Best Upgrades Allmerica Financial P/C Ratings to ‘A-‘

January 22, 2004

A.M. Best Co. announced that it has upgraded the financial strength ratings of Massachusetts-based Allmerica Financial Corp.’s P/C companies (AFC) to “A-” (Excellent) from “B++” (Very Good). Life and health companies were upgraded to “B+” (Very Good) from “B-” (Fair), and AFC’s debt ratings were upgraded to “bb+” from “bb” for senior debt, “bb-” from “b+” for capital securities and AMB-3 from AMB-4 for commercial paper. Best assigned all the ratings a stable outlook.

“The upgrade of the financial strength rating of AFC’s property/casualty companies reflects improved capitalization driven by the elimination of dividends to support the life/health affiliates, while maintaining satisfactory historical operating results and a strong regional market presence,” said Best. “Additionally, the rating recognizes the group’s well balanced business composition and geographic diversification, while benefiting from having two well established regional organizations with long-standing agency relationships.”

Best noted that “the group’s high underwriting leverage, primarily attributable to $650 million in dividends paid to the parent between 1999 and 2002, which significantly reduced surplus,” is a partially offsetting factor. It also indicated that “the group has reported adverse loss reserve development in recent years and increased weather-related losses in 2003, which has compressed profit margins.”

The rating agency expects “the group will produce solid operating earnings reflective of continued firm market conditions and management’s corrective actions. These actions include agency management programs, pursuing rate adequacy in all territories, improving work processes and shifting the business mix to more attractive markets. Given management’s operating plan for 2004 and concurrent with the expectation that no dividends will be paid from the property/casualty companies, A.M. Best believes the group’s underwriting leverage and capitalization will improve.”

Commenting on Best’s decision, President and CEO Frederick H. Eppinger, Jr. stated: “This rating upgrade reflects the confidence A.M. Best has in the overall financial condition of our companies and the strong market position of our property and casualty companies. It also better positions us to further our goal to become a world class company committed to partnering with winning agents to meet their customers’ insurance needs and to profitably grow their business over the long-term.

“We are committed to maintaining a financially solid company, creating even deeper partnerships with our independent agent partners, building the very best underwriting and product capabilities in our markets, and providing responsive service. We believe our ratings affirm our ability to achieve these goals,” he continued.

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