Financial

Business Editors

OLDWICK, N.J.–(BUSINESS WIRE)–March 31, 2009–A.M. Best Co. has released an online video interview explaining how and why start-up insurance and reinsurance companies receive a rating.

Does A.M. Best assign ratings to start-up companies; the simple answer is yes.

“There is a common misconception in the marketplace in certain jurisdictions and states that A.M. Best does not rate start-ups,” says Anthony Diodato, group vice president. “That goes back decades ago when there was a requirement that a company needed representative operating experience. Since the mid-90s’ that requirement no longer exists and A.M. Best will assign a rating to any company willing to interact and share information with us.

“A.M. Best feels it’s important to get out our opinion to the marketplace,” continues Mr. Diodato. “If it’s to a homeowner buying a policy, someone buying an auto policy, a risk manager or small business owner who is putting their faith in an insurance company, we feel it’s important to give our opinion from an independent source on the ability of that insurance company to meet its obligation to pay those claims.”

In addition, companies have interacted with A.M. Best to obtain a rating; however, the rating has not been made public. “Our position for initial ratings is if the company chooses not to accept the rating, it remains confidential,” says Stefan Holzberger, assistant vice president. “So what the market in many cases doesn’t see is how many management teams come to A.M. Best with a business plan that does not quite generate the rating they want or they need. And, as a result, those ratings do not become published interactive financial strength ratings.”

To learn more about the how and why of rating start-up companies, please view the video interview at http://www.ambest.com/multimedia/StartupRatings.html. A full written transcript of the video is also available on the same Web page.

Also, please access the rating methodologies referenced in the video, “Frequently Asked Questions: Rating Start-Up Reinsurers,” and “Rating New Company Formations.”

A.M. BEST COMPANY

CERTIFIED BY NATIONALLY RECOGNIZED STATISCAL RATING ORGANIZATION (NRSRO)

Oldwick, New Jersey London, England Hong Kong, China

Why is a Best’s Rating Important?

For insurance companies, a Best’s Rating is a strategic tool that can enhance consumer confidence in the organization’s stability, as well as its attractiveness to investors. A rating also enhances an insurer’s credibility with reinsurers; a valuable resource, particularly for insurers entering new markets.

Insurance professionals depend on Best’s Ratings to determine the financial strength and operation of specific insurers, to evaluate prospective reinsurance accounts, to compare company performance and financial condition, and more. A Best’s Rating can influence an agent’s selection of plans to market.

In recent years, ratings also have become an increasingly important factor in consumers’ decisions to purchase insurance. Today’s insurance consumers are well aware of how regional, political and economic instabilities can affect a marginal company. Best’s Ratings provide these consumers with the information necessary for an educated buying decision. In October of 1999, A.M. Best announced that it was offering company ratings and insurer profiles on its corporate Web site free of charge.

A.M. Best Company is committed to maintaining Best’s Ratings as the definitive source for information on the financial condition and operating performance of insurance companies worldwide.

All queries regarding the use of proprietary information or to obtain a licensing agreement or a letter of consent should be directed to:

A.M. Best Company

Office of Intellectual Property

Ambest Road

Oldwick, New Jersey 08858

Phone: 908-439-2200, extension 5644 or email james.peavy@ambest.com

The History of A.M. Best Company

A.M. Best Company, founded in 1899 by Alfred M. Best, has grown steadily over the last century and continues to expand into the new millennium. Since its inception, the company has earned a reputation as The Insurance Information Source®.

A.M. Best Co.was founded with the purpose of performing a constructive and objective role in the insurance industry toward the prevention and detection of insurer insolvency.” This mission led to the development of Best’s Ratings, which are now recognized worldwide as the benchmark for assessing insurers’ financial strength.

Best’s rating opinions reflect an in-depth understanding of business fundamentals garnered from more than 100 years of focusing solely on the insurance industry. This is one reason why insurance industry professionals have consistently ranked Best’s Ratings number one in confidence, usefulness and understanding.

Rapid growth soon necessitated another move in 1974 — this time to the company’s present global headquarters in Oldwick, NJ. With a new wing constructed in 2000, the company doubled in size.

