Atlantic Mutual Downgraded

October 20, 2003

Fitch Ratings downgraded the ratings of the Atlantic Mutual Cos. (AMC). The group’s insurer financial strength ratings were downgraded to “BBB-” from “BBB” and the surplus note rating of Atlantic Mutual Insurance Company was downgraded to “BB-” from “BB.” All ratings were removed from Rating Watch Negative. The outlook is stable.

The rating actions follow announcements that AMC sold the renewal rights to a substantial portion of its marine business to Travelers Indemnity Co. to conclude a previously announced capital raising initiative. Fitch believes it is likely that the proceeds from the renewal rights sale will not be sufficient to replenish the capital that would be lost if AMC were to strengthen reserves to the required level indicated by Fitch’s modeling.

Positively, Fitch notes AMC’s progress in its capital raising efforts and improvements in the quality of capital. In addition to the benefits realized on the renewal rights sale, AMC raised $15 million through the sale of surplus notes earlier this year. AMC also realized gains of approximately $50 million on its investment portfolio. Fitch also notes that AMC has used the proceeds of these efforts to substantially reduce the level of soft capital that had been generated by previous reinsurance transactions.

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