S&P lowers Atlantic Mutual

Standard & Poor's said it lowered its 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) to BB+ from BBB.

S&P also lowered its surplus note rating on Atlantic Mutual Insurance Co. to B+ from BB+.

At the same time, all the ratings were removed from CreditWatch where they were placed on Dec. 5, 2003, following Atlantic Mutual's announcement that it had agreed to sell most of its remaining commercial lines business to OneBeacon Insurance Co.

The outlook is stable.

"The downgrades are based on the less diversified business position of the company following its exit from commercial lines, a substantial decline in surplus driven primarily by reserve strengthening, uncertainty regarding the adequacy of reserves for the discontinued commercial lines business, low interest coverage prospectively, and minimal financial flexibility," said S&P credit analyst John Iten. "Another factor is the high proportion of surplus derived from surplus notes and surplus generated by reinsurance transactions."

S&P said these concerns are offset to some extent by the continued support of Atlantic Mutual's agents in placing business with the company, good capitalization relative to its ongoing book of personal lines business, and a high-quality investment portfolio.

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