A.M. Best Downgrades Atlantic Mutual Companies

These downgrades reflect the ratings agency's ongoing review of the insurer's recent restructuring and capital enhancement strategies. Best also observed that its ratings downgrade follows Atlantic Mutual's selling of its subsidiary Atlantic Specialty Insurance and the renewal rights to the majority of its commercial-lines business to the Boston-based OneBeacon Insurance Company last March.

In its announcement, Best said that its ratings actions took into account Atlantic Mutual's reduced capitalization stemming from its significant reserve strengthening in the 2003 fourth quarter.

Best also expressed its concerns regarding the potential for continued adverse loss reserve development within the insurer's sizable commercial-lines reserves, as well as the uncertainty regarding the insurer's future profitability.

"In each of the past five years, adverse loss reserve development has contributed to substantial underwriting losses," Best observed.

Best noted that, "While largely related to commercial lines?now in run-off?adverse reserve development in private passenger automobile lines was reported in 2003. Combined with substantial catastrophe losses, the Atlantic ended 2003 with substantial underwriting losses in its core personal lines operations."

Best further explained that its downgrades reflect the Atlantic Mutual's substantially scaled down operations as a personal-lines insurer focusing on the affluent market, and its ability to generate future earnings and accumulate capital.

"This takes into account its historically weak underwriting performance and operating results in personal lines, continued earnings drag?albeit declining?associated with interest expense on funds-held reinsurance and surplus notes and the potential for continued adverse prior-year loss reserve development," Best said.