To address the increasing globalization of the insurance industry, A.M. Best expanded into a worldwide operation and established A.M. Best Europe Ltd. in London in 1997 and A.M. Best Asia-Pacific in Hong Kong in 2000.

What started out as financial reporting in the early 1900s has grown to more than 50 publications and services that meet the diverse demands of the ever-changing insurance industry. Today, more than 400 analysts, statisticians and editorial personnel are dedicated to providing the insurance industry with the most complete, accurate and up-to-date financial and operating information.

A.M. Best’s publications and services are produced on a variety of timetables to meet the needs of those who require details on every aspect of the complex insurance field. Statistical background for the publications comes from A.M. Best’s database, the most comprehensive source of insurance company financial and operating figures available. Products are obtainable as printed publications, on CD-ROM and online.

In this ever-changing industry, one thing remains the same — A.M. Best’s commitment to providing timely, accurate and complete insurance information and services that meet the needs of this dynamic industry.

What is a Best’s Rating?

A Best’s Rating is an independent third-party evaluation that subjects all insurers to the same rigorous criteria, providing a valuable benchmark for comparing insurers, regardless of their country of domicile. Such a benchmark is increasingly important to an international market that looks for a strong indication of stability in the face of widespread deregulation, mergers, acquisitions and other dynamic factors.

A.M. Best assigns three types of ratings. All are independent opinions, based on a comprehensive quantitative and qualitative evaluation, of a company’s balance sheet strength, operating performance and business profile. They are not a warranty of a company’s financial strength and ability to meet either its obligations to policyholders or its financial obligations (view complete notice).

• Best’s Financial Strength Ratings provide an opinion of an insurer’s financial strength and ability to meet ongoing obligations to policyholders.
• Best’s Issuer Credit Ratings provide an opinion of an entity’s ability to meet its senior obligations.
• Best’s Debt Ratings provide an opinion for the credit marketplace as to the issuer’s ability to meet its financial obligations to security holders when due.

Our analytical process incorporates a host of quantitative and qualitative measures, including comparisons to peers and industry standards as well as assessments of an insurer’s operating plans, philosophy and management. A complete list of Best’s Rating Methodologies is available and continually fine tuned to reflect ever-changing industry, regulatory and legal developments, as well as changes in underlying business fundamentals

Financial Strength Ratings

A Best’s Financial Strength Rating (FSR) is an opinion of an insurer’s ability to meet its obligations to policyholders. Rating Modifiers and Affiliation Codes may also be associated with these ratings. The following list outlines our rating scale and associated descriptions.

Secure Vulnerable

A++, A+ (Superior) B, B- (Fair)

A, A- (Excellent) C++, C+ (Marginal)

B++, B+ (Good) C, C- (Weak)

D (Poor)

E (Under Regulatory Supervision)

F (In Liquidation)

S (Rating Suspended)

Not Rated Categories (NR) are assigned to companies reported on by A.M. Best, but not assigned a Best’s Rating. The five categories and descriptions are listed below.

NR-1: Insufficient Data

NR-2: Insufficient Size and/or Operating Experience

NR-3: Rating Procedure Inapplicable

NR-4: Company Request

NR-5: Not Formally Followed

Rating Modifiers and Affiliation Codes

A rating modifier can be assigned to indicate that a Best’s Rating may be subject to near term change (under review), that a company did not subscribe to Best’s interactive rating process (public data) and that the rating is assigned to a syndicate operating at Lloyd’s.

Affiliation codes (g, p, and r) are added to Best’s Ratings to identify companies whose assigned ratings are based on group, pooling or reinsurance affiliation with other insurers.

Rating Modifiers Affiliation Codes

u – Under Review g – Group

s – Syndicate p – Pooled

pd – Public Data r – Reinsured

Rating Outlook

Best’s interactive Ratings (A++ to D) are assigned a Rating Outlook that indicates the potential direction of a company’s rating for an intermediate period, generally defined as the next 12 to 36 months.

Financial Size Categories (FSC)

To enhance the usefulness of our ratings, A.M. Best assigns each letter rated (A++ through D) insurance company a Financial Size Category (FSC). The FSC is designed to provide a convenient indicator of the size of a company in terms of its statutory surplus and related accounts.

