Atlantic Mutual Faces Moody's Downgrade

The commutation is expected to cause a $64.5 million statutory surplus hit in the third quarter according to Moody's.

"This risk is especially pronounced with respect to payment of interest on the company's surplus notes, which require regulatory approval," the agency noted.

The following ratings were placed under review for possible downgrade: Atlantic Mutual Insurance Company-surplus notes at B1, insurance financial strength at Baa3; Centennial ? insurance financial strength at Baaa3; Atlantic Lloyd's Insurance Company of Texas-insurance financial strength at Baa3.

Moody's said the review will conclude after studying the third party audits of the company's reserve situation.

Atlantic Mutual officials expressed confidence that the year-end performance, both in terms of the commercial loss reserve development and the personal lines business. will improve so that no downgrade will be forthcoming.

"Commercial loss reserves have shown stable development through the first six months of 2004 based on our internal analysis," said Atlantic Mutual chief financial officer Rich Hertling. "We anticipate that an independent actuarial review at year-end will confirm reserves as adequate."

Over the past year, the company has exited commercial lines to focus on the affluent end of the personal lines market.

Mr. Hertling noted that premium levels for its personal lines business remains on track for the year.