Atlantic Mutual Cos. Ratings Fall on CreditWatch

Standard & Poor’s has placed its ‘BBB’ counterparty credit and financial strength ratings on Atlantic Mutual Insurance Co., Centennial Insurance Co., and Atlantic Lloyds Insurance Co. of Texas (collectively referred to as Atlantic Mutual) on CreditWatch with negative implications.

At the same time, Standard & Poor’s placed its ‘BBB’ counterparty credit and financial strength ratings on Atlantic Specialty Insurance Co. on CreditWatch with developing implications.

These rating actions reflect Atlantic Mutual’s announcement that it is selling its commercial lines business to OneBeacon Insurance Co. (OneBeacon). As part of this transaction, OneBeacon will purchase Atlantic Specialty. In 2002, Atlantic Specialty had a 2 percent participation in the Atlantic Mutual Intercompany pool.

The sale of the commercial lines business, combined with the previously announced sale of Atlantic Mutual’s marine division to Travelers Property Casualty Corp., means the company is exiting lines that in 2002 constituted 80 percent-85 percent of its direct premiums, leaving Atlantic Mutual a much-smaller, less-diversified writer of personal lines business. Both transactions involve the sale of unearned premiums and renewal rights, leaving Atlantic Mutual with the challenge of managing the runoff of claims reserves associated with the older, less-profitable business for which significant reserve strengthening has already occurred.

Outlook

Standard & Poor’s plans to meet with management in the near future to discuss the impact of this most recent transaction on capitalization, including the adequacy of reserves for lines now in runoff and the status of certain financial reinsurance transactions used to bolster surplus in recent years. Standard & Poor’s will also discuss the company’s new business strategy and projected earnings and cash flow from this sharply reduced business platform. As part of these discussions, Standard & Poor’s will review the company’s plans for servicing its $115 million of outstanding surplus notes. The CreditWatch status of Atlantic Specialty is expected to be resolved after its sale and following discussions with OneBeacon management regarding the integration of this company into OneBeacon.