Many insurance buyers only want to consider buying insurance coverage from companies that they believe have sufficient financial capacity to provide the necessary policy limits to insure their risks. Although companies utilize reinsurance to reduce their net retention on the policy limits they underwrite, many buyers still feel more comfortable buying from companies perceived to have greater financial capacity.

FSC

Adjusted

Policyholders’ Surplus

FSC

Adjusted

Policyholders’ Surplus

I Less than 1 IX 250 to 500

II 1 to 2 X 500 to 750

III 2 to 5 XI 750 to 1,000

IV 5 to 10 XII 1,000 to 1,250

V 10 to 25 XIII 1,250 to 1,500

VI 25 to 50 XIV 1,500 to 2,000

VII 50 to 100 XV 2,000 or greater

VIII 100 to 250

Note: Ranges are in millions of U.S. dollars

Usage of Best’s Ratings

Best’s Ratings are proprietary and may not be reproduced without permission from A.M. Best. Companies assigned a Best’s Rating should review our ‘Guide to Proper Use’ which outlines the proper use of A.M. Best’s proprietary information, specifically Best’s Ratings, AMB Credit Reports – Insurance Professional and Best’s Security Icon.

New insurers in state for less

BY MATT REED, FLORIDA TODAY • December 23, 2008

If you want to pay less for hurricane insurance, it’s time for you to act. You, the consumer. Not the governor or the Legislature or the media. You.

What to do:

• Shop around. Grab the phone book and call for a quote from an independent agent, not one of the big brand names. Independent agents sell policies from a host of new arrivals including Universal, Security First, St. Johns, Cypress, Edison and Olympus.

You can go to FloridaHomeInsurers.com to get quotes. You won’t find the insurers themselves listed in the phone book, so you have to call anagent.

• Get your discounts. No, you didn’t automatically qualify for them when you described your home to your agent. You have to get an inspection, which can be free, and send a separate form to your insurer.

You can save hundreds per year based on the shape of your roof and materials used to build your home — stuff you don’t have to change. To get started, call your company or go online to MySafeFloridaHome.com.

• Check your replacement values. On your policy, they’re the dollar amounts listed for your dwelling, personal property “and other structures.” If they’re too high, you’re paying too much.

One way to know: If your dwelling value looks like market prices in your neighborhood, it’s too high. When you rebuild, you don’t have to pay again for the land, utilities, impact fees or sales commissions.

Get honest info

But will you get honest information when you shop for hurricane insurance? Readers have relayed some lulus from agents:

• The new insurers competing in Florida aren’t rated and don’t have money to pay claims.

• Your home’s “contents” coverage is dictated by the state and you can’t change it.

• You have to buy hurricane coverage with your policy, even if you own your home outright.

I ran those statements past the state Office of Insurance Regulation, which described them as “unfair” or “false.”

Tom Zutell, deputy communications director, said the host of new property insurers – which have offered lower prices and picked up thousands of former Allstate, State Farm and Nationwide customers — comply with “the most rigorous standards in the nation” for ensuring that companies can pay claims after a catastrophe.

“We have an entire division of employees who do nothing but monitor companies’ solvency and keep a constant eye out for any indication a company may be experiencing financial difficulty,” Zutell said.

Some companies are so new, they do not yet have ratings from commercial agencies, he said. But consumers can check ratings for free at Demotech.com or AMBest.com.

I checked Demotech Inc. ratings for four relatively new arrivals — St. Johns, Security First, Royal Palm and Universal Property & Casualty. All had “A” or “Excellent” ratings .

Understand ratings

But understand that Demotech ratings differ from ratings by other companies such as A.M. Best and Moody’s.

Those services measure a broader range of factors that can include depth of reserves, company age, profitability and diversification across regions and lines of insurance. If you can get an affordable policy with an “A+” rating from A.M. Best, take it.

But new Florida-based companies that specialize in homeowners’ insurance and rely on backup “reinsurance” to pay hurricane claims stand little chance with the agency.

Demotech focuses primarily on a company’s ability to remain solvent and pay claims in a crisis.

And remember, no rating predicts how quickly an insurer — big or small — will send an adjuster to accurately pay you.