance subsidiaries, C&F and TIG. On Nov. 6, A.M. Best placed these companies' ratings under review with developing implications.

A.M Best recently completed a review of Fairfax and its subsidiaries that focused on the adequacy of current carried reserves at C&F and TIG, capitalization, prospective earnings capabilities for the consolidated group and the financial flexibility at the holding company. TIG's downgrade reflects A.M. Best's belief that despite significant remedial actions already taken by the current management, TIG's turnaround will be protracted due to its operating platform, which limits flexibility in pricing and underwriting control.

TIG maintains a significant concentration of business with a limited number of managing general agents. In addition, the company's historical dependence on third party administrators heightens the uncertainty with respect to the adequacy of its reserve position. However, the current rating reflects TIG's adequate level of capitalization even with consideration to the significance of affiliated invested assets. The company is expected to benefit from improving market conditions within the commercial insurance sector.

A.M. Best affirmed C&F in the belief that the current management's underwriting and reserving actions will significantly improve C&F's operating performance in 2002. This improvement has already begun to emerge in both accident and policy year underwriting trends. This, combined with C&F's strengthened reserves, solid capitalization and significant reinsurance protection relating to prior accident years, positions the company to take advantage of the favorable turn in the commercial insurance sector.

S&P Lowers Atlantic Mutual

Standard & Poor's lowered its various ratings on Atlantic Mutual Insurance Co. and its subsidiaries. At the same time, S&P revised its outlook on these companies to stable from negative. The ratings actions are based on Atlantic Mutual's poor earnings, weakened yet still strong capital position, good liquidity, and challenging business position. S&P believes it will be difficult for Atlantic Mutual to successfully address these issues while maintaining market share among independent agents. The outlook reflects S&P's belief that actions taken by Atlantic Mutual will begin to positively affect the bottom line in late 2002 and into 2003.

The changes in the Atlantic Mutual ratings are as follows: Atlantic Mutual Insurance Co.: Counter party credit rating—to "BBB+" from "A-"; Financial strength rating—to "BBB+" from "A-"; Surplus note rating to "BBB-" from "BBB". Atlantic Lloyds Insurance Co. of Texas, Atlantic Specialty Insurance Co., Centennial Insurance Co.: Counterparty credit rating—to "BBB+" from "A-"; Financial strength rating—to "BBB+" from "A-".

AXIS Specialty Receives A- From A.M. Best

AXIS Specialty Ltd., the Bermuda-based insurer created by broker Marsh & McLennan Cos. Inc., announced it received an "A-" (Excellent) rating from A.M. Best. AXIS Specialty CEO and president John Charman said the rating reflects the company's "compelling combination of a substantial, unencumbered capital base aligned with a proven strong and capable management and underwriting team."

Marsh announced at the end of September that it was established AXIS Specialty, which will rank as a medium sized insurer in the Bermuda market. The company opened for business on Nov. 20 with $1.6 billion in capital, which was raised from investors through a private placement of its shares. The founding investor is Trident II LP, a private equity fund managed by MMC Capital, a unit of Marsh.

S&P Affirms Marsh & McLennan Cos.

Standard & Poor's affirmed its ratings on Marsh & McLennan Companies (MMC). The outlook has been revised to stable from negative. The rating actions reflect the diversity and strength of MMC's various operating businesses, excellent operating performance, and above-average debt service capabilities. The revised outlook reflects S&P's reduced concern about quality of capital issues associated with about $5.3 billion of goodwill on MMC's balance sheet as of Sept. 30.

S&P said MMC, through its subsidiaries of Marsh, Putnam and Mercer, has an excellent reputation and leading market positions in insurance and reinsurance brokerage, asset management, and consulting businesses, respectively. The strength of the organization lies in its diversity as well as in its global infrastructure, extensive client base, and well-rounded portfolio of products and services.

The company also enjoys excellent operating performance. Excluding the $173 million in special charges related to restructuring and the World Trade Center terrorist attacks, MMC's operating margins remain very strong. As of the first nine months of 2001, MMC's operating margin grew to 22.9 percent compared with 20.3 percent for the same period a year ago.