Majestic Insurance Receives Rating Upgrade

November 17, 2006

A.M. Best Co. has upgraded the financial strength rating (FSR) of Majestic Insurance Co. of San Francisco to A- from B++, removed the ratings from under review and assigned an issuer credit rating (ICR) of “a-“. Concurrently, A.M. Best has assigned an ICR of “bbb-” and a debt rating of “bb” to the $8 million LIBOR + 4.2 percent surplus notes, due 2033, of Majestic’s parent, Embarcadero Insurance Holdings Inc. also based in San Francisco.

Also, the rating agency assigned an FSR of A- and an ICR of “a-” to Twin Bridges Ltd. in Bermuda. And, A.M. Best has assigned an ICR of “bbb-” to Twin Bridges’ parent, CRM Holdings Ltd. in Bermuda, and CRM’s downstream holding company, CRM USA Holdings Inc. in Delaware. The rating agency has assigned a debt rating of “bb” to the $35 million 8.65 percent junior subordinated debt securities, due 2036, of CRM USA Holdings Inc. The outlook on all ratings is stable.

The rating actions reflect the completed acquisition of Majestic’s parent, Embarcadero Insurance Holdings Inc. by CRM Holdings Ltd. The acquisition resulted in a stronger level of capitalization, increased financial flexibility and an enhanced market profile for Majestic, as well as the projected cost savings for Twin Bridges that will be achieved as a result of the combination, according to the rating agency. This rating action also reflects the improved profitability and favorable reserve development experienced by Majestic over the past two years.

According to the company, offsetting these positive factors is the execution risk involved in joining these two organizations, as well as anticipated new premium growth for both Majestic and Twin Bridges. Further offsetting the positive factors is the relative immaturity of the reserves of the excess workers’ compensation business in Twin Bridges, which could develop differently than expected. Additionally, the softening environment in the California workers’ compensation market could pose a significant obstacle to the future profitability of the two operating companies.

For more information on the ratings, visit www.ambest.com/ratings.
Source: A.M. Best

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