Fitch lowers Atlantic Mutual notes

Fitch Ratings said it affirmed the BBB- insurer financial strength ratings of the Atlantic Mutual Cos. and downgraded Atlantic Mutual Insurance Co.'s surplus note rating to B+ from BB-. In addition, all ratings have been removed from Rating Watch negative.

The outlook is negative.

Fitch said the downgrade of the surplus notes reflects Atlantic Mutual's negative interest coverage in 2003 and expectations of modest coverage for 2004 and 2005. The downgrade also considers the company's high, and increasing, financial leverage as surplus notes now represent about 36% of Atlantic Mutual's surplus at year-end 2003.

Additionally, Atlantic Mutual continues to unwind various finite risk reinsurance policies upon which it had previously relied to support earnings and surplus. Although unwinding these contracts will cause the company to recognize some current period accounting losses, Atlantic Mutual's economic profits will be better without them in the long run and the quality of its reported earnings will be much better, Fitch said.

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