A.M. Best Downgrades Ratings of Merchants Insurance Company of New Hampshire, Inc.; Removes From Under Review

Business Wire, May 16, 2007

OLDWICK, N.J. -- A.M. Best Co. has downgraded the financial strength rating (FSR) to B (Good) from A- (Excellent) and issuer credit rating (ICR) to "bbb-" from "a-" of Merchants Insurance Company of New Hampshire, Inc. (Merchants New Hampshire). The FSR and ICR have been removed from under review with negative implications and assigned a stable outlook. These rating actions are to correspond with Merchants New Hampshire's newly formed group, American European Insurance Group. A.M. Best has also assigned an FSR of B (Good) and an ICR of "bbb-" to American European Insurance Group. The outlook assigned to these ratings is stable.

Additionally, A.M. Best has affirmed the FSR of B- (Fair) and assigned ICRs of "bb-" to Rutgers Casualty Insurance Group and its member, Rutgers Casualty Insurance Company. The outlook for the FSR has been revised to stable from negative, while the outlook assigned to the ICRs is stable. Rutgers Casualty Insurance Company is a wholly-owned subsidiary of Merchants New Hampshire. All companies are headquartered in Cherry Hill, NJ. (See below for a detailed list of the companies and ratings.)

The downgrade of Merchants New Hampshire's ratings is based on significant execution risk in the management and integration of Merchants New Hampshire on a going forward basis following its March 30, 2007 purchase by American European Group, Inc. Merchants New Hampshire will likely be challenged to maintain its premium volume going forward, as the company sold the renewal rights of its in-force policies to a former affiliate, Merchants Mutual Insurance Company, which could terminate its pooling agreement with Merchants New Hampshire as early as December 31, 2009. Furthermore, Merchants New Hampshire maintains a high underwriting expense ratio, primarily due to an above average commission structure, overhead costs and a reduction in premiums due to a lower pooling percentage.

Finally, although underwriting results have improved in recent years, Merchants New Hampshire's long-term underwriting results have been unfavorable due to increased loss severity trends, the use of scheduled credits, localized weather patterns given its heavy northeast orientation and a high expense ratio.

Offsetting these rating factors are Merchants New Hampshire's moderate underwriting leverage, conservative investment risk profile and improving underwriting results in recent years. The underwriting results have recently benefited from favorable loss reserve development, various underwriting actions implemented to improve profitability and lower than normal storm activity. Furthermore, the ratings acknowledge Merchants New Hampshire's pooling, underwriting and claims servicing agreements with Merchants Mutual Insurance Company, which should continue until at least 2009.

The FSR has been downgraded to B (Good) from A- (Excellent) and the ICR has been downgraded to "bbb-" from "a-" for Merchants Insurance Company of New Hampshire, Inc.

An FSR of B (Good) and an ICR of "bbb-" have been assigned to American European Insurance Group.

The FSR of B- (Fair) has been affirmed and the ICRs of "bb-" have been assigned to Rutgers Casualty Insurance Group and its member, Rutgers Casualty Insurance Company.

Founded in 1899, A.M. Best Company is a full-service credit rating organization dedicated to serving the financial services industries, including the banking and insurance sectors. For more information, visit www.ambest.com.