PMA Raises $158 Million; S&P Affirms ‘A’ Ratings

December 27, 2001

Philadelphia-based PMA Capital Corporation announced that it has successfully completed a public offering of shares of Class A common stock, raising around $158 million in new capital. Standard & Poor’s also reaffirmed its single-‘A’ counterparty credit and financial strength ratings on four of the company’s subsidiaries.

The company said that the underwriters for the offering exercised their over-allotment option and purchased an additional 1,275,000 shares, bringing the total number of shares issues through the equity offering to 9,775,000. PMA said it intends to use the proceeds from this offering to provide additional capital for its reinsurance and insurance subsidiaries and for general corporate purposes.

S&P affirmed its ratings on PMA Capital Insurance Co. (PMACIC) and the three members of PMA Insurance Group (PMAIG)–Pennsylvania Manufacturers Association Insurance Co., Pennsylvania Manufacturers Indemnity Co., and Manufacturers Alliance Insurance Co. It maintained its negative outlook, but removed the group from CreditWatch, where they were placed on Sept. 20 following the group’s announcement of a $30 million pretax charge related to the attacks on the WTC.

Rating factors considered by S&P included:

— Good business position in the reinsurance market. PMACIC was the eighth largest U.S. broker reinsurer at year-end 2000 based on policyholders’ surplus.

-Significant improvements at PMAIG. Since the restructuring of its operations in 1996, PMAIG has shown gradual but consistent improvement in underwriting performance and expense savings.

-Strong consolidated capital adequacy

–Poor consolidated operating performance. Consolidated operating performance has been adversely affected by poor earnings at PMACC’s reinsurance arm–PMACIC–and at Caliber One Indemnity Co., an unrated start up excess and surplus subsidiary under PMACIC. A combination of $78.8 million in pretax reserve strengthening charges at these companies during the last 15 months, along with recent losses of $30 million (pretax) related to the WTC, were the main contributors to PMACC’s operating losses in 2000 and 2001.

–Adequate financial leverage and interest coverage. Including PMACC’s recent $160 million equity issue, Standard & Poor’s expects financial leverage to be modest at 17% at year-end 2001.

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