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A.M. Best Places Ratings of PMA Capital Corporation and Its Subsidiaries Under Review with Negative Implications


Posted on 03 Jun 2009

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OLDWICK, N.J. June 02 (BestWire) — A.M. Best Co. has placed the issuer credit rating (ICR) of “bb” and the existing debt ratings of PMA Capital Corporation (PMA Capital) (Blue Bell, PA) [NASDAQ: PMACA], under review with negative implications. Concurrently, A.M. Best has placed the financial strength rating (FSR) of A- (Excellent) and ICRs of “a-” of the subsidiaries of PMA Capital, PMA Insurance Group (PMA) (Blue Bell, PA) and its pooled members, Pennsylvania Manufacturers’ Association Insurance Company, Pennsylvania Manufacturers Indemnity Company and Manufacturers Alliance Insurance Company, under review with negative implications.

Additionally, the FSR of C++ (Marginal) and ICR of “b” for PMA Capital Insurance Company (PMACIC) (Philadelphia, PA), the run-off operations of PMA Capital, remain under review with negative implications. (See below for a detailed listing of the companies and ratings.)

These rating actions reflect the shortfall in overall capitalization at PMACIC, concern over the sale of the run-off operations and potential ongoing exposure to PMA Capital upon the sale closing. Additionally, while operating results have improved in each of the past five years and the capital at PMA is currently adequate for its rating level, risk-adjusted capital ratios have decreased in the past two years. This decrease is due to business growth in 2007 and an investment portfolio of unrealized losses at year-end 2008. Furthermore, any negative deviations from projected underwriting or investment performance, including any further decline in valuations from its investment portfolio, could result in additional rating pressure. All ratings will remain under review pending A.M. Best’s review of management’s plan to improve PMA’s overall capitalization and liquidity, the successful execution of the capital funding and resolution of the sale of PMACIC.

While PMA Capital has historically provided access to capital, the under review status reflects A.M. Best’s concern with the parent’s ability to improve overall capitalization of its subsidiaries given its limited financial flexibility. Furthermore, the ongoing cost of interest payments on existing debt, combined with other holding company obligations and the potential future funding requirements more that offset PMA Capital’s current sources of income.

The FSR of A- (Excellent) and ICRs of “a-” have been placed under review with negative implications for PMA Insurance Group and its following members:

— Manufacturers Alliance Insurance Company
— Pennsylvania Manufacturers’ Association Insurance Company
— Pennsylvania Manufacturers Indemnity Company

The ICR of “bb” has been placed under review with negative implications for PMA Capital Corporation.

The following debt ratings have been placed under review with negative implications:

PMA Capital Corporation—

— “bb” on $54.9 million 8.5% senior unsecured note, due 2018
— “bb” on $45,000 4.25% senior unsecured convertible debentures, due 2022
— “bb-” on $64.44 million variable rate junior subordinated debt, due 2037
— “bb+” on $10.0 million variable rate surplus note, due 2035

The FSR of C++ (Marginal) and ICR of “b” remain under review with negative implications for PMA Capital Insurance Company.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit http://www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at http://www.ambest.com/ratings/methodology. BN-NJ-06-02-2009 1635 ET #